Real Estate 2014: The New Wisdom

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By Beth Pinsker

When the housing bubble burst, a damage-control mentality replaced decades of conventional real estate wisdom. With the housing market now rebounding, there is still uncertainty. The old rules -- such as getting a fixed-rate mortgage and refinancing when you can -- don't apply. But the post-bust rules don't work either. "There's a new, new emerging wisdom," says Erin Lantz, director of the Zillow Mortgage Marketplace for the Zillow.com real estate site (an AOL Real Estate partner).

Here are some of the new twists real estate experts see for 2014:

Old:Interest rates have to go up, so you better act quickly to make a purchase.

New:Interest rates are not going to zoom in any particular direction, so take your time.

"The one thing we can say with certainty is that rates will go up and down," says Keith Gumbinger, vice president at HSH.com, a mortgage information website. When they will rise and fall, and by how much, is an open question.

Gumbinger says some people are rushing into home purchases or refinancing because they've panicked, applying the conventional wisdom that interest rates will climb.

But Gumbinger says before you buy, focus on the long-term value of the property to determine whether it's worth getting into a 30-year mortgage.

Even though nearly 90 percent of recent mortgages have been 30-year fixed mortgages, people should consider shorter-term loans -- if they can afford the payments -- and even adjustable rates, adds Zillow's Lantz. "The reality is that most people don't stay in a house for 30 years, so they're taking on more debt than they need," he says.

Old:Refinance now!

New:Do the math.

"If you hear somebody saying 'You have to refinance,' that might not be true," says Ilyce Glink, publisher of thinkglink.com, a real estate information site.

Glink suggests that you ask these four questions to evaluate your options: Will this lower my interest rate? Will it lower my loan payment? Will it result in a shorter loan term? Can I manage the closing costs?

You can do the math with online calculators.

If the answer is "Yes" to all four, then it's a home run. If you meet only three, then you're probably OK. Less than that, you need to rethink your plan, according to Glink.

Old:A house is a goldmine.

New: Rent if you're not going to stay put.

There are dozens of calculators on the web that will help you figure out whether you should rent or buy, but that equation has still gotten many people stuck with mortgages that are larger than their houses are worth over the last few years.

For one thing, most calculators rely on the assumption that the average American stays in a home for seven years. But that may be wrong now, says Jed Kolko, chief economist of Trulia.com.

Based on the latest census data, his team calculates this average is now at eight-and-a-half years, though it varies by demographic. Because of employment conditions, Kolko advises anyone younger than 40 to consider their career stability before locking into a home purchase.

"The shaky job market for young people means they can't count on staying put for many years," he says.

Glink says the time frame should really be more like 10 years. If you think you're going to stay put at least that long, then buying is a good idea, because you'll at least break even and maybe even profit, depending on your situation.

"Could you make more in the stock market? Maybe. But you don't live in the backyard of your IBM stock certificate," Glink says.

In a long-term situation, buying a house has intangible benefits of putting down roots in a community and being able to do as you wish with the property.

Old:Pre-pay your mortgage to get rid of debt sooner.

New: Try a shorter mortgage.

It was long a bedrock of personal finance advice that people should try to pay off their mortgages early to save thousands of dollars in interest payments -- typically by adding in a 13th payment in a calendar year or doubling the principal payment. But when mortgage rates dropped, this stopped making sense for people who had debt with higher interest rates.

"There are qualifications to this that weren't there 10 years ago," says Glink.

You want to pay highest-rate debt first, says Glink. Weigh the mortgage interest tax deduction, if you claim it, but pay off non-deductible debt first.

If you are fortunate to have only a mortgage, along with money for extra payments, try to shorten the length of your mortgage by refinancing to less than 30 years, says Lantz.

NEW LAWS HITTING HOME IN 2014:
11 PHOTOS
New Laws Affecting Homeowners in 2014
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Real Estate 2014: The New Wisdom
Under Dodd-Frank, on Jan. 10 mortgage lenders are given more responsibility for making sure that borrowers have the ability to repay loans. The eight areas subject to more scrutiny by lenders are borrowers' income or assets; employment; projected monthly mortgage payments; payments on other loans; other monthly mortgage-related costs; other debts, alimony and child support; debt-to-income ratio or residual income; and credit history. Lenders are also banned from charging upfront fees or points greater than 3 percent of the loan and for selling mortgages that include negative amortization; interest-only periods; terms longer than 30 years; and rapidly increasing "balloon" payments.
Though some property owners have been affected already, many more who've been buying federally subsidized flood insurance will likely see their rates go higher, and in some cases multiply -- unless a bipartisan effort to postpone the increases gains more traction in Congress. And those property owners would be joined by many others in newly designated flood-prone zones.
Incandescent light bulbs of 40 watts or more are headed for the collectibles market as they're banned from being manufactured, starting in 2014. For an equivalent amount of light, the alternatives include the now-familiar CFLs and the more recent vintage (and more expensive) LEDs.
After a three-year transition period that redefined what "lead-free" means, on Jan. 4, 2014, the maximum amount of lead that can be in newly installed plumbing products that carry drinking water is reduced from 8% to 0.25%.
The legalization of cannabis in Colorado means that starting in 2014 a resident can cultivate up to six marijuana plants consisting of "three or fewer being mature flowering plants ... provided that the growing takes place in an enclosed, locked space, is not conducted openly or publicly, and is not made for sale." (So leave the cannabis out of your curb-appeal landscaping.) However, it will be permitted to smoke marijuana on your front porch in Denver despite recent efforts there to ban that. But on the flip side, Colorado property owners can also bar others from growing or even possessing marijuana on their property.
Advocates for landlords and tenants in New Hampshire have combined to come up with a way to get rid of the bedbugs first and figure out who bears the cost later. Landlords will be responsible for acting to eliminate the pests within a week of being informed by tenants of a bedbug problem, and landlords will pay initially. But if the renters are found to be responsible for the bugs, they might have to reimburse landlords for the eradication. The new rules are designed to counter the kind of landlord-tenant dispute that can lead to further infestation as it drags through court, reports The Associated Press.
In California, businesses other than utility companies must get the consent of individual consumers before being allowed to share data about customers' energy use that was collected from smart meters. Even if the non-utilities are able to gain consent, though, they'll need to take appropriate measures to keep the data secret from unauthorized users.
Also in California, if you're a business owner, the state will be able to put a lien on your house or other real property for payment of fines or back wages.
Texas will require the fingerprinting of those applying for or renewing licenses as architects, as part of a criminal-background check. It will be the only U.S. state with such a requirement, according to The Architects Newspaper. The reason? David Lancaster, senior advocate of Texas Society of Architects told the paper that "the legislature became convinced that if there was an individual licensed by the state who had access to someone's kids, to their house, to their money, or to drugs or explosives, then steps needed to be taken to do a more thorough background check."
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More about real estate in 2014:
Why You'll Likely Pay More for Housing in 2014
Zillow Housing Outlook: Mixed Forecast for 2014's Market
Housing Market 2014: What Buyers, Sellers Should Brace for Now

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