Rising Prices Help You Build Your Family’s Wealth

Over the next five years, home prices are expected to appreciate, on average, by 3.6% per year and to grow by 18.2% cumulatively, according to Pulsenomics’ most recent Home Price Expectation Survey.

So, what does this mean for homeowners and their equity position?

As an example, let’s assume a young couple purchased and closed on a $250,000 home this January. If we only look at the projected increase in the price of that home, how much equity will they earn over the next 5 years?

Rising Prices Help You Build Your Family’s Wealth | MyKCM

Since the experts predict that home prices will increase by 5.0% in 2018, the young homeowners will have gained $12,500 in equity in just one year.

Over a five-year period, their equity will increase by over $48,000! This figure does not even take into account their monthly principal mortgage payments. In many cases, home equity is one of the largest portions of a family’s overall net worth.

Bottom Line

Not only is homeownership something to be proud of, but it also offers you and your family the ability to build equity you can borrow against in the future. If you are ready and willing to buy, find out if you are able to today!

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You Can Save for a Down Payment Faster Than You Think!

Saving for a down payment is often the biggest hurdle for a first-time homebuyer. Depending on where you live, median income, median rents, and home prices all vary. So, we set out to find out how long it would take to save for a down payment in each state.

Using data from the United States Census Bureau and Zillow, we determined how long it would take, nationwide, for a first-time buyer to save enough money for a down payment on their dream home. There is a long-standing ‘rule’ that a household should not pay more than 28% of their income on their monthly housing expense.

By determining the percentage of income spent renting in each state, and the amount needed for a 10% down payment, we were able to establish how long (in years) it would take for an average resident to save enough money to buy a home of their own.

According to the data, residents in Ohio can save for a down payment the quickest in just under 3 years (2.44). Below is a map that was created using the data for each state:

You Can Save for a Down Payment Faster Than You Think! | MyKCM

What if you only needed to save 3%?

What if you were able to take advantage of one of Freddie Mac’s or Fannie Mae’s 3%-down programs? Suddenly, saving for a down payment no longer takes 5 or 10 years, but becomes possible in a year or two in many states as shown on the map below.

You Can Save for a Down Payment Faster Than You Think! | MyKCM

Bottom Line

Whether you have just started to save for a down payment, or have been saving for years, you may be closer to your dream home than you think! Let’s discuss so I can help you evaluate your ability to buy today.

Three Questions to Ask Before You Invest in Real Estate

It’s important to ask these three questions when you invest in real estate:

  1. How can I increase my rate of return?  The cornerstone of any smart investment strategy is to calculate your rate of return.  With real estate this is done by running the numbers using an internal rate of return (IRR) formula that takes into account:
    • Present Value (PV) – what am I paying out of pocket to get into this investment?
    • Term (N) – what’s my timeline and how long am I going to hold this investment?
    • Periodic Cash Flow (PMT) – what’s my monthly cash flow?
    • Future Value (FV) – what are my net proceeds (after expenses) when I sell the investment?
  2. How does my rate of return with real estate compare with other investment opportunities?  When calculating your rate of return, make sure to account for:
    • Carrying costs (mortgage, taxes, insurance, maintenance, etc.)
    • Your time spent managing the property
    • Vacancy loss if you don’t find a tenant
  3. How can I reduce my risk?  You may want to consider these strategies to reduce your investment risk:
    • Increase your liability insurance in case something goes wrong
    • Consider a rent-to-own strategy where you find a tenant before you find a property
    • Consider mortgage strategies that result in more cash flow and/or better liquidity

Contact me so we can get started on helping you answer these questions!

Housing Prices are NOT Heading for Another Crash

As home values continue to increase at levels greater than historic norms, some are concerned that we are heading for another crash like the one we experienced ten years ago. We recently explained that the lenient lending standards of the previous decade (which created false demand) no longer exist. But what about prices?

Are prices appreciating at the same rate that they were prior to the crash of 2006-2008? Let’s look at the numbers as reported by Freddie Mac:

Housing Prices are NOT Heading for Another Crash | MyKCM

The levels of appreciation we have experienced over the last four years aren’t anywhere near the levels that were reached in the four years prior to last decade’s crash.

We must also realize that, to a degree, the current run-up in prices is the market trying to catch up after a crash that dramatically dropped prices for five years.

Bottom Line

Prices are appreciating at levels greater than historic norms. However, we are not at the levels that led to the housing bubble and bust.

The Real Reason Home Prices are Increasing

The Real Reason Home Prices are Increasing | MyKCM

There are many unsubstantiated theories as to why home values are continuing to increase. From those who are worried that lending standards are again becoming too lenient (data shows this is untrue), to those who are concerned that prices are again approaching boom peaks because of “irrational exuberance” (this is also untrue as prices are not at peak levels when they are adjusted for inflation), there seems to be no shortage of opinion.

However, the increase in prices is easily explained by the theory of supply & demand. Whenever there is a limited supply of an item that is in high demand, prices increase.

It is that simple. In real estate, it takes a six-month supply of existing salable inventory to maintain pricing stability. In most housing markets, anything less than six months will cause home values to appreciate and anything more than seven months will cause prices to depreciate (see chart 1).

The Real Reason Home Prices are Increasing | MyKCM

According to the Existing Home Sales Report from the National Association of Realtors (NAR), the monthly inventory of homes has been below six months for the last four years (see chart 2).

The Real Reason Home Prices are Increasing | MyKCM

Bottom Line

If buyer demand outpaces the current supply of existing homes for sale, prices will continue to appreciate. Nothing nefarious is taking place. It is simply the theory of supply & demand working as it should.

Home Prices: The Difference 5 Years Makes

 

Home Prices: The Difference 5 Years Makes

The economists at CoreLogic recently released a special report entitled, Evaluating the Housing Market Since the Great Recession. The goal of the report was to look at economic recovery since the Great Recession of December 2007 through June 2009.

One of the key indicators used in the report to determine the health of the housing market was home price appreciation. CoreLogic focused on appreciation from December 2012 to December 2017 to show how prices over the last five years have fared.

Frank Nothaft, Chief Economist at CoreLogic, commented on the importance of breaking out the data by state,

“Homeowners in the United States experienced a run-up in prices from the early 2000s to 2006, and then saw the trend reverse with steady declines through 2011. After finally reaching bottom in 2011, home prices began a slow rise back to where we are now.

Greater demand and lower supply – as well as booming job markets – have given some of the hardest-hit housing markets a boost in home prices. Yet, many are still not back to pre-crash levels.”

The map below was created to show the 5-year appreciation from December 2012 – December 2017 by state.

Home Prices: The Difference 5 Years Makes | Keeping Current Matters

Nationally, the cumulative appreciation over the five-year period was 37.4%, with a high of 66% in Nevada, and a modest increase of 5% in Connecticut.

Where were prices expected to go?

Every quarter, Pulsenomics surveys a nationwide panel of over 100 economists, real estate experts, and investment and market strategists and asks them to project how residential home prices will appreciate over the next five years for their Home Price Expectation Survey (HPES).

According to the December 2012 survey results, national homes prices were projected to increase cumulatively by 23.1% by December 2017. The bulls of the group predicted home prices to rise by 33.6%, while the more cautious bears predicted an appreciation of 11.2%.

Where are prices headed in the next 5 years?

Data from the most recent HPES shows that home prices are expected to increase by 18.2% over the next 5 years. The bulls of the group predict home prices to rise by 27.4%, while the more cautious bears predict an appreciation of 8.3%.

Bottom Line

Every day, thousands of homeowners regain positive equity in their homes. Some homeowners are now experiencing values even higher than before the Great Recession. If you’re wondering if you have enough equity to sell your house and move on to your dream home, contact a local real estate professional who can help!

The Truth About Homeowner Equity

The Truth About Homeowner Equity | MyKCM

A recent article from a reputable news source was titled: Here’s why some homeowners still can’t sell. In the opening bullets of the article, the author claimed, “Negative equity is one of the main reasons why there are so few homes for sale.” The article then goes on to soften that stance but we want to bring better clarity to the equity situation.

A recent report from CoreLogic (which was quoted in the article) revealed that over 80% of all homes now have “significant equity,” which means the home has over 20% equity. That level of equity allows the homeowner to sell their home if they so desire. (There was no reference to significant equity in the article.)

If eight out of ten homeowners now have significant equity in their homes, it is hard to make the claim that lack of equity is “one of the main reasons why there are so few homes for sale.”

Here is a map showing the percentage of homes in each state which currently have significant equity:

The Truth About Homeowner Equity | MyKCM

Bottom Line

If you are one of many homeowners who is debating selling your home and are wondering how much equity you have accumulated, let’s get together to determine if now is the time to list.