THE BIG SPLASH

The Trend of Downsizing in the Housing Market

According to experts, almost every major housing market in the country is currently overpriced when considering the housing cost to income ratio. To address this issue, builders are taking action by reducing the size of homes they construct.

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• Builders are actively responding to the affordability crunch by pulling the lever of reducing home square footage. This strategy not only addresses affordability concerns for buyers but also helps builders control their material costs, which have risen by about 35% since 2019.

• The reduction in square footage is not uniform but rather a trade-off within the home. Recent surveys show that buyers prioritize larger kitchen spaces and outdoor living areas over additional bedrooms and shared family spaces.

• The COVID-19 pandemic has reshaped the way people work and live at home, further influencing their preferences when it comes to home design. Builders are now shrinking secondary bedrooms and shared family areas to accommodate the growing demand for larger kitchen spaces and outdoor living areas.

• Builders foresee a trend of even smaller homes in the coming years, with an increase in production of entry-level homes. This could potentially bring back starter homes priced under $300,000, which are considered more attainable for buyers. By reducing home sizes, builders aim to make housing more affordable and reset the broader issue of affordability.

• While incentives like rate buydowns are currently helping make a difference, there are early signs that reducing home sizes is also proving effective. Experts forecast a decline in average square footage for single-family homes over the next few years, indicating a multi-year trend toward smaller homes.

A SCOOP OF LOAN

How to Customize a Loan Length

The length of mortgage and interest rate determine monthly payments. But can you customize your mortgage terms beyond the standard 15- or 30-year options?

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• According to Holden Lewis, a home and mortgage expert at NerdWallet, the term of a mortgage is its lifespan. Typically, mortgages are 15 or 30 years, but borrowers can request a term that fits their finances. For example, you can aim to pay off the mortgage in 18 years instead of 30, and the lender can adjust your payments accordingly.

• Using the term "amortize" when discussing this with a loan officer can help convey your preference. For instance, say, "I would like to amortize this loan over 18 years instead of 30."

• Customizing mortgage terms can be beneficial in various scenarios. Some borrowers want to pay off the loan before retirement or become debt-free at a young age. However, shorter mortgage terms limit flexibility compared to 30-year loans. With a 30-year loan, you can make extra payments to retire the debt sooner or pause those payments during financial hardships.

• Rocket Mortgage has introduced YOURgage, a customizable mortgage term offering fixed-rate options from eight to 30 years. This provides homeowners with flexibility to align the loan with their unique circumstances, such as life milestones or maintaining a specific payoff schedule.

A SCOOP OF INGENUITY

How One Couple Built Their High-Style House for $600,000

A Washington State couple decided to build their dream house from scratch, and the result is a high-style home worth $600,000. Jon Gentry and Lydia Ramsey, along with their contractors, took on the project, wanting to create something extraordinary.

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• The couple initially planned for it to be a weekend getaway.

• They spent a year designing their modernist home, settling on a flat-roofed structure with a bonus rooftop garden.

• The 1,700-square-foot house features floor-to-ceiling glass doors, a spacious living area, a kitchen, and a cast-concrete fireplace.

• To cut costs, the couple actively participated in the construction process, working alongside contractors.

• They built the concrete formwork, milled and finished wood from surrounding trees for interior cladding, and even assisted the mason.

• Despite challenges and muddy moments, their determination to create something extraordinary paid off, and they moved into their home in October 2021.

A SCOOP OF BOOMERS

How Baby Boomers Secure Their Legacy Through Real Estate

Baby boomers are in the midst of an enormous generational wealth transfer, with over $53 trillion being passed down to their heirs. A significant portion of this wealth is in the form of real estate, and boomers need to navigate the process wisely to ensure the preservation and growth of their assets for future generations.

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• Estate planning attorney Melissa Goikhman emphasizes the importance of creating a well-crafted trust to transfer property efficiently. While a will can be used, it may result in a lengthy and costly probate process.

• In contrast, a trust offers several advantages, such as avoiding probate and providing customization options for individuals and families. Trusts can include constraints on future distribution and guidance on investment strategies.

• One key benefit of using a trust is the potential for beneficiaries to receive a step-up in basis for inherited real estate, as explained by Goikhman.

• This adjustment to the asset's value to its current fair market value can significantly reduce the capital gains taxes owed by the recipient.

• To illustrate this point, Goikhman presents an example involving a couple named Tom and Jane, who purchased a home for $50,000 in 1980. The difference in tax liability between using a trust and making a lifetime gift of the property is substantial, potentially saving the couple $550,000 on a $600,000 house.

• By understanding and employing effective estate planning strategies like trusts, baby boomers can secure their wealth and ensure a smooth transfer of property to their children, ultimately leaving a lasting financial legacy for future generations.

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