Saving to Buy a Home? Do You Know the Difference Between Cost & Price?

Saving to Buy a Home? Do You Know the Difference Between Cost & Price? | Simplifying The Market

As a seller, you will be most concerned with the ‘short term price’ – where home values are headed over the next six months. As a buyer, you must be concerned not with price but instead with the ‘long term cost’ of the home.

Many economists have pointed to Brexit (Britain’s exit from the European Union) as a reason that interest rates will remain low for the next few months. But Trulia’s Chief Economist Ralph McLaughlin warns that this will not always be the case in a recent post:

“While the departure of the UK from the European Union has driven down the 10-year bond, and thus mortgage rates, we expect them to rebound later in the year as uncertainty over the economic consequences of the departure lifts.”

The Mortgage Bankers Association (MBA), the National Association of Realtors (NAR) and Freddie Mac all project that mortgage interest rates will increase by close to a full percentage point over the next twelve months.

According to CoreLogic’s most recent Home Price Index Report, home prices will appreciate by 5.3% over the next 12 months.

What Does This Mean as a Buyer?

Here is a simple demonstration of what impact an interest rate increase would have on the mortgage payment of a home selling for approximately $250,000 today if home prices appreciate by the 5.3% predicted by CoreLogic over the next twelve months:

Saving to Buy a Home? Do You Know the Difference Between Cost & Price? | Simplifying The Market

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Saving To Buy A Home? What Would You Sacrifice? [INFOGRAPHIC]

Saving To Buy A Home? What Would You Sacrifice? [INFOGRAPHIC] | Simplifying The Market

Some Highlights:

  • 95% of first-time homebuyers are willing to sacrifice to make homeownership a reality.
  • The top thing that buyers sacrifice are new clothes at 54%.
  • Even repeat or experienced buyers say they sacrificed taking a vacation or buying a new car to buy their last home.

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4 Reasons to Buy This Summer!

4 Reasons to Buy This Summer! | Simplifying The Market

Summer is here! The temperature isn’t the only thing heating up right now, so too is the housing market in many areas of the country! Here are four great reasons to consider buying a home today instead of waiting.

1. Prices Will Continue to Rise

CoreLogic’s latest Home Price Index reports that home prices have appreciated by 6.2% over the last 12 months. The same report predicts that prices will continue to increase at a rate of 5.3% over the next year. The Home Price Expectation Survey polls a distinguished panel of over 100 economists, investment strategists, and housing market analysts. Their most recent report projects home values to appreciate by more than 3.2% a year for the next 5 years.

The bottom in home prices has come and gone. Home values will continue to appreciate for years. Waiting no longer makes sense.

2. Mortgage Interest Rates Are Projected to Increase 

Freddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year mortgage have remained around 4%. Most experts predict that they will begin to rise over the next 12 months. The Mortgage Bankers Association, Freddie Mac & the National Association of Realtors are in unison, projecting that rates will be up almost a full percentage point by this time next year.

An increase in rates will impact YOUR monthly mortgage payment. A year from now, your housing expense will increase if a mortgage is necessary to buy your next home. 

3. Either Way You are Paying a Mortgage

As a paper from the Joint Center for Housing Studies at Harvard University explains:

“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return. That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

4. It’s Time to Move On with Your Life

The ‘cost’ of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise.

But what if they weren’t? Would you wait?

Look at the actual reason you are buying and decide whether it is worth waiting. Whether you want to have a great place for your children to grow up, you want your family to be safer or you just want to have control over renovations, maybe now is the time to buy.

If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could lead to substantial savings.

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Sales at Highest Pace in 9 Years! [INFOGRAPHIC]

Sales at Highest Pace in 9 Years [INFOGRAPHIC] | Simplifying The Market

Some Highlights:

  • Sales of existing homes reached the highest annual pace in over 9 years at 5.29 million.
  • Inventory remains below the 6-month norm and prices are still on the rise.
  • Interest rates are at a historic low of 3.48%.

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BREXIT: What’s the FIXIT for U.S. Home Buyers and Sellers?

BREXIT: What’s the FIXIT for U.S. Home Buyers and Sellers? | Simplifying The Market

Now that much of the dust has settled and the panic has waned, let’s take a look at what impact Britain’s exit from the European Union may have on the U.S. housing market.

The most immediate impact of Brexit will be on mortgage interest rates. Interest rates have remained at historic lows for the last several years. Contrary to what many experts believed, rates have remained low throughout the first half of 2016.

Possible impact of Brexit on mortgage rates?

In a recent article, the Washington Post explained:

“Brexit has spawned the recent bout of volatility in global financial markets. That has anxious investors scurrying for safety — and few assets are safer than U.S. Treasuries. High demand for government debt pulls down interest rates.

That all translates into ultra-low mortgage rates for American households. And with Britain voting for Brexit, they could go even lower.”

However, the lower rates caused by Brexit may be short lived as Trulia Chief Economist Ralph McLaughlin pointed out in a recent post:

“While the departure of the UK from the European Union has driven down the 10-year bond, and thus mortgage rates, we expect them to rebound later in the year as uncertainty over the economic consequences of the departure lifts.”

Bottom Line

Rates are already at historic lows. The UK’s exit from the EU almost certainly guarantees they will remain low (and possibly go lower) over the next few months. If you were thinking of buying your first home or trading up to the house of your dreams, this may be the time to act. The cost of money may never be better for a potential buyer.

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74% of Households in the US Now Have Significant Equity!

74% of Households in the US Now Have Significant Equity! | Simplifying The Market

CoreLogic’s latest Equity Report revealed that 92% of all mortgaged properties are now in a positive equity situation, while 74% now actually have significant equity (defined as more than 20%)! The report also revealed that 268,000 households regained equity in the first quarter of 2016 and are no longer under water.

Price Appreciation = Good News for Homeowners

Frank Nothaft, CoreLogic’s Chief Economist, explains:

“In just the last four years, equity for homeowners with a mortgage has nearly doubled to $6.9 trillion. The rapid increase in home equity reflects the improvement in home prices, dwindling distressed borrowers and increased principal repayment.  

These are all positive factors that will provide support to both household balance sheets and the overall economy.” 

Anand Nallathambi, President & CEO of CoreLogic, believes this is a great sign for the market in 2016 as well, as he had this to say:

“More than 1 million homeowners have escaped the negative equity trap over the past year. We expect this positive trend to continue over the balance of 2016 and into next year as home prices continue to rise.  

Nationally, the CoreLogic Home Price Index was up 5.5% year over year through the first quarter. If home values rise another 5% uniformly across the U.S., the number of underwater borrowers will fall by another one million during the next year.” 

Below is a map illustrating the percentage of households in each state with significant equity: 

74% of Households in the US Now Have Significant Equity! | Simplifying The Market

Many homeowners with more than 20% equity in their home would be able to use that equity as a down payment on either a larger home or even a retirement home.

Bottom Line

If you are one of the many Americans who are unsure of how much equity you have in your home, don’t let that be the reason you fail to move on to your dream home this year!

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Foreclosure Rate Drops to New Post-Crisis Low [INFOGRAPHIC]

Foreclosure Rate Drops to New Post-Crisis Low [INFOGRAPHIC] | Simplifying The Market

Some Highlights:

  • According to CoreLogic, the national foreclosure rate dropped to 1.1% of all homes with a mortgage. This is the lowest percentage experienced since October 2007.
  • April marked the 54th consecutive month of year-over-year declines in foreclosure inventory.
  • Only 3% of homes in the United States are in serious delinquency. More and more homeowners are escaping negative equity as prices rise.

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What’s Happening in the Real Estate Market?

What’s Happening in the Real Estate Market? | Simplifying the Market

This is a pretty common question that a potential home buyer or seller may be asking themselves. Leading economists in real estate converged in New Orleans this past week as they presented their answer to this question at the 50th Annual Real Estate Journalism Conference for the National Association of Real Estate Editors.

Here are the top takeaways from the week of presentations:

Many of the conversations at the conference came back to the impact that Millennials and first-time home buyers will have on the market in the future. Jonathan Smoke, Chief Economist for realtor.com had this to say: 

“At any given time in our history, demographics would explain 60-80% of what’s happening [in the market], and we are in a period of time where Millennials make up a largest demographic group according to the Census, at 84 million.”

According to the National Association of Realtors (NAR), the median first-time home buyer age is 30 and many millennials are entering a prime age to drive the housing market into the future.

Lawrence Yun, Chief Economist for NAR shared that myths and affordability may be holding back potential buyers:

“84% of current renters have the desire to own. While 36% believe they cannot afford a home and 60% of renters believe it would be ‘difficult’ to qualify for a mortgage.

Ellie Mae’s Vice President, Jonas Moe encouraged buyers to know their options before assuming that they do not qualify for a mortgage: 

“Many potential home buyers are ‘disqualifying’ themselves. You don’t need a 750 FICO Score and a 20% down payment to buy.”

The National Multifamily Housing Council (NMHC) revealed that Millennials and Baby Boomers are often competing for the same housing inventory, causing a challenge as these two groups are the largest generations by population.

Both groups are looking for affordable, convenient homes close to city centers and ‘what’s happening.’

Bottom Line

The experts agree that homeownership is still desirable across all demographic groups, with Millennials and Baby Boomers having a great impact on available supply. If your dreams include owning your own home, let’s get together and evaluate your ability to buy now!

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US Housing Market Swings in Favor of Homeownership

US Housing Market Swings in Favor of Homeownership | Simplifying The Market

According to the latest Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index, homeownership is a better way to produce greater wealth, on average, than renting. The results from the first quarter index showed that “16 of the 23 metropolitan markets investigated moved in the direction of buy territory.”

The BH&J Index is a quarterly report that attempts to answer the question: 

Is it better to rent or buy a home in today’s housing market?

“The U.S. housing market, when considered as a whole, has swung marginally more in favor of home ownership over renting a comparable property and investing monthly rent savings in a portfolio of stocks and bonds.”

The latest results were released shortly after the S&P/Case-Shiller Home Price Index, which reported that home prices had climbed 5.4% nationally since March 2015.

Ken Johnson Ph.D., Real Estate Economist & Professor at Florida Atlantic University, and one of the index’s authors states:

“This [growth] appears to be driven by a steady but strengthening job market, rising rents relative to rising ownership costs and recent slower growth in traditional financial portfolios consisting of stocks and bonds.”

Dallas and Denver are two of the major cities that continued to move deeper into rent territory, but they moved at a slower rate than they had in previous quarters. Johnson believes that, in these two markets, “strong economic support…should make for a soft landing in terms of slowing property price growth, increased marketing time for properties and lower probabilities that sellers will actually transact and close during a given marketing effort of their property.”

Bottom Line

Buying a home makes sense socially and financially. Rents are predicted to increase substantially in the next year, so lock in your housing cost with a mortgage payment now.

To Find Out More About the Study: The BH&J Index and other FAU real estate activities are sponsored by Investments Limited of Boca Raton. The BH&J Index is published quarterly and is available online at http://business.fau.edu/buyvsrent.

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Harvard: 5 Reasons Why Owning A Home Makes Sense Financially

Harvard: 5 Reasons Why Owning A Home Makes Sense Financially| Simplifying The Market

We have reported many times that the American Dream of homeownership is alive and well. The personal reasons to own a home differ for each buyer, but there are many basic similarities.

Eric Belsky is the Managing Director of the Joint Center of Housing Studies (JCHS) at Harvard University. He authored a paper on homeownership titled – The Dream Lives On: The Future of Homeownership in America. In his paper, Belsky reveals five financial reasons why people should consider buying a home.

Here are the five reasons, each followed by an excerpt from the study: 

1) Housing is typically the one leveraged investment available.

“Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”

2) You’re paying for housing whether you own or rent.

“Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.” 

3) Owning is usually a form of “forced savings.”

“Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”

4) There are substantial tax benefits to owning.

“Homeowners are able to deduct mortgage interest and property taxes from income…On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.”

5) Owning is a hedge against inflation.

“Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition. 

Bottom Line

We realize that homeownership makes sense for many Americans for an assortment of social and family reasons. It also makes sense financially. If you are considering a purchase this year, let’s get together and evaluate your ability to do so.

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