Your home: Which NEJC city has the highest walkability?

I was excited and honored to receive an email last week from John Yé, the mayor of Westwood. He had just read my last column on walkability and wanted to share with me that Westwood’s walkability score is a 57. Compare that to Prairie Village’s score of 35 and clearly Westwood is on to something. Actually, compared to all other NEJC cities, Westwood has the highest walk score according to Walk Score. Congratulations to Mayor Yé and his team of city councilors and other leadership! Personally, I am proud to have witnessed Westwood’s evolution over the length of my career and how they are embracing the fact that convenience and walkability are very important to the new families they are now attracting to Westwood.

It is no surprise to me that our most recent listing in Westwood sold the first day on the market with four offers. It was a feeding frenzy. As I shared in my last column, high walkability results in higher real estate values in 13 out of 15 real estate markets. Again, congratulations Westwood!

So now we know that Westwood is first in the local rankings. How do the other cities shake out?

  1. Westwood, KS – walk score 57
  2. Roeland Park, KS – walk score 43
  3. Prairie Village, KS – walk score 35
  4. Fairway, KS – walk score 34
  5. Overland Park, KS – walk score 33
  6. Leawood, KS – walk score 21

Please note that all of these walk scores are city wide. That being said, there are certainly specific areas of each city with higher walkability. For example, if you have a home near the Village Shops in Prairie Village, your neighborhood walk score is 67. Much better than the citywide score of 35, right? In Overland Park, the zip codes with the highest walk score are 66212, 66204, and 66223. In Leawood, the highest walk score of 25 goes to 66206. Which honestly makes sense: Leawood is known for its palatial lots and winding roads, not for its convenience to retail or other services. And to me…. that is okay.

Some residents want a lot of foot traffic and regular interaction with their neighbors. Some don’t. And again, that is okay.

I love the fact that we can help families buy and sell homes of all different ages, sizes, neighborhoods, etc…, and all within a 15 mile radius. Each individual family has an opportunity to choose the environment in which they will feel the most comfortable. To some, a lower walk score may be seen as a negative, while others may appreciate the fact that their neighborhood it tucked away and off of the beaten path.

From a resale perspective, I should close with saying that the old adage that it is all about “location, location, location” still holds true today. Although, it appears that the new generation of buyers might say that it would be more accurate to say that it is “proximity, proximity, proximity” to local schools, shops, and parks.

Your home: The importance of neighborhood walkability

Why are neighborhoods like Prairie Village and Brookside so popular?

Brookside WalkabilityOne word: walkability. Walkability is a term becoming more and more popular as neighborhood revitalizations continue across the country. Companies like Walk Score are really bringing walkability into the forefront of the real estate market. Walk Score is an online resourcewhere you can enter a property address and instantly see everything that is within walking distance. This information is very valuable to today’s buyer, especially Millennials.

As I think back over the last five or six years, the neighborhoods that were the least affected by the depressed real estate market were highly walkable neighborhoods. I frequently use the term “micro market” for these areas, meaning they play by their own set of rules when it comes to real estate. The surrounding areas may be seeing a lull in sales activity while the micro market is selling like hot cakes.

Now please don’t think walkability just applies to close proximity to stores and schools and such. It also refers to the overall ease of walking from one street to the next. A good test for walkability is to go out in your neighborhood between 3 p.m. and 6 p.m. and just watch. Do you see parents walking their kids home from school? Do you see a lot of joggers? Is there steady foot traffic in your area? After that three hour window, you will probably have a better understanding of your neighborhood’s walkability.

So how strongly does walkability affect your homes value? An excellent white paper called “Walking the Walk: How Walkability Raises Housing Values in US Cities, ” by Joseph Courtright answers this very question. Courtright analyzed the data from over 94,000 real estate transactions and found that in 13 or 15 real estate markets, higher levels of walkability were directly linked to higher home values. And not only because a homeowner could easily walk to the Hen House, for example, but because homeowners valued the ease with which they could interact with their neighbors.

If I had a dollar for every time I have heard a buyer say that Prairie Village feels like a neighborhood that they grew up in, or that it looks like something straight out of the 1950s… well let’s just say I would be selling houses just because I love to do so, not because I needed the money. And the analogies are pretty accurate. These brilliantly designed neighborhoods were specifically arranged to facilitate the ease of walking from one place to the next. That J.C. Nichols was certainly way ahead of his time.

A couple of quick notes: Walk Score ranks cities from 0 (car dependent) to 100 (most walkable). Can you guess where Prairie Village ranks? Ladies and gentlemen, it was ranked a 35 because based on their data most errands require a car. The number one most walkable city, as scored by Walk Score, is New York City. It received an 88. The 35 was a little surprising to me, but then I really gave it some thought. For most residents, it is a short drive to most anywhere in our city. That score of 35 now feels pretty accurate.

Here is the second note — and this is a soap box issue for me, so I apologize ahead of time. As neighborhoods continue to improve their amenities and overall infrastructure, nothing irks me more than to hear of neighbors fighting the idea of putting in sidewalks. Whether your stance against sidewalks is the overall cost or the invasiveness of the installation, you might as well put a sign in your yard that says,” I will sell my home for less than what it is worth!” By standing in the way of progress and walkability, you’re not only impacting the potential improvement in your neighbor’s quality of life, your are stealing equity from their home. Please trust me on this. Something as simple as new sidewalks can help start a new life cycle for a neighborhood. An improvement in home values will then soon follow.

Photo credit: pasa47 on flickr.com

Your home: Incredible opportunities in the jumbo loan market

A jumbo mortgage is defined as a loan that exceeds the maximum loan amount Fannie Mae and Freddie Mac will purchase. In most cases, the conforming limit is $417,000. However, in some markets where the average sales price is well over $417,000, the conforming limit has been locally adjusted. Because Fannie Mae and Freddie Mac will not purchase these loans, historically they have been seen as higher risk. Therefore, the average jumbo interest rate was typically half a point to 5/8 of a point higher than a traditional conforming loan. In 2008, when the market was spiraling out of control, many lenders ran away from jumbo loans and the rate got as high as 1.8 percent higher than a conforming loan.

Well, that is not the case today.

In fact, in September of this year the jumbo loan rates for the first time ever dropped below conforming rates. These incredible jumbo rates were only available to highly qualified buyers. And by highly qualified I mean stellar credit scores (760+), good cash resources, lower DTI, and a minimum of a 20 percent down payment.

Today jumbo rates are a mere 1/8 of a point higher than the conforming rate. That is pretty awesome. I am pleased to see that the market has ceased to punish the jumbo loan market and is now embracing it. The half a point (on average) savings that jumbo buyers are seeing right now is a pretty substantial long-term savings. For example, if your mortgage was $500,000, the savings of a half a point on your mortgage over 30 years would be approximately $183 per month, or $2,200 per year. That’s $66,103 over the term of the loan. Imagine if the $2,200 per year just went into a 529 plan for your child’s college education, or into an IRA for your own retirement. Compounding interest would just take care of the rest.

The lending world is certainly a moving target. If nothing else, they keep it interesting for sure. We may see a return to higher jumbo rates in the new year. Only time will tell.

As a side note, there are “hybrid programs” available as well that allow a jumbo buyer to put down less than 20 percent. Typically, they are adjustable rate mortgages and can have very competitive interest rates for a qualified buyer.

Your home: What is a ‘qualified residential mortgage’?

Big changes are coming in the mortgage industry — and those changes are spelled “QRM.”

A qualified residential mortgage or QRM is essentially a program designed to set the standard for residential mortgages and prevent consumer default. Sounds like a good idea, right? Well, that depends on who gets to write the final draft of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Talk about a name, huh?

You see, the QRM is a moving target. No one really knows how it is going to end up. Earlier in the year, the suggestion was to require a buyer to provide a minimum of 20 percent for their down payment. Luckily, that went over like a lead balloon and organizations like the National Association of Realtors fought to get the suggested provision taken out. And they succeeded. That said, there still are several provisions that remain.

One provision that seems to be a permanent one is the change to the maximum allowed debt to income ratio (DTI). Currently, depending on the loan program, buyers can purchase with up to a 50 percent debt to income ratio. This new provision could eliminate this an option. Therefore, a pretty sizable cross section of the buyer pool will either have to purchase a home of a lesser value or possible not purchase at all. Yes, you are right: That stinks. It also means that a seller will have less demand for his home which will have a direct effect on the home’s value.

Our team always wants our clients to make sound financial decisions.  So I am all for consumer protection and guidelines. However, we have had incredible clients purchase a home with a 50 percent DTI who live well within their means. Or perhaps they are up for a promotion at work which will quickly change their financial standing. Regardless of my personal position, a cross section of the buyer pool will be directly affected by the aforementioned changes.

As if that isn’t enough, a buyer’s costs will most certainly be going up with these new changes. Because of all of the new regulations, lending companies and banks have no choice but to increase the size of their compliance departments.  This, of course, is an additional cost to the lender, which will at some point be passed along to the consumer.

This new level of scrutiny and compliance will most likely affect the speed at which a home loan can be processed. The days of a 30 day closing are almost gone already, with the exception of a cash purchase. With these new hoops to jump thorough, 45 day closings may become a thing of the past as well.

So what if I cannot qualify for a QRM? Will I really not be able to purchase a home. Right now the speculation is “yes*”.  Don’t miss the asterisk. The fine print is that some financial analysts are suggesting that you still may be able to purchase a home. But because of the risk that the lender may be facing by loaning to you, you may pay up to 3 percent higher on your interest rate. Three percent! For every percent the interest rate goes up, a buyer will lose approximately 10 percent of his buying power. So do the math. Those numbers don’t look pretty.

The new provisions will take effect as of the new year, HOWEVER, the exact roll out date is still uncertain. The only certainty that we have is in today’s market. Don’t wait until it is too late.