Every year, Gallupsurveys Americans to determine their choice for the best long-term investment. Respondents are given a choice between real estate, stocks, gold, and savings accounts.
For the sixth year in a row, real estate has come out on top as the best long-term investment! That has not always been the case. Gallup explains:
“Between 2008 and 2010, covering most of the Great Recession period that saw plummeting home and stock values, Americans were as likely to name savings accounts or CDs as the best long-term investment as they were to name stocks or real estate.”
This year’s results showed that 35% of Americans chose real estate, followed by stocks at 27%. The full results are shown in the chart below.
Now that the real estate market has recovered, so has the belief of the American people in the stability of housing as a long-term investment.
Every three years, the Federal Reserve conducts their Survey of Consumer Finances. Data is collected across all economic and social groups. The latest survey data covers 2013-2016.
The study revealed that the median net worth of a homeowner is $231,400 – a 15% increase since 2013. At the same time, the median net worth of renters decreased by 5% ($5,200 today compared to $5,500 in 2013).
These numbers reveal that the net worth of a homeowner is over 44 times greater than that of a renter.
Owning a home is a great way to build family wealth.
As we’ve said before, simply put, homeownership is a form of ‘forced savings.’ Every time you pay your mortgage, you are contributing to your net worth by increasing the equity in your home.
That is why Gallupreported that Americans picked real estate as the best long-term investment for the fifth year in a row. According to this year’s results, 34% of Americans chose real estate. Stocks followed at 26%, and then gold, savings accounts/CDs, or bonds.
If you want to find out how you can use your monthly housing cost to increase your family’s wealth, let’s get together to guide you through the process.
If your plan for 2019 includes selling your home, you will want to pay attention to where experts believe home values are headed. According to the latest Home Price Index from CoreLogic, home prices increased by 4.7% over the course of 2018.
The map below shows the results of the latest index by state.
Real estate is local. Each state appreciates at different levels. The majority of the country saw at least a 2.0% gain in home values, while some residents in North Dakota and Louisiana may have felt prices slow slightly.
This effect will be short lived. In the same report, CoreLogic forecasts that every state in the Union will experience at least 2.0% appreciation, with the majority of the country gaining at least 4.0%! The prediction for the country comes in at 4.6%. For a median-priced home, that translates to over $14,000 in additional equity next year! (The map below shows the forecast by state.)
So, how does this help you list your home for the best price?
Armed with the knowledge of how much experts believe your house will appreciate this year, you will be able to set an appropriate price for your listing from the start. If homes like yours are appreciating at 4.0%, you won’t want to list your home for more than that amount!
One of the biggest mistakes homeowners make is pricing their homes too high and reducing the price later when they do not get any offers. This can lead buyers to believe that there may be something wrong with the home, when in fact the price was just too high for the market.
Pricing your home right from the start is one of the most challenging parts of selling your home. Once you decide to list your house, let’s get together to discuss where home values are headed in your area!
Homeowners who purchase their homes before the age of 35 are better prepared for retirement at age 60, according to a new Urban Institute study. The organization surveyed adults who turned 60 or 61 between 2003 and 2015 for their data set.
“Today’s older adults became homeowners at a younger age than today’s young adults. Half the older adults in our sample bought their first house when they were between 25 and 34 years old, and 27 percent bought their first home before age 25.”
The full breakdown is in the chart below:
The study goes on to show the impact of purchasing a home at an early age. Those who purchased their first homes when they were younger than 25 had an average of $10,000 left on their mortgage at age 60. The 50% of buyers who purchased in their mid-twenties and early-30s had close to $50,000 left, but traditionally had purchased more expensive homes.
Many housing experts are concerned that the homeownership rate amongst millennials, those 18-34, is much lower than previous generations in the same age range. The study results gave a great reason why this generation should consider buying instead of signing a renewal on their lease:
“As people age into retirement, they rely more heavily on their wealth rather than their income to support their lifestyles. Today’s young adults are failing to build housing wealth, the largest single source of wealth, at the same rate as previous generations.
While people make the choice to own or rent that suits them at a given point, maybe more young adults should take into account the long-term consequences of renting when homeownership is an option.”
If you are one of the many young people debating whether buying a home this year is right for you, let’s get together to discuss your options!
Economists and analysts know that the country has experienced economic growth for almost a decade. They also know that a recession can’t be too far off. A recent report by Zillow Research shed light on a survey conducted by Pulsenomics in which they asked economists, investment strategists and market analysts how they felt about the current housing market. That report revealed the possible timing of the next recession:
“Experts largely expect the next recession to begin in 2020.”
That timing concurs with a recent survey of economists by the Wall Street Journal:
“The economic expansion that began in mid-2009 and already ranks as the second-longest in American history most likely will end in 2020 as the Federal Reserve raises interest rates to cool off an overheating economy, according to forecasters surveyed.”
Here is a graph comparing the opinions of those surveyed by both the Wall Street Journal and Pulsenomics:
Recession DOES NOT Equal Housing Crisis
According to the Merriam-WebsterDictionary, a recession is defined as follows:
“A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”
A recession means the economy has slowed down markedly. It does not mean we are experiencing another housing crisis. Obviously, the housing crash of 2008 caused the last recession. However, during the previous five recessions home values appreciated.
According to the experts surveyed by Pulsenomics, the top three probable triggers for the next recession are:
A stock market correction
A housing market correction was ranked ninth in probability. Those same experts also projected that home values would continue to appreciate in 2019, 2020, 2021 and 2022.
Others agree that housing will not be impacted like it was a decade ago.
Mark Fleming, First American’s Chief Economist, explained:
“If a recession is to occur, it is unlikely to be caused by housing-related activity, and therefore the housing sector should be one of the leading sources to come out of the recession.”
Since 2011 home values have increased significantly throughout the country, with prices rising by 5.1% in 2018 alone. When surveyed, homeowners revealed the top four reasons why they felt their homes had increased in value.
Improved National Economy
Improved Local Economy
Low Home Inventory in My Area
As we can see, not only does the data show that the homes have appreciated, but homeowners also believe they know why. Many have taken advantage of the opportunity to use their newly found equity to sell their current house and move up to their dream home!
2019 will be a good year for the homeowners that still want to take advantage of their home equity! CoreLogicforecasts that home prices will increase by 4.8% by the end of the year.
If you are a homeowner who would like to find out your current home value, let’s get together to discuss the hidden opportunities in your home!
There is no doubt that theprice of a home in most regions of the country is greater now than at any time in history. However, when we look at the cost of a home, it is cheaper to own today than it has been historically.
The Difference Between PRICE and COST
The price of a home is the dollar amount you and the seller agree to at the time of purchase. The cost of a home is the monthly expense you pay for your mortgage payment.
To accurately compare costs in different time periods, we must look at home prices, mortgage rates, and wages during each period. Home prices were less expensive years ago, but paychecks were also smaller and mortgage rates were much higher (the average mortgage interest rate in 1988 was 10.34%).
The best way to measure the COST of a home is to determine what percentage of income is necessary to buy a home at the time. That would take into account the price of the home, the mortgage interest rate and wages at the time.
Zillow just released research that examined home costs using this formula. The research compares the historic percentage of income necessary to afford a mortgage to the percentage needed today. It also revealed the cost if mortgage rates continue to rise as experts are predicting. Here is a graph of their findings*:
Rates would need to jump to 7% in order for the percentage of necessary income to be greater than historic norms.
Whether you are a homeowner considering selling your current house and moving up to the home of your dreams, or a first-time buyer trying to purchase your first home, it’s a great time to move forward.
*Assumptions in the Zillow report: Buyer puts 20% down, takes out a conforming, 30-year fixed-rate mortgage at rates prevailing at the time, earns the median household income, and is buying a median-valued home.
This month, Arch Mortgage Insurance released their spring Housing and Mortgage Market Review. The report explained that an increase in mortgage rates and/or home prices would impact monthly payments this way:
A 5% increase in home prices increases payments by roughly 5%
A 1% rise in interest rates increases payments by roughly 13% or 14%
That begs the question…
What if both rates and prices increase as predicted?
The report revealed:
“If interest rates and home prices rise by year-end in the ballpark of what most analysts are forecasting, monthly mortgage payments on a new home purchase could increase another 10–15%. That would make 2018 one of the worst full-year deteriorations in affordability for the past 25 years.”
The percent increase in mortgage payments would negatively impact affordability. But, how would affordability then compare to historic norms?
Per the report:
“For the U.S. overall, even if affordability were to deteriorate as forecasted, affordability would still be reasonable by historic norms. That is because the percentage of pre-tax income needed to buy a typical home in 2019 would still be similar to the historical average during 1987–2004. Thus, nationally at least, even with higher rates and home prices, affordability will just revert to historical norms.”
What about home prices?
A decrease in affordability will cause some concern about home values. Won’t an increase in mortgage payments negatively impact the housing market? The report addressed this question:
“Even recent interest rate increases and higher taxes on some upper-income earners didn’t slow the market, as many had feared…Short of a war or stock market crash, housing markets could continue to surprise on the upside over the next few years.”
To this point, Arch Mortgage Insurance also revealed their Risk Index which estimates the probability of home prices being lower in two years. The index is based on factors such as regional unemployment rates, affordability, net migration, housing starts and the percentage of delinquent mortgages.
Below is a map depicting their projections (the darker the blue, the lower the probability of a price decrease):
If interest rates and prices continue to rise as projected, the monthly mortgage payment on a home purchased a year from now will be dramatically more expensive than it would be today.