Not-so-obvious costs?

When you work in this business for as long as we have, you start to think that certain areas of real estate are totally obvious. Like, every buyer knows about closing costs… right???

We’re not so sure. In fact, the more we read surveys of potential buyers, the more we find there are certain “obvious” things that some buyers just don’t know. We’re not blaming them (well, slightly) given that there is a ton to know when buying a home.

Of course, that’s where we, the experts, come in. In today’s Foundation Plans, we thought it would be helpful to lay out all of the “obvious” and not-so-obvious costs associated with buying a home.

We think it is crucial for all buyers to know this info before they sign on the dotted line, and we think it’s just as important that agents share this info with their clients… because you truly never know what people know and don’t know.

– James and David

U.S. home price forecasts for 2025

U.S. home prices are projected to rise an average of 2.5% in 2025, according to Resiclub’s analysis of the top housing forecasters. Here’s a breakdown of what each forecaster expects:

• Goldman Sachs: 4.4%

• Wells Fargo: 4.3%

• Mortgage Bankers Association: 3.3%

• Morgan Stanley: 3.0%

• Zelman & Associates: 2.3%

• Fannie Mae: 1.5% 

• Freddie Mac: 0.5%

• Moody’s: 0.3%

Our take

While we would love to be as bullish as Goldman and Wells Fargo, we don’t see prices going that high. We surely don’t expect a dramatic crash in housing prices either. We think we’ll be seeing steady growth through the year and into next year. Now that’s the good part of the picture. We do think affordability will continue to be a problem, since interest rates and mortgage rates will likely stay higher for longer. And yes, even though many buyers are turning to all-cash deals, we still think that won’t be enough to keep deal volume and overall pending sales from dropping this year.

Rents decline at a snail’s pace

In May, the U.S. median rent was down 0.7% for 0-2 bedroom properties across the top 50 metros, on par with the rate seen in April. This marked the 10th consecutive month with year-over-year declines. That’s according to Realtor.com’s latest update on rents across the country. Here are the other key takeaways from May:

• The median asking rent was $1,732, up $10 from last month (following a typical seasonal trend).

• The U.S. median rent was just $24 (-1.4%) less than the peak seen in August 2022. 

• Rents are still $306 (21.5%) higher than at the same time in 2019 (before COVID-19), roughly on par with the rise in overall consumer prices (up 22.7% in the same time period).

• Rents pale in comparison with the 52.7% increase in the median-price-per-square-foot of for-sale home listings in the five years.

Our take

Let’s talk about what this means for inflation. The slower decline in rents suggests inflation may continue for a while. We fear that reports like this will only delay the Fed from cutting interest rates. Even though the CPI report from a few weeks ago was exactly what the doctor ordered, it’s just one data point, and not enough to move the needle. Currently, we expect the Fed to cut interest rates by September at the earliest. On Friday, we’ll see the release of the latest report on the PCE, the Fed’s preferred measure of inflation, so we will be keeping an eye on that.

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November ballot incentive to overturn ULA measure loses in CA Supreme Court

In a unanimous decision, the California Supreme Court has blocked a November ballot initiative that could have overturned the Los Angeles property transfer tax known as Measure ULA. 

Measure ULA, which was approved by California voters in November 2022 by a 58% to 42% margin, added a 4% property transfer tax on real estate deals in Los Angeles above $5 million, with the rate increasing to 5.5% on deals above $10 million.

However, the ruling by California's top court may not be the last word on legal challenges to Measure ULA. The U.S. Court of Appeals for the Ninth Circuit has agreed to hear arguments over the legality of Measure ULA later this year.

Our take

We are not lawyers, so we can’t comment on whether the court correctly applied the law in blocking the ballot initiative. As a policy matter, however, we think Measure ULA is counterproductive and hasn’t delivered on its promise. Proponents of Measure ULA promised that the property transfer tax would generate up to $1 billion in new revenue for the House L.A. Fund to combat homelessness. However, after the measure was enacted in April 2023, transaction volume plummeted in L.A. and the new law brought in less than $200 million by the end of last year.

The news that just missed the cut

• Landlords in this city are allowed to hire brokers and require renters to pay them 

• These are three of the most expensive homes in the US

• Use these free resources to craft a memorable home buyer experience 

• What “van life” in New York is like

• The least difficult areas in the US to buy a home according to NBC News Home Buyer Index

Foundation Plans

Advice from James and David to win the day

Sometimes buyers are so narrowly focused on the price of the home that they often overlook other costs associated with homeownership. Don’t let your homebuyers fall into this trap. Instead, be upfront about these costs from the get-go. Here are some of the most commonly overlooked costs:

Standard Closing Costs – As we said up top, this should be obvious, but it still needs to be said. You’d truly be surprised by how many buyers fail to prepare for them. If your buyer puts down 5% and closing costs are about 3%, then prepare your buyer to budget about 8% all-in.

Monthly Mortgage Payment –  The mistake we often see buyers make is thinking that being pre-qualified from a lender is enough. It isn’t. Make sure your buyers are pre-approved as well. Pre-qualification is an early step in the homebuying process. When a client pre-qualifies for a home loan, they’re getting an estimate of what they might be able to borrow, based on information they provide about their finances, as well as a credit check. By contrast, pre-approval is as close as they can get to confirming their creditworthiness without having a purchase contract in place. They will complete a mortgage application and the lender will verify the information they provide. They’ll also undergo a credit check. If they’re pre-approved, they’ll receive a preapproval letter, which is an offer to lend them a specific amount, good for 90 days. 

Property Taxes – Every homeowner pays taxes based on their home’s value and the property tax rates for the county or city they reside. Most areas charge property taxes semiannually, and they are paid in arrears. For example, in 2024, owners pay the property taxes for 2023. Some homeowners pay their property taxes monthly through an escrow account. In this case, the mortgage lender will include a portion of the tax bill in the monthly mortgage payment. The funds earmarked for taxes will sit in an escrow account until a payment is due. At that point, the property tax bill will be paid from the owner’s escrow account. We encourage clients to do this to avoid being stuck with a large bill at the end of the year.

Homeowner’s Insurance – We have talked about it before. The homeowner’s insurance market is in a state of flux right now. Last year, the borrowers for a home with a conventional 30-year fixed-rate mortgage had to pay an average annual premium of $1,552. This was 10.8% higher than in 2022 and a whopping 40.8% higher than in 2018 when the average premium was $1081! Make sure your homebuyer gets a quote before they buy so there are no surprises or sticker shock at the closing table. 

HOA Dues or Assessments – These dues are paid on condos, townhomes, and single-family homes. The assessments get saved into a budget that’s managed by the association. They are set aside for things like insurance, repairs, maintenance, landscaping, and the like. 

Post-Closing Expenses for Maintenance & Repairs – Especially if your buyers purchase a newly built home, they won’t see maintenance and repair costs for a few years. But after about three or four years, your clients should expect to make repairs to maintain their home. Perhaps they might get lucky and not do these repairs until later, but still, it’s important to discuss these costs with your clients in advance. Nobody likes being blindsided or taken by surprise. 

As we always say, a large part of being an agent is managing your client's expectations. To learn how to do that effectively, start here and here. 

To learn more about Estate Media, visit their website.

Just in Case

Keep the latest industry data in your back pocket with today’s mortgage rates:

“Your time is limited, so don’t waste it living someone else’s life.” – Steve Jobs

That’s a wrap on this edition of The Blueprint! We’ll see you on Friday.

– James and David