How Long Do Most Families Stay in Their Home?

How Long Do Most Families Stay in Their Home? | MyKCM

The National Association of Realtors (NAR) keeps historical data on many aspects of homeownership. One of the data points that has changed dramatically is the median tenure of a family in a home. As the graph below shows, for over twenty years (1985-2008), the median tenure averaged exactly six years. However, since 2008, that average is almost nine years – an increase of almost 50%.

How Long Do Most Families Stay in Their Home? | MyKCM

Why the dramatic increase?

The reasons for this change are plentiful!

The fall in home prices during the housing crisis left many homeowners in a negative equity situation (where their home was worth less than the mortgage on the property). Also, the uncertainty of the economy made some homeowners much more fiscally conservative about making a move.

With home prices rising dramatically over the last several years, 93.7% of homes with a mortgage are now in a positive equity situation with 79.1% of them having at least 20% equity, according to CoreLogic.

With the economy coming back and wages starting to increase, many homeowners are in a much better financial situation than they were just a few short years ago.

One other reason for the increase was brought to light during a recent presentation by Lawrence Yun, the Chief Economist of NAR, at the Realtor’s Summit in San Diego, CA. Yun pointed to the fact that historically, young homeowners who were either looking for more space to accommodate their growing family or looking for a better school district were more likely to move more often (every 5 years). The homeownership rate among young families, however, has still not caught up to previous generations resulting in the jump we have seen in median tenure!

What does this mean for housing?

Many believe that a large portion of homeowners are not in a house that is best for their current family circumstances. They could be baby boomers living in an empty, four-bedroom colonial, or a millennial couple planning to start a family that currently lives in a one-bedroom condo.

These homeowners are ready to make a move. Since the lack of housing inventory is a major challenge in the current housing market, this could be great news.

Where Are the Home Prices Heading in the Next 5 Years?

Where Are the Home Prices Heading in the Next 5 Years? | MyKCM

Today, many real estate conversations center on housing prices and where they may be headed. That is why we like the Home Price Expectation Survey.

Every quarter, Pulsenomics surveys a nationwide panel of over one hundred economists, real estate experts, and investment & market strategists about where they believe prices are headed over the next five years. They then average the projections of all 100+ experts into a single number.

The results of their latest survey:

Home values will appreciate by 4.4% over the course of 2017, 3.4% in 2018, 2.8% in 2019, 2.7% in 2020, and 2.8% in 2021. That means the average annual appreciation will be 3.22% over the next 5 years.

Where Are the Home Prices Heading in the Next 5 Years? | MyKCM

The prediction for cumulative appreciation fell from 21.4% to 17.3% by 2021. The experts making up the most bearish quartile of the survey are projecting a cumulative appreciation of 6.3%.

Where Are the Home Prices Heading in the Next 5 Years? | MyKCM

Bottom Line

Individual opinions make headlines. We believe this survey is a fairer depiction of future values.

3 REASONS WHY BUYING A VACATION HOME COULD BE A GREAT INVESTMENT

Couple Standing on Balcony Looking At The Ocean

1 – House Price AppreciationTHREE REASONS WHY BUYING A VACATION HOME COULD BE A GREAT INVESTMENT

The average rate of house price appreciation in the US over the past 20 years has been over 3% per year.  This means that if you bought a vacation home 20 years ago for $100,000, it would likely be worth over $180,000 today.  If you used a 20% down payment, your $20,000 investment would have yielded more than an 8% annual rate of return.

2 – Ability to Rent Out the Property and/or Save Money on Hotels

You may be able to rent the property for part of the year that you’re not using it.  Additionally, you could save some money on hotel bills if you vacation in your own property instead of vacationing in a hotel.  These factors could help you to reduce your cost of ownership.

3 – Step-up in Tax Basis

If you keep the property for your entire lifetime, your heirs will likely receive a “step-up in basis” when they inherit the property.  This means that their tax basis “steps up to” the future value of the property.  In our example above, if the property is worth $180,000 when your heirs inherit it, their tax basis would be $180,000.  This means that they could sell the property and pay absolutely nothing in capital gains taxes.

Contact me for more information or to consider your mortgage options.

How Long Do Families Stay in a Home?

How Long Do Families Stay in a Home? | MyKCM

The National Association of Realtors (NAR) keeps historic data on many aspects of homeownership. One of the data points that has changed dramatically is the median tenure of a family in a home. As the graph below shows, for over twenty years (1985-2008), the median tenure averaged exactly six years. However, since 2008, that average is almost nine years – an increase of almost 50%.

How Long Do Families Stay in a Home? | MyKCM

Why the dramatic increase?

The reasons for this change are plentiful. The top two reasons are:

  1. The fall in home prices during the housing crisis left many homeowners in a negative equity situation (where their home was worth less than the mortgage on the property).
  2. The uncertainty of the economy made some homeowners much more fiscally conservative about making a move.

However, with home prices rising dramatically over the last several years, over 90% of homes with a mortgage are now in a positive equity situation with 70% of them having at least 20% equity.

And, with the economy coming back and wages starting to increase, many homeowners are in a much better financial situation than they were just a few short years ago.

What does this mean for housing?

Many believe that a large portion of homeowners are not in a house that is best for their current family circumstances. They could be baby boomers living in an empty, four-bedroom colonial, or a millennial couple planning to start a family that currently lives in a one-bedroom condo.

These homeowners are ready to make a move. Since the lack of housing inventory is a major challenge in the current housing market, this could be great news.

Buying a Home is Now 37.7% Cheaper Than Renting.

Buying is Now 37.7% Cheaper Than Renting in the US | MyKCM

The results of the latest Rent vs. Buy Report from Trulia show that homeownership remains cheaper than renting with a traditional 30-year fixed rate mortgage in the 100 largest metro areas in the United States.

The updated numbers actually show that the range is an average of 17.4% less expensive in Honolulu (HI), all the way up to 53.2% less expensive in Miami & West Palm Beach (FL), and 37.7% nationwide!

Other interesting findings in the report include:

  • Interest rates have remained low, and even though home prices have appreciated around the country, they haven’t greatly outpaced rental appreciation.
  • Home prices would have to appreciate by a range of over 23% in Honolulu (HI), up to over 45% in Ventura County (CA), to reach the tipping point of renting being less expensive than buying.
  • Nationally, rates would have to reach 9.1%, a 145% increase over today’s average of 3.7%, for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.

Bottom Line

Buying a home makes sense socially and financially. If you are one of the many renters out there who would like to evaluate your ability to buy this year, let’s get together to help you find your dream home.

2 REASONS WHY YOU SHOULD KEEP YOUR HOME IMPROVEMENT RECEIPTS

home-improvement-receipt.jpg

If you take out a mortgage for home improvement purposes, the IRS may ask you to prove the project was a “substantial improvement” that:

  1. Adds to the value of the home,
  2. Prolongs the home’s useful life, or
  3. Adapts the home to new uses.  For example, painting a room may not qualify, but an addition or new kitchen may qualify.

 

Keeping the receipts from your home improvement project would go a long way toward proving this. Also, keep in mind that the IRS gives you 24 months to reimburse yourself for improvements made in the past, or 12 months to complete future improvements. For more details, please reference IRS Publication 936, and see my article called, Three Things You Should Know About Pulling Cash Out for Home Improvement.

2: Ability to Reduce Your Capital Gains Tax:

Capital Gain is calculated by taking your sales price, minus your costs of selling the house, minus your “tax basis” (see illustration).  Tax basis is the total cost of buying, building or improving your house.  When you make a “substantial improvement”, the cost of the home improvement is added to your tax basis.  This reduces your capital gain when you sell the house, and it could save you quite a bit of money on capital gains taxes.  That’s another reason why it’s important to keep your home improvement receipts.

Please see a CPA for further details on the deductibility of mortgage interest or the capital gains tax in your specific scenario.  Contact me for further information on your mortgage options.

1: Ability to Deduct Your Mortgage Interest:

Real Estate Values Today Compared to Pre-2008 Peak

Real Estate Values Today Compared to Pre-2008 Peak | MyKCM

This housing market has many people talking about home values; where they are and where they are headed. It’s also interesting to look back and see how home prices compare to values prior to the housing crisis.

Every quarter, Freddie Mac releases their House Price Index. The index usually provides monthly home values for:

  • the nation as a whole
  • each of the 50 states
  • 367 metropolitan statistical areas

This quarter, the report also included a look at today’s home values as compared to Pre-2008 values. Here is a graphic that breaks down the numbers on a state-by-state basis:

Real Estate Values Today Compared to Pre-2008 Peak | MyKCM