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.
There are two debt consolidation scenarios that are gaining popularity in today’s economy:
1 – If you already own a home: a debt consolidation loan is typically where you trade in your lower-balance home loan for a higher-balance home loan. You could then use the “cash-out” proceeds to pay off other debt.
2 – If you are buying a new home: a debt consolidation loan is typically where you reduce your down payment and use a bigger mortgage on the purchase of your new home. The extra money you have left over could then be used to pay off other debt.Here are three questions you can ask yourself to determine if a debt consolidation loan makes financial sense for you:
What’s my after-tax interest cost on each debt? For example, home loan debt may be tax-deductible while credit card debt is not. Please reference IRS publication 936 and see a CPA or tax advisor for more details.
What’s my “blended interest rate” before and after the debt consolidation loan? This is basically the weighted average interest rate you’re paying on all your debts combined.
What will I do with the extra monthly cash flow? For example, if you roll in your car loan balance into the mortgage balance, you’d be spreading out your car payments over 30 years whereas your car loan would otherwise have been paid off in 3 or 4 years. This might only make financial sense if you invest your extra cash flow or if you make extra principal payments on your mortgage.
Please contact me for more information or to run the numbers for your specific scenario!
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.
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%.
Why the dramatic increase?
The reasons for this change are plentiful. The top two reasons are:
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).
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.
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.
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.
If you take out a mortgage for home improvement purposes, the IRS may ask you to prove the project was a “substantial improvement” that:
Adds to the value of the home,
Prolongs the home’s useful life, or
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.
CoreLogic released their most current Home Price Index last week. In the report, they revealed home appreciation in three categories: percentage appreciation over the last year, over the last month and projected over the next twelve months.
Here are state maps for each category:
The Past – home appreciation over the last 12 months
The Present – home appreciation over the last month
The Future – home appreciation projected over the next 12 months
Homes across the country are appreciating at different rates. If you plan on relocating to another state and are waiting for your home to appreciate more, you need to know that the home you will buy in another state may be appreciating even faster.
Yesterday, we shared the results of the latest Home Price Expectation Survey by Pulsenomics. One of the big takeaways from the survey is that over the next five years, home prices will appreciate 3.5% per year on average, and cumulatively will grow by around 18%.
So what does this mean for homeowners and their equity position?
For example, let’s assume a young couple purchased and closed on a $250,000 home in January of this year. If we only look at the projected increase in the price of that home, how much equity would they earn over the next 5 years?
Since the experts predict that home prices will increase by 4.5% this year alone, the young homeowners will have gained over $11,000 in equity in just one year.
Over a five-year period, their equity will increase by over $46,000! 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 home ownership something to be proud of, 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, let’s meet up to find out if you are able to today!
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: