No one likes to have a budget – I know I don’t but the reality is that it is one of the most important financial fundamentals you need to succeed. It is the ground work for creating Wealth. So let me share this – think of it as a Spending Plan instead and focus your energies on spending in the right places.
Building Trust and Relationships into Homes & Great Experiences
In our business, the most profound assets that we possess are your respect and trust
thanks to the following for sharing
The Keyes Company – Wade & Barnwell Realty Group
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 Forbes article 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 Survey from 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, meet with a real estate professional in your area who can guide you through the process.
So here we go again, people are getting themselves all worked up over how hard it is to get a mortgage and how hard it is to buy a home. Yes, even those who should know better are looking for ways to lower standards so more people can qualify for mortgages. Are you kidding me? Has anyone forgotten what happens when you lower standards? Did we not just get through an entire era where everyone thought it was a great idea to lend people money that had no chance of repaying it on some misguided effort to grow percentage of ownership in this country only to find out that this was a bad idea and almost bankrupted the world?
We do NOT need to lower standards; we need to TEACH fundamental financial management in our schools at a very early age. We need to teach SAVING. We need to teach people about CREDIT, DEBT, and DISCIPLINE! We need to stop sending kids to colleges and universities who are borrowing huge sums of money in pursuit of a degree that won’t get them a job that pays enough to repay their obligations. We need to provide more opportunities to train our children in a skilled labor and technical trades that can provide great incomes for far less money than college cost and reduce the demand on these institutions so the cost of that education will go DOWN due to less demand. We need to understand that there are people in this world that will NEVER be in a position to OWN a home because it isn’t the best situation for them. We also need to understand a few basic concepts.
- If you want to buy a home and can prove you are in a position to repay the money you want to borrow, there is no shortage of mortgage money.
- With such a shortage of available homes for sale in many markets across the country, why the sudden need to find MORE BUYERS to fight over that limited supply?
- In most of the country, renting is more expensive than ownership; shouldn’t we be looking into generating more rental opportunities?
- As more and more people conduct their business outside a tradition office setting, and even some work many miles away and rarely if ever make a trip to a traditional office location, why aren’t we moving out of the cities that are too congested and find or grow new or smaller areas of the country where it is far cheaper to acquire land and build?
As a country we need to take a breath and stop over reacting to everything. Everyone needs realize that so much of the self-absorbed behavior and the almost constant victimization just need to stop. If you are offended, then get over yourself. Grow up and realize that being offended by everything is YOUR PROBLEM, not anyone else’s problem. You’re NOT entitled to own a home in this country. You are not entitled to an equal outcome. You are not entitled to be offended. You have freedoms and liberty and the choice to do with that the best you can to suit your own personal needs. That’s it. No guarantee, just opportunity. And while I am at it, let’s get rid of all the participation trophies. We need to go back and teach winning and losing. It feels good to win and it really stinks to lose. If you don’t like losing than practice and get better or quit and go find something you can win at.
So as the government begins another push to “level the playing field” by lowering standards and making it “easier” for people to borrow money. Maybe we need to take a step back and ask ourselves if this is really a good idea since we have already seen what will happen? Stop lowering the standards and spend your time making better people!
Questions or comments: Mike@IMTcoaching.com or visit us online at http://imtcoaching.com
TWO REASONS WHY THE RECENT UPTICK IN HOUSE PRICES IS NOT A BUBBLE
The last time house prices went up considerably, they plummeted 30% from their peak in 2006. Are we gearing up for a similar decline in light of the recent uptick in house prices? Apparently not, according to a study recently conducted by the Federal Reserve Bank of San Francisco (click here to view the full study). Here’s why:
1 – House prices are much more affordable compared to rents than they were during 2005-2006. In those days, it was actually more affordable to rent vs. buy in most markets. The red line in the chart illustrates how the price-to-rent ratio today is about 25% lower than it’s peak in 2006. This is partly because rents have gone up in recent years, which provides some “fundamental justification for the upward price movement” in house prices.
2 – Homebuyers today owe less on their mortgages as compared to their income than homebuyers during 2005-2006. In those days, the mortgage-debt-to-income ratio was much higher than normal, and that’s what fueled the bubble. The blue line in the chart reached an all-time high in 2007, and has been steadily declining ever since. Today, the growth in house prices is not being fueled by over-leverage. It’s being fueled by new household formation and lack of housing supply.
We have reported many times that the American Dream of homeownership is alive and well. The personal reasons to own differ for each buyer, with many basic similarities. Eric Belsky, the Managing Director of the Joint Center of Housing Studies at Harvard University expanded on the top 5 financial benefits of home ownership in his paper –The Dream Lives On: the Future of Home ownership in America. 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.”
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, contact a local professional who can help evaluate your ability to do so.