Real Estate Weekly: February 17, 2023

FACTORS THAT CAN AFFECT HOME CONSTRUCTION COSTS PAGE 5

INTEREST RISES IN FAMILY MORTGAGE PAGE 7

CLASSIFIEDS

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FEBRUARY 17, 2023

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Real Estate Stat 2.3%

The average price of single-family homesrose 2.3% in December 2022 for existing-home sales, compared to the year prior of December 2021.

Old world charm unites with modern updates in this welcoming home near to schools, parks & all things Anacortes! Enter into stunning living with custom hybrid fireplace surrounded by built in shelving & lovely bay window perfect for reading a favorite book. Living flows to dining with slider to back. Kitchen is a chef’s dream featuring Starmark premium cabinetry, high end SubZero & Wolf appliances & a large island ideal for meal prep or casual dining. Combine this amazing main-level living with the house next door, 1405 15th Street, for rental income and you have the perfect situation in the perfect location. The shared patio with hot tub and hobby shop would make for ideal entertaining of friends. Homes can be purchased together for $1,285,000 (MLS# 2032909) or separately 1401 15th Street offered at $800,000 (MLS#2030836), 1405 15th Street offered at $485,000 (MLS# 2038037).

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Record-low interest rates is renewing interest in the housing market for many people.

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Let us help you meet your marketing goals by advertising your listings in Real Estate Weekly.

Factors that can affect home construction costs

By Erik J. Martin CTW Features

Runaway inflation has taken a toll in recent years on everything from groceries to consumer electronics to what you pay at the gas pump. And home construction expenses are no exception.

Consider that the average price tag for materials to construct a single-family residence skyrocketed 42% between 2018 and 2021, contributing thousands of dollars to the price of a new property, per a 2022 report by Bank of America. Remodeling costs have spiked significantly over the last year, too, causing 43% of homeowners polled in 2022 by Hippo Insurance to indicate that

inflation has caused them to delay planned home improvement or maintenance projects.

Let’s face facts: Residential construction projects can quickly exceed your budget if you’re not careful, especially nowadays with the cost of building materials consistently going up, labor remaining in short supply, and supply chain challenges persisting. That’s why it’s crucial to look closely at different factors that can impact home construction/ renovation costs before pulling the trigger.

“Building a new home or a significant remodel is typically among the most expensive purchases made in a person’s lifetime,” says Jeremy Baker, co-owner

of Letter Four, Inc., a Los Angeles-based design-build firm. “If not properly budgeted, a project like this can put a homeowner in deep debt without the ability to reasonably repay, resulting in stress and potential loss of the property.” By carefully calculating and considering construction expenses early in the project, you’ll have better peace of mind about what the project will likely cost and can make more informed decisions about how to allocate your finances.

“There are several factors that can dramatically affect construction costs, including the size and complexity of the project, the materials and finishes

used, the location of the property, and the cost of labor,” points out Filippo Incorvaia, CEO/broker at FI Real Estate in Miami.

“Costs related to building new from scratch can also include land acquisition expenses, site preparation costs, and any necessary permits or fees.”

Remodeling price tags can be affected by the extent of the changes being made as well as any structural changes or updates to crucial systems like plumbing or electrical.

“The size, scope, and level of detail involved in the project can have a major impact, potentially increasing costs by 20% to 30%.

Materials and finishes chosen make a difference too,

construction costs generally being higher in urban areas versus rural locations,” says Incorvaia. “And the cost of labor can vary depending on the region and availability of skilled workers, potentially increasing your costs by 10% to 20%.”

Baker notes that soft costs, such as architectural fees, structural and other consultant fees, permits, and other city fees, can quickly add up as well, contributing 20% to 30% of the total construction budget, depending on the size and complexity of your project.

with higher-end materials potentially increasing costs by up to 50%,” Incorvaia continues.

Indeed, materials like lumber, concrete, roofing, and finishes will vary significantly based on factors like location, availability, and quantity. Collectively, they can often represent more than half of your total budget.

“The style of your home can further affect what you pay. For example, a modern style home, even though it appears simpler, is usually more expensive to build than a more traditional home design,” says Ryan Jantz, co-founder of Proteus Homes in San Diego.

The location of the property matters, too, “with

“Plus, there are unforeseen factors, which most typically come up with remodels, where issues that may not be visible when starting the design and engineering work are exposed during the early phases of construction,” cautions Baker. For these and other reasons, the experts recommend adding wiggle room into your budget by padding in an extra 10% to 20% beyond your expected price tag.

It’s tricky to predict with any certainty how much home construction/remodel costs may increase in 2023 because of inflation and other influences.

“However, it’s generally expected that these costs will continue to increase over time, which is why homeowners should be prepared for costs to rise by at least 5% every year and budget accordingly,” Baker recommends.

Gauging changing equity levels

Question:

With mortgage rates up and home sales down, how much equity have property owners lost in the past few years? What is the best way to access the equity we have?

Answer:

Despite a lot of scary headlines, real estate as of this writing has largely held its value since the start of the pandemic.

The Federal Reserve reports that between 2020 and mid-2022 real estate equity increased from $33 trillion to $42.1 trillion.

As of November, the National Association of Realtors reports that existing home prices nationwide were actually up 3.5% during the past year.

It is something of a financial miracle that in our pandemic economy home values not only rose, they rose substantially. We don’t know what will happen in the future – and the rest of 2023 is the “future” here – but most homeowners have far more equity at this writing than they had in 2019.

However, while rising equity levels are good news, there is also the reality that interest rates have soared. Weekly mortgage rates went from 3.22% at the start of

January 2022 to 6.27% toward the end of December. There are two bottom-line results.

First, while homeowners have more equity, the cost to extract that equity became substantially more expensive in 2022.

Second, as a result of rising rates, mortgage borrowing has fallen through the floor. According to the Mortgage Bankers Association, in late December 2022 weekly refinancing activity was 85% lower than a year earlier while purchase loan originations were down 36%.

So yes, most homeowners have far more equity than in the past, but accessing that equity is no longer cheap. For those who nevertheless want to borrow against their equity there are several options.

You can replace your current loan with a larger mortgage. However, with higher rates a cash-out refinance is unlikely to make much financial sense because you will lose any lower-cost financing now in place.

Alternatively, you can leave the existing mortgage untouched and get a second loan. This approach preserves the current interest rate and payment on the first loan. However, second loans typically have shorter terms, say 20 years, and that means a larger monthly payment than 30-year financing with the same rate.

ASK OUR BROKER

By Peter G. Miller

Rather than a second loan, another choice is to get a home equity line of credit, a HELOC. This is essentially a giant credit card secured by real estate equity. Generally, such loans have two phases: In the first phase, perhaps 10 years, you can borrow up to the loan limit and pay back. In the second phase, perhaps 10 or 15 years, any unpaid HELOC balance becomes a second loan with regular monthly payments and no more ability to withdraw funds.

As well, you might consider an ARM -- an adjustablerate mortgage. This is a loan where the initial rate is set for several years, say five, and then it moves up or down each year. The initial rate is pegged below the current fixed-rate level, but it is possible that in time the rate might go higher. The borrower’s real bet is that monthly costs will stay low because when the rate changes several years will have passed, so there is less debt and that can help keep payments low.

Speak with loan officers for details and specifics. Ask about interest rates as well as fees and charges and how much cash you will pay out during the first five years of the loan term.

Email your real estate questions to Mr. Miller at peter@ctwfeatures.com.

Interest rises in family mortgage

By Marilyn Kennedy Melia CTW Features

Home buyers are balking at today’s inflation-fueled high mortgage rates, while savers lament that many savings accounts aren’t earning enough to keep up with inflation.

Increasingly, families where some members have ample savings, and others can’t land or don’t want a highrate mortgage from bank or lending company, are finding a solution to both predicaments: Have the deep-pocketed relative provide the mortgage, at a rate lower than market, but still offering a competitive rate to make it worthwhile.

Despite these advantages, money and family can be a combustible mix. “The borrower could default, and that can get both financially and emotionally stressful for both involved,” notes Faron Daugs, a certified financial planner and CEO of Harrison Wallace Financial Group, Libertyville, Ill.

Still, if the intra-family loan is structured correctly it can work, notes Daugs. Here are some tips: Act [somewhat] like a bank.

Maybe a young home buyer has a

good job, but his employment history or credit record are too new to pass muster with a traditional lender, but a family member feels confident in his earning potential. But the lending relative still needs to carefully “assess the credit worthiness” of the borrower, “especially if they are utilizing this as a fixed source of cash flow and income in their retirement,” says Daugs.

Keep loan amounts reasonable.

“Keep these family loans below ten to fifteen percent” of the total savings portfolio of the lending family member, advises Daugs.

Know tax rules.

Anytime money is given outright to an individual family member, it shouldn’t exceed the “gift tax limit” established by the IRS, which is $17,000 in 2023, requiring larger amounts to be extended as a loan. Plus, if a loan is over $10,000, “the lender must be earning interest on the loan equal to or above the proper ‘IRS Applicable Federal Rate,’ [which posts monthly, and was 4.34 percent in December 2022],” explains Timothy Burke of National Family Mortgage, a firm which manages functions like billing and recording deeds for family loans.

RENTALS

Apartments

Unfurnished

NE W TODA Y

Raspberry Ridge I Apartments, Subsidized Housing for Qualified Farm Labor families. Equal Opportunity Housing.

The Housing Authority of Skagit County operates 50 Townhouse apartments in Burlington WA. This advertisement has been placed in compliance with regulations of Washington State Housing Finance Commission Tax Credit Services.

Applications will be added to the waiting list. The waiting list is currently two years long. The Housing Authority of Skagit County is an equal opportunity provider and employer.

Call 428-1959 or visit the office at 1650 Port Drive, Burlington, WA for application. Your name can be added to the waiting list at no charge

Apartments

Unfurnished

NE W TODA Y

Raspberry Ridge II Apartments, Subsidized Housing for Qualified Farm Labor families. Equal Opportunity Housing.

The Housing Authority of Skagit County operates 30 Townhouse apartments in Burlington WA. This advertisement has been placed in compliance with regulations of Washington State Housing Finance Commission Tax Credit Services.

Applications will be added to the waiting list. The waiting list is currently two years long. The Housing Authority of Skagit County is an equal opportunity provider and employer.

Call 428-1959 or visit the office at 1650 Port Drive, Burlington, WA for application. Your name can be added to the waiting list at no charge

Mobile Home Spaces

NE W TODA Y

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$935,000

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Easy access to I-5, shopping, and medical facilities

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Danya Wolf (360) 708-8294

Danya Wolf (360) 708-8294

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