May 2, 2011

New homes are making “good financial sense”

danBy Dan Dolan
Dan Dolan Homes

Seniors could be the beneficiaries of this trend

As I read the economic news related to the outlook for our country in the months and years ahead, I see a lot to worry about. Likely inflation, the rising national debt, potential tax increases, the decline of the U.S. dollar, the threat of losing programs such as Social Security, Medicare, and on and on. Our legislators in Washington and in state capitols have a difficult task ahead of balancing our budgets and the needs and wants of their constituents. Stay tuned for the outcomes.

But one thing I don’t worry about is the current golden opportunity for seniors in the Quad-Cities to move into their “dream home” under some of the most favorable circumstances we’ve ever seen. Here’s what I mean.

We’re just coming out of an economic downturn, and that has served to keep interest rates low and has incentivized home building contractors to keep prices down. Currently, fixed rate home mortgages are around 5 percent. Not all seniors finance their new homes, but for those that do, this is a highly favorable rate that is expected to start climbing whenever the federal government halts its various economic incentives. However, the families that seniors sell their homes to virtually all use home mortgages to finance their home purchases. The lower the mortgage rates, the more buyers there are who can qualify for a mortgage. More buyers are always better for the sellers.

I believe rising inflation will cause builders to raise their prices to reflect their own rising costs for land, labor and materials in the near future. But we’re not there yet. Meanwhile, new senior-oriented homes are an excellent value. I invite all my readers to see what $299,900 buys them at our new site at Stone Gate East in Davenport. I recognize that $299,900 is not inexpensive, but the value is outstanding including a fabulous location, 3 bedrooms, 3 baths, finished basement, 2-car garage, 3-season room overlooking the treed back yard, geothermal heating and cooling, granite countertops, cherry cabinets and more. Much more. There is very little likelihood that we’ll be able to offer those values a year from now.

So the combination of favorable interest rates and value pricing has resulted in unprecedented interest in one of our new communities. And as extra “frosting on the cake” these homes qualify for a federal energy credit of $6,000 plus a Davenport Now tax incentive of some $8,000 or so. Net cost of home—about $285,900.

For evidence of rising prices, have you been to the grocery store lately? My wife asked me to pick up a jar of a nationally-branded mayonnaise on the way home from work a few days ago, so I stopped off at a national chain store – $5.99. $5.99? Are you kidding? I picked up a candy bar for myself while I was at it. 70 cents? Really? First it’s food, and then it’s all else.

But that “window” for favorable new housing prices is closing quickly, and the time to act is now. Like really now. This month, this summer, this year.

Another reason. In an inflationary cycle, appreciation rates of existing homes tend to go up reflecting the rising prices of new construction. The newer the homes, the greater the appreciation because of fewer adjustments required for older heating systems, aging roofs, etc. Will we still sell new homes next year? Absolutely. At these prices? I’m thinking not. So the time to act is really now. Today.

As many of our readers know, Dan Dolan Homes has been has been describing the benefits of the Reverse Mortgage for Purchase in advertising and at open houses since they were approved by Congress in January, 2009. In fact, we are practically the only ones doing so. We see this government program (maybe the only one) as a tool for seniors to save their capital and preserve their wealth. Number one, it allows seniors to minimize the amount of cash needed to buy a new home thus enabling them to save and invest their excess funds for an extended period of time. In a likely environment of rising inflation and rising interest rates, we expect instruments such as CDs to pay escalating higher interest rates as well. Number two, the Reverse Mortgage for Purchase requires no monthly mortgage payments so there’s no monthly drain on cash as would be the case with conventional mortgages and the monthly fees of independent living facilities. At Stone Gate East we estimate the total monthly cost for homeowners insurance, taxes and association dues to be in the range of $700 or so. Number 3, in the event of the death of one of the homeowners, the survivor has no need to raise cash or determine where and how to fund the monthly mortgage payment. With a Reverse Mortgage for Purchase there is none.

For seniors considering the move to the “home of their dreams,” I encourage them to take advantage of the current favorable environment. We invite all potential home buyers to visit with us at Stone Gate East any Saturday and Sunday from 1 to 4 PM to view our model homes and, ideally, to reserve their preferred home site for their Dan Dolan dream home.