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On Monday I mentioned that it pays to shop around for the lowest price. This skill is specially important when making large money decisions. You should always shop around when purchasing a car, obtaining a mortage, or hiring a contractor. We’ve discussed getting the best deal on a car before. We’ve touched on mortgages, and are sure to discuss them more in the future. Today I want to share my approach to finding a contractor.

The New Roof
We bought our first house in the spring of 1993. The roof was in bad shape and needed to be replaced before we could close the deal. Fortunately, we had a good working relationship with the seller: he offered to grant us a $2,000 credit if we would take care of finding a roofer.

I had never done anything like this before, nor had any of my friends. I looked in the phone book and found a local roofer. When I called, he could sense that I was confused, so he talked me through the process, asking about the size of the house, the slope of the roof, the material we wanted to use, the condition of the existing shingles. He gave me a quote of $2300.

I called two more places. One quoted $2500 and the other quoted $1800. But the last place couldn’t do the roof repair for three weeks. Three weeks!?! I needed it done by the following weekend. This was getting complicated.

I got out a sheet of paper and made a list.

Company Cost Lead Time Notes
Johnny B. Goode $2300 5 days local guy
Golden Shingles $2500 3 days
ABC Roofing $1800 21 days no weekends

I spent my lunch-breaks during the next two days calling roofing contractors. When I was finished, I had a list of twenty bids. The lowest quote was $1200; the highest was $4800. (I’ve never figured out why that bid was so out of range.)

I had created this list on a whim, but found it invaluable. After eliminating from consideration those contractors who couldn’t meet the time-frame and those that would not offer a strong enough guarantee, I had a list to six or seven potentials. The contractor I hired did not offer the lowest price, but he:

  • ran a family business like mine
  • was willing to answer my questions
  • offered a $500 reduction if I helped on the project (he was short-handed)

Though this contractor wasn’t the cheapest, the $1800 net cost was relatively low. A friend and I spent a long weekend ripping off old shingles and nailing down new ones. It was hard work. I learned something about roofing in the process, and for the decade we lived in that house, I was filled with a sense of pride whenever I had to climb on the roof to clean the gutters.

In the summer of 2006, we had to repair a section of the roof on our current home. We didn’t call twenty contractors this time, but we did call half a dozen. Again there was wide disparity in the bids: they ranged from a low of $300 to a high of $3000. We chose a company that quoted $800, but which seemed to understand what we wanted.

The Bathroom Remodel
When we bought this house, we knew that the bathroom would have to be remodeled. It was a mess, filled with eighty years of shoddy add-ons:

  • The shower stall was huge, and dominated the room.
  • The plumbing and electrical work were not to code.
  • There was minimal lighting.
  • You could see through to the basement in one section of the floor.
 

We went to the Portland Home & Garden Show to get ideas. There we found a company whose work we loved, and invited them to bid. They gave us an estimate of $34,000. That was more than twice what we had planned to pay.

Kris found a web site that matched jobs with contractors, and it paired us with a fellow who gave us a bid of $15,000. That was exactly at our budget (probably because we had to tell the web site what our budget was), but we weren’t confident that this contractor was listening to what we wanted. He didn’t seem competent.

One of Kris’ co-workers recommended another contractor. We met with him, liked him immediately, felt he was playing fair with us, and were pleased that he could meet our timeline. He quoted us $18,000 — $21,000 if we did everything to code and got all the permits, etc. We chose the latter option.

In retrospect, we probably could have spent more time to find a lower bid. But we were pleased with the final results, and plan to hire this contractor again in the future.

Conclusion
When you shop around for groceries, you can save maybe $1 on a loaf of bread. When you shop around for a plasma television, you might save $200. But when you shop around for big-ticket items, you can save thousands of dollars.

Some people feel guilty asking a company for a price quote and then not using them. Don’t. That’s how it works. The company isn’t offended. They quote similar jobs every day. Sometimes they get the work — sometimes they don’t. Your priority is finding a company that you can trust to do the work at a reasonable rate.

When comparing prices, be sure you match apples to apples. The deal from Rock Bottom Cabinets might not be so impressive if they don’t offer any sort of guaranty on their workmanship. Consider the following when making your decision:

  • Reputation — Ask for references. Check the references. Better yet, search the web. (Angie’s List is a good source for information on contractors.)
  • Reliability — Is the company licensed and bonded? Registered with the state contractors board? Do they offer a warranty?
  • Schedule — It’s no use taking the lowest bidder if the company is unable to complete the project on your timeline.
  • Quality — Try to get a sense of the quality of each contractor’s workmanship. Those who bid on our bathroom remodel brought photo albums to show us. The low bidder didn’t.

You can also save money by doing some of the work yourself, but that’s a subject for another day!

Source: getrichslowly.org

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RealtyTrac has released a new report that identifies potential bubble markets based upon three early warning signs.

There has been increased fear of another housing bubble for a while now, with some markets already identified as bubbles and others supposedly suffering from an affordability crisis.

Signs of a possible housing bubble include the following:

– A market that was less affordable in October 2014 than its peak price during the previous bubble between 2005 and 2008
– A market that was less affordable in October 2014 compared to its historical average since 2000
– A market with a rising foreclosure rate on loans originated this year compared to last year

Overall, the price of a median-priced home required 26% of median income in October in 475 counties nationwide.

This compares to a historical average of 28% going back to January 2000, and is still well below the 41% average seen in each county’s peak month during the most recent housing bubble.

In fact, just six counties were deemed less affordable in October than during their peak between 2005 and 2008, thanks in part to higher incomes and low mortgage rates.

The short list includes Suffolk County, Massachusetts, Travis County, Texas, Jefferson County, Alabama, Brazos County, Texas, Allegan County, Michigan, and Montgomery County, Tennessee.

These counties correspond to the metro areas of Boston, Austin, Birmingham, College Station, Grand Rapids, and Clarksville.

However, 21% of counties nationwide are now less affordable than their historic averages, including hot spots like Los Angeles, Orange County, San Francisco, Dallas, San Antonio, and even parts of Detroit.

Meanwhile, 37% of counties are reporting rising foreclosure rates on loans originated this year compared to last, including places like Chicago, San Diego, Brooklyn, Miami, Las Vegas, and Seattle.

And six percent (30%) of counties are both unaffordable by historic measures and experiencing rising foreclosure rates on recent loans.

This combined problem list includes places like the San Francisco metro area, Suffolk County, Orange County, Honolulu, Denver, the St. George, Utah metro area, and the Bend, Oregon metro area.

RealtyTrac vice president Daren Blomquist noted in the report that affordability and foreclosure rate by loan vintage are key metrics that help determine if a certain market is at risk of another pricing bubble.

He added that about 20% of markets have now surpassed their historical affordability norms, a “strong sign” that a bubble is forming or that appreciation will soon plateau until wages have a chance to catch up.

The fact that foreclosure rates are rising on new loans could be an indication that affordability is once again a concern as buyers stretch themselves too thin.

12% of Counties Have Reached New Home Price Peaks

In October, a total of 58 counties had higher median home prices than their prior peaks seen in 2005 to 2008.

The usual suspects made this list too, including San Fran, New York, Boston, and Denver, along with Charlotte, Raleigh, and Buffalo.

However, low interest rates are keeping homes in these highly sought-after areas affordable. But if rates rise and home prices continue to climb, the story could change in a hurry.

But nearly half (48%) of counties nationwide are still historically affordable and experiencing flat or declining foreclosure rates. So the whole nation isn’t yet at risk of another housing bubble.

The most affordable regions include Lansing, Syracuse, Cincinnati, Atlanta, and Buffalo.

There’s clearly some divergence in terms of affordability and home price peaks. Put another way, some areas of the country are experiencing new all-time highs but are still historically affordable.

The concerning thing is the unaffordable places, especially at a time when interest rates have never been lower. It doesn’t bode well for them or those at new highs, unless interest rates stay low forever.

Read more: When will the next housing crash take place?

Source: thetruthaboutmortgage.com

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For all intents and purposes, the average 30yr fixed rate at the average lender is as high as it’s been since November 2022.  The number itself as far as we see it is 7.10 which means most lenders are quoting 7.125% after adjusting for discount points (or just “points” for short).

For example, a borrower could opt to pay just over 1% of the loan balance upfront in order to drop the rate to 6.625%.  Some lenders are quoting 6.625% with that extra upfront cost.  Others are quoting 7.125% without the extra cost.  

The upward momentum in rates didn’t draw on any specific news or developments today.  Rather, markets are bracing for impact from upcoming economic data as well as tomorrow’s announcement of the latest borrowing amounts from the US Treasury.  

Treasury issuance matters because Treasuries are one of the most important determining factors for interest rates in the U.S. The more that are issued, the lower the price and the higher the yield/rate.  Analysts know the amounts will be going up and markets are nervous and uncertain about the amount of the increase. 

Once that’s resolved, and if the week’s remaining economic data paints a cooler picture for the economy, rates could easily recover.  On the other hand, if the data is upbeat and if Treasury issuance rises more than expected, the upward momentum will continue. 

Source: mortgagenewsdaily.com

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For some buyers, it may make sense to buy a home now and refinance it to a lower rate in the future.

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While inflation is cooling, interest rates remain high, which puts a damper on Americans’ plans to buy a home or refinance their existing mortgages. The natural question many homeowners are asking themselves in this economic climate: Should I buy a home now at high rates and refinance later, or should I wait for rates to fall? We posed the question to several real estate and mortgage professionals and educators, and their answers may surprise you.

If you’re considering buying a new home or refinancing your current one it helps to know what rate you may qualify for. Find out here now!

When buyers should buy now and refinance later

Robert Johnson, a professor at Heider College of Business at Creighton University, points out that purchase price and mortgage rate are the two primary financial factors potential homebuyers consider when buying a home, but there’s a critical distinction between the two.

“What many fail to understand is that only one—mortgage rate—can be renegotiated,” says Johnson. “Once a home is purchased, you can’t renegotiate the purchase price. What this means, in my opinion, is that if you find a home you believe is priced attractively, I would be more apt to pull the trigger than if mortgage rates are attractive and home prices seem high. In financial terms, you have optionality for the remainder of your mortgage to renegotiate terms. You don’t have that option with a purchase price.”

As the saying goes, “Marry the home, but date the rate.”

Additionally, you may experience other unique benefits if you buy a home in the current climate. “Buyers who are in the market while interest rates are high may have certain advantages that they otherwise wouldn’t, such as less competition and more negotiating power,” states Afifa Saburi, senior researcher at Veterans United Home Loans. “While they still have the option to refinance, potentially more than once throughout their 15- or 30-year mortgage term, they also have the opportunity to build equity and wealth.”

As with many financial questions, the answer may not be cut and dried, as it will depend on your financial situation and forces outside your control. For example, it’s hard to consider mortgage rates in a financial decision when it’s unclear which direction they will move.

Regarding whether to buy now and refinance later or adopt a wait-and-see approach to , economist Peter C. Earle from the American Institute for Economic Research says it’s hard to predict. “Typically, the rule of thumb is that one wouldn’t finance unless the new mortgage rate to lock in is at least 0.75% to 1% lower than the established rate,” says Earle.

“The Fed has jawboned exhaustively about their intention to keep rates at present levels once their hiking campaign is over, but if the U.S. enters a recession, it’s not at all clear that they won’t drop rates. That’s been their playbook since the Greenspan era,” said Earle, referring to Alan Greenspan, the former chairman of the Federal Reserve of the United States.

Not sure what purchase rate you would qualify for? Explore your rates and options here now to learn more.

When buyers should wait until rates drop back down

No matter when you buy a home, the decision should be based on sound financials, namely, whether you can afford the payments and how long you plan on staying in the home long-term.

Brian Wittman, owner and CEO of SILT Real Estate and Investments, cautions: “I don’t believe in the philosophy that buying now and refinancing later is the best course of action. We’re still not sure of the direction of the housing market, including both property values and interest rates. The problem with this particular philosophy is that buying now and hoping that interest rates go down to make your payment better is bad financial planning. If you can’t really afford the payment now, you’ll be overpaying while you wait and hope for interest rates to drop.”

For existing homeowners, the decision to buy now and refinance later, or wait until mortgage rates fall, may come down to your existing home’s mortgage rate. “In general, I’d suggest not selling or refinancing your home if the rates are higher than your existing mortgage, especially if you want to purchase a new house,” advises Michael Gifford, CEO and co-founder at Splitero.

Check your mortgage refinancing rates here to learn more.

The bottom line

If you’ve decided to take out a mortgage now, but have concerns about locking yourself into a high rate, consider getting a mortgage with a float-down option. This feature allows you to lock in your interest rate while also allowing you to take advantage of a lower rate within a specific period.

Not sure whether to buy a home now and refinance it later, or wait for mortgage rates to drop? It may help to know there are other alternatives worth considering. One option is to make improvements to your home using funds from a home equity loan or home equity line of credit (HELOC). Tapping into your home equity to upgrade your property may increase its value.

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Source: cbsnews.com