The housing burst left everyone from builders to lenders to consumers reeling. Today, as the economy starts to pick up, we're all still a little leery of jumping into real estate purchases.
Luckily, there are more tools out there to help us navigate the process and understand how our decisions will play out - and as consumers are becoming more engaged, they are seeking these tools out more and more, says Vincent Turner, CEO of Planwise, technology that helps consumers make better financial choices.
"There was an excellent article the other day that spoke directly to this idea that Millennials, who are the ones who are going to buying a good chunk of the houses in the next few years, are not trusting advice at all," he adds. "I don't think it is this extreme, but am sure that people will use technology to both be better prepared before they get advice and verify the advice they do get."
Vincent recently checked in with us to talk about Planwise and their new home affordability tool as well as offer his thoughts on what we should keep in mind when creating a financial plan. Here's what he had to say:
What lessons do you think homeowners have learned about how much home they can afford since the housing bubble burst? What do you think were the biggest takeaways from how we choose and pay for homes?
I think, and Planwise is essentially predicated on this, that consumers will both be more engaged in the decision they are making and will seek out software to help them understand on their own time and terms of what their decision looks like.
Tell us about Planwise...what is it and how does it work?
Planwise is technology that helps you make better financial decisions, especially big ones like buying a house or car, taking on a new job. It does this by letting you put in, at a high level, your current financial situation like what you earn, spend and owe...basically you enter in the information Mint.com summarizes for you.
Then you can add in "future" plans, things you are considering doing, and we show you how these things impact your finances in the future (like how much money you have or owe five years from now). The magic is when you have multiple plans, different scenarios like car A vs. car B, and want to see how all those scenarios play out. Interestingly, women seem to use Planwise more and make more complex plans.
Who should be using it?
Planwise is ideal for people in the mainstream - any individual or couple earning $25,000/year to $250,000/year. It is especially useful for people between the ages of 20 and 40, as this is the age when you tend to make all the big decisions that involve income, spending and debt like buying cars or houses, going to college, taking vacations, getting new jobs, getting married or having children. It's also the time of your life when you seem to do most of your discretionary spending, which in turn affects your ability to do all the big things!
What sets Planwise apart from other personal finance sites?
Planwise is built exclusively around projecting your FUTURE financial situation and designed to let you easily see how any combination of your current financial situation and potential future plans will look. In this, it is virtually unique. We think that day-to-day management of money through tools such as Mint.com is actually only half the battle. The other is making good decisions tomorrow and being able to live with them in the future. Planwise is also all the good stuff like free, easy, fast and secure. We're actually being used in over 80 countries worldwide!
Planwise seems to center around a strong visual - a graph that charts your finances - how does this help consumers get a better grasp on their situation?
This is actually the No. 1 benefit people tell us they get from Planwise. People often tell us they can't see the finances clearly and, again, showing everything you already spent is only half the picture. Being able to show someone "if you keep spending $15/day eating lunch out - you will only have this much in savings in two years, but if you halved it, then you'd have this much instead" is really powerful to help people actually take change.
The three biggest benefits people tell us they get from Planwise are:
- 1. Being able to see my finances more clearly.
- 2. Seeing how actions I could take would improve my finances.
- 3. Having the confidence to make a decision that involves my finances.
Why do you think families and individuals get so stressed about dealing with their finances? What seem to be the most challenging concepts or areas to tackle?
I think there are a number of things that play out here. The first, especially if there is a couple, is just being able to understand where you at today and what your finances will look like in a month, a year or a decade. It is very hard to work this out unless you're a wizard at Excel, which most of us aren't (and who has the time, anyway). I think so many arguments can be solved by at least getting couples talking about the same set of facts. We actually have a few couples focused financial advisors who use and/or recommend Planwise for this reason.
The other big stress is it's hard to know the impact of your next big decision on both your future finances and also on other things you have planned. You hear so often, "Well, I want to buy a car, but I'm not sure how this affects my plan to buy a house in three years." Everyone wants a crystal ball without having to do a lot of work.
In terms of concepts, I think people can't get their head around the impact of recurring expenses and loan payments on future wealth. Hopefully we're helping with that. The other thing people can't easily see is how much more money they will have in the bank if they either refinance and/or put an extra $50/month on their personal debts.
What seem to be the most common things we overlook when trying to create a realistic financial plan?
Great question, as my answer to this has evolved over time. Originally I would have said it's the big things that trip you up, and in a way this is still true. When you can't make your loan payment or rent, you really feel these commitments, and thus, you question the decision you made around them. But now I really think it's death by 1,000 cuts. The daily habits really do add up; changing habits is hard, but if you can, you win. I actually lived this reality back in 2011 when I first moved out to the U.S. and put myself on a meager start-up salary of $1,500/month...in San Francisco! If you want to read about how I made that work, you can check out the guest post I wrote here.
Planwise also offers a home affordability tool...what do you think are the most common questions or concerns house-hunters have about paying for their first home?
When we originally launched the concept for these specific tools, we started with the belief that there are really only two big questions people are asking, which are:
- 1. Can I afford it?
- 2. Will I make money? (later rephrased to "Will this have a positive or negative impact on my net wealth?")
Since launching the tools earlier this year and seeing thousands of people through the tools, we can see that the list of questions is longer and more complex. Some of the other ones are:
- Can I get a mortgage?
- What will my total costs be?
- Is this the best product?
- Have I optimized the mortgage structure?
- Am I making a good financial decision?
A survey we did of potential U.S. home buyers about three weeks back actually highlighted that of the two most stressful parts of buying a home, "Am I making a good financial decision?" was just as stressful as going through the contract negotiation.
How do you think the struggling economy has affected people's willingness to purchase homes? What seem to be the biggest challenges facing would-be homeowners right now?
I can't speak for all parts of the economy, but there has certainly been a revival of sorts in home ownership, and new buyers have been coming back into the market. Some metro markets have seen severe inventory (houses available to sell) issues, and this seems to have caused some spikes in prices, which I'm sure affected people in those areas. But speaking more broadly, one of the main challenges consumers face is getting the mortgage itself. A lot of small lenders have stepped in to fill the void here; in fact, the major lenders hold only 52 percent market share, which is its lowest in years. I think this is likely to continue for a while.
What predictions do you have for home sales in the near future, from a consumer's perspective?
Interesting question. I think that consumers are going to use technology more and more to both search for homes and search for agents. I believe we are a long way from consumers buying homes directly, at least at any measurable scale. However, I think this is an opportunity for the real estate industry to re-invent its value proposition. If the question was more "Where is the housing market going?", then your guess is as good as mine.