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.
It’s important to ask these three questions when you invest in real estate:
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?
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:
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.
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%.
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!
Over the next five years, home prices are expected to appreciate 3.64% per year on average and to grow by 18.4% 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 in January. If we look at only the projected increase in the price of that home, how much equity will they earn over the next 5 years?
Since the experts predict that home prices will increase by 5.0% this year alone, the young homeowners will have gained $12,500 in equity in just one year.
Over a five-year period, their equity will increase by nearly $49,000! 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.
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!
According to Bankrate’s latest Financial Security Index Poll, Americans who have money to set aside for the next 10 years would rather invest in real estate than any other type of investment.
Bankrate asked Americans to answer the following question:
“What is the best way to invest money you wouldn’t need for 10 years or more?”
Real Estate came in as the top choice with 28% of all respondents (3% higher than last year), while cash investments – such as savings accounts and CD’s – came in second with 23% (the same as last year). The chart below shows the full results:
The article points out several reasons for these results:
“After bottoming out at the end of 2011 following the worst housing collapse in generations, home prices have gone gangbusters recently, climbing back above their record pre-crisis levels. Prices jumped 6.6 percent during the 12 months that ended in May, according to CoreLogic.
Toss in persistently low interest rates, tax goodies that come with owning a mortgage, and the psychological payoff from planting your roots, and maybe it’s no wonder real estate remains popular.”
The article also revealed that:
“Bankrate’s Financial Security Index — based on survey questions about how people feel about their debt, savings, net worth, job security and overall financial situation — has hit its third-highest level since the poll’s inception in December 2010.”
We have often written about the financial and non-financial reasons homeownership makes sense. It is nice to see that Americans still believe in homeownership as the best investment.
Owning a home has great financial benefits, yet many continue renting! Today, let’s look at the financial reasons why owning a home of your own has been a part of the American Dream for as long as America has existed.
“With Rents continuing to climb and interest rates staying low, many renters find themselves gazing over the homeownership fence and wondering if the grass really is greener. Leaving aside, for the moment, the difficulties of saving for a down payment, let’s focus on the monthly expenses of owning a home: it turns out that renters currently paying the median rent in many markets could afford to buy a higher-quality property than the typical (read: median-valued) home without increasing their monthly expenses.”
What proof exists that owning is financially better than renting?
1. The latestRent Vs. Buy Report from Trulia pointed out the top 5 financial benefits of homeownership:
Mortgage payments can be fixed while rents go up.
Equity in your home can be a financial resource later.
You can build wealth without paying capital gain.
A mortgage can act as a forced savings account
Overall, homeowners can enjoy greater wealth growth than renters.
2. Studies have shown that a homeowner’s net worth is 45x greater than that of a renter.
3. Just a few months ago, we explained that a family buying an average priced home at the beginning of 2017 could build more than $42,000 in family wealth over the next five years.
4. Some argue that renting eliminates the cost of taxes and home repairs, but every potential renter must realize that all the expenses the landlord incurs are already baked into the rent payment –along with a profit margin!!
Owning a home has always been, and will always be, better from a financial standpoint than renting.
Home values have risen dramatically over the last twelve months. The latest Existing Home Sales Report from the National Association of Realtors puts the annual increase in the median existing-home price at 7.1%. CoreLogic, in their most recent Home Price Insights Report, reveals that national home prices have increased by 6.9% year-over-year.
The CoreLogic report broke down appreciation even further into four different price categories:
Lower Priced Homes: priced at 75% or less of the median
Low-to-Middle Priced Homes: priced between 75-100% of the median
Middle-to-Moderate Priced Homes: priced between 100-125% of the median
High Price Homes: priced greater than 125% of the median
Here is how each category did in 2016:
The lower priced homes (which are more in demand) appreciated at greater rates than the homes at the upper ends of the spectrum.
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.