Every three years, the Federal Reserve conducts a Survey of Consumer Finances in which they collect data across all economic and social groups. The latest survey, which includes data from 2010-2013, reports that a homeowner’s net worth is 36 times greater than that of a renter ($194,500 vs. $5,400).In a Forbesarticle, the National Association of Realtors’ (NAR)Chief Economist Lawrence Yun predicts that in 2016 the net worth gap will widen even further to 45 times greater.
The graph below demonstrates the results of the last two Federal Reserve studies and Yun’s prediction:
Put Your Housing Cost to Work for You
Simply put, homeownership is a form of ‘forced savings.’ Every time you pay your mortgage, you are contributing to your net worth. Every time you pay your rent, you are contributing to your landlord’s net worth.
The latest National Housing Pulse Surveyfrom NAR reveals that 85% of consumers believe that purchasing a home is a good financial decision. Yun comments:
“Though there will always be discussion about whether to buy or rent, or whether the stock market offers a bigger return than real estate, the reality is that homeowners steadily build wealth. The simplest math shouldn’t be overlooked.”
If you are interested in finding out if you could put your housing cost to work for you by purchasing a home, let’s get together to discuss your next steps.
If you are debating purchasing a home right now, you are probably getting a lot of advice. Though your friends and family will have your best interest at heart, they may not be fully aware of your needs and what is currently happening in the real estate market.
Answering the following 3 questions will help you determine if now is actually a good time for you to buy in today’s market.
1. Why am I buying a home in the first place?
This truly is the most important question to answer. Forget the finances for a minute. Why did you even begin to consider purchasing a home? For most, the reason has nothing to do with money.
For example, a recent survey by Braun showed that over 75% of parents say “their child’s education is an important part of the search for a new home.”
This survey supports a study by the Joint Center for Housing Studies at Harvard University which revealed that the four major reasons why people buy a home have nothing to do with money. They are:
A good place to raise children and for them to get a good education
A place where you and your family feel safe
More space for you and your family
Control of that space
What does owning a home mean to you? What non-financial benefits will you and your family gain from owning a home? The answer to that question should be the biggest reason you decide to purchase or not.
2. Where are home values headed?
According to the latest Home Price Index from CoreLogic, home values are projected to increase by 5.3% over the next 12 months.
What does that mean to you?
Simply put, if you are planning on buying a home that costs $250,000 today, that same home will cost you an additional $13,250 if you wait till next year. Your down payment will need to be higher as well to account for the higher home price.
3. Where are mortgage interest rates headed?
A buyer must be concerned about more than just prices. The ‘long term cost’ of a home can be dramatically impacted by even a small increase in mortgage rates.
The Mortgage Bankers Association (MBA), the National Association of Realtors, Fannie Mae and Freddie Mac have all projected that mortgage interest rates will increase over the next twelve months as you can see in the chart below:
Only you and your family will know for certain if now is the right time to purchase a home. Answering these questions will help you make that decision.
The widespread myth that perfect credit and large down payments are necessary to buy a home are holding many potential home buyers on the sidelines. According toEllie Mae’s latest Origination Report, the average FICO score for all closed loans in May was 724, far lower than the 750 or 800 that many buyers believe to be true.
Below is a graph of the distribution of FICO scores of approved loans in May (the latest available data):
Looking at the chart above, it becomes obvious that not only do you not need a 750+ credit score, but 54.9% of approved loans actually had a score between 600 and 749.
More and more experts are speaking up about the fact that if potential buyers realized they could be approved for a mortgage with a credit score at, or above, 600, the distribution in the chart above would shift further to the left.
Ellie Mae’s Vice President, Jonas Moe encouraged buyers to know their options before assuming that they do not qualify for a mortgage:
“The high median credit score is due to many millennials believing they won’t qualify with the score they have – and are therefore waiting to apply for a mortgage until they have the score they think they need.”(emphasis added)
CoreLogic’s latest MarketPulse Report agrees that the median FICO score does not always tell the whole story:
“The observed decline in originations could be a result of potential applicants being either too cautious or discouraged from applying, more so than tight underwriting as the culprit in lower mortgage activity.”
It’s not just millennials who believe high credit scores and large down payments are needed. Many current homeowners are delaying moving on to a home that better fits their current needs due to a belief that they would not qualify for a mortgage today.
So what does this all mean?
Moe put it this way:
“Many potential home buyers are ‘disqualifying’ themselves. You don’t need a 750 FICO Score and a 20% down payment to buy.”
If you are one of the many Americans who has always thought homeownership was out of your reach, let’s get together to start the process of getting you pre-qualified and see if you are able to buy now!
Last week, the National Association of Realtors(NAR) released their Pending Home Sales Index, a forward-looking indicator of home sales based on contract signings. The report revealed that this May’s numbers weren’t quite as good as the year before:
“With last month’s decline, the index reading is still the third highest in the past year, but declined year-over-year for the first time since August 2014.”
The mainstream media ran headlines highlighting that the index had dropped for the first time in two years. Many read this as an indication that the housing market must be slowing down.
If you were thinking that now may be the perfect time to put your house on the market, these reports may have caused you some concern. We want to alleviate that concern today.
Though it is true that the index dropped in last month’s report, let’s take a closer look at the numbers. Below is a graph of the index since January 2014. We can see that the index has increased every month over the last eighteen months, leading up to this past May. Lawrence Yun, Chief Economist at NAR, explained that it wasn’t a slowing of the market that caused the index to slip, but instead a lack of housing inventory:
“Total housing inventory at the end of each month has remarkably decreased year-over-year now for an entire year. There are simply not enough homes coming onto the market to catch up with demand.”
Here is a graph depicting the situation Yun was referencing:
Did the latest numbers from the Pending Home Sales Index cause you to question if now is a good time to put your house on the market? If anything, it indicated the exact opposite: that this may be the perfect time to sell!!
Every homeowner wants to make sure they get the best price when selling their home. But how do you guarantee that you receive maximum value for your house? Here are two keys to ensuring you get the highest price possible.
1. Price it a LITTLE LOW
This may seem counterintuitive. However, let’s look at this concept for a moment. Many homeowners think that pricing their home a little OVER market value will leave them room for negotiation. In actuality, this just dramatically lessens the demand for your house (see chart below).
Instead of the seller trying to ‘win’ the negotiation with one buyer, they should price it so that demand for the home is maximized. In that way, the seller will not be fighting with a buyer over the price, but instead will have multiple buyers fighting with each other over the house.
Realtor.com, gives this advice:
“Aim to price your property at or just slightly below the going rate. Today’s buyers are highly informed, so if they sense they’re getting a deal, they’re likely to bid up a property that’s slightly underpriced, especially in areas with low inventory.”
2. Use a Real Estate Professional
This too may seem counterintuitive. The seller may think they would net more money if they didn’t have to pay a real estate commission. With this being said, studies have shown that homes typically sell for more money when handled by a real estate professional.
Research posted by the Economists’ Outlook Blog revealed that:
“The median selling price for all FSBO homes was $210,000 last year. When the buyer knew the seller in FSBO sales, the number sinks to the median selling price of $151,900. However, homes that were sold with the assistance of an agent had a median selling price of $249,000 – nearly $40,000 more for the typical home sale.”
Price your house at or slightly below the current market value and hire a professional. That will guarantee you maximize the price you get for your house.
In today’s housing market, where supply is very low and demand is very high, home values are increasing rapidly. One major challenge in such a market is the bank appraisal.
If prices are surging, it is difficult for appraisers to find adequate, comparable sales (similar houses in the neighborhood that closed recently) to defend the price when performing the appraisal for the bank.
Every month, Quicken Loans measures the disparity between what a homeowner believes their house is worth as compared to an appraiser’s evaluation in their Home Price Perception Index (HPPI). Here is a chart showing that difference for each of the last 12 months.
The gap between the homeowner vs. appraiser’s opinion has started to head in the right direction (closer to even), as June saw a slight decrease from May’s -1.95% to -1.89% nationally.
Homeowners in the western part of the country, however, have been pleasantly surprised as their homes have appraised higher than they expected. Denver received its highest HPPI last month as homes came in an average of 3.28% higher than the homeowner believed it would. Nine of the twelve metro areas that had a positive HPPI last month were located in the west.
Quicken Loans’ Chief Economist, Bob Walters explains:
“The hot housing markets along the West Coast are growing quicker than owners realize, giving way to higher than expected prices for buyers and more home equity for existing owners.
On the other hand, the housing markets are more balanced in the East and Midwest, leading owners to be slightly over-enthusiastic about their home’s appreciation.”
Every house on the market has to be sold twice; once to a prospective buyer and then to the bank (through the appraisal process). With escalating prices, the second sale might be even more difficult than the first. If you are planning on entering the housing market this year, let’s get together to talk about what’s happening in our area.
Almost every real estate conversation revolves around the continuous rise in house values over the last four years. Some have even mentioned a concern about another possible bubble forming. However, the recent increase in prices can be attributed to a very simple principle: supply and demand.
Demand for single-family housing has continued to increase as the economy slowly moves forward. Recent surveys have shown that over 80% of each generation still believes that homeownership is a part of the American Dream. And a recent Gallup survey showed that Americans believe that real estate is the best long-term investment.
Over the last several years, many homeowners were unable to put their homes on the market for an assortment of reasons (family finances, no or limited equity in the home). There has been a pent-up supply of sellers who have wanted to move but couldn’t. Below is a graph depicting the number of years families have historically stayed in a home. We can see there is pent-up seller demand.
As the economy improves and more families reach the point of significant equity (20%), we will see these homes come to market. As supply then matches demand, the acceleration of home price increases will begin to slow.
If you are one of the families that have been chained to your current home over the last 5-7 years, now may be the time to break free and find the home of your dreams.