[caption id="" align="alignnone" width="648"] Save for a down payment[/caption] 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:
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. [caption id="attachment_37177" align="alignnone" width="650"] Save for a down payment[/caption]
Bottom LineWhether 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 meet up so I can help you evaluate your ability to buy today.
Here are four great reasons to consider buying a home today instead of waiting.
Prices Will Continue to RiseCoreLogic’s latest Home Price Index reports that home prices have appreciated by 6.6% over the last 12 months. The same report predicts that prices will continue to increase at a rate of 4.3% over the next year. The bottom in home prices has come and gone. Home values will continue to appreciate for years. Waiting no longer makes sense.
Mortgage Interest Rates Are Projected to IncreaseFreddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year mortgage hovered close to 4.0% in 2017. Most experts predict that rates will rise over the next 12 months. The Mortgage Bankers Association, Fannie Mae, Freddie Mac and the National Association of Realtors are in unison, projecting that rates will increase by nearly a full percentage point by this time next year. An increase in rates will impact YOUR monthly mortgage payment. A year from now, your housing expense will increase if a mortgage is necessary to buy your next home.
Either Way, You Are Paying a MortgageThere are some renters who have not yet purchased a home because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that unless you are living with your parents rent-free, you are paying a mortgage – either yours or your landlord’s. As an owner, your mortgage payment is a form of ‘forced savings’ that allows you to have equity in your home that you can tap into later in life. As a renter, you guarantee your landlord is the person with that equity. Are you ready to put your housing cost to work for you?
It’s Time to Move on with Your LifeThe ‘cost’ of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise. But what if they weren’t? Would you wait? Look at the actual reason you are buying and decide if it is worth waiting. Whether you want to have a great place for your children to grow up, you want your family to be safer, or you just want to have control over renovations, maybe now is the time to buy.
If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could lead to substantial savings.
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. Nationally, the cumulative home price 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). National homes prices were projected to increase cumulatively by 23.1% by December 2017, according to the December 2012 survey results. 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?Home prices are expected to increase by 18.2% over the next 5 years according to data from the most recent HPES. 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 LineEvery 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, stop wondering! Let’s get together to discuss conditions in your neighborhood!
[caption id="" align="alignnone" width="648"] Are Home Values Really Overinflated[/caption] Last week, the National Association of Realtors (NAR) released their most recent Existing Home Sales Report. According to the report:
“The median existing-home price for all housing types in January was $240,500, up 5.8 percent from January 2017 ($227,300). January’s price increase marks the 71st straight month of year-over-year gains.”Seventy-one consecutive months of price increases may have some concerned that current home values may be overinflated. However, at the same time, Zillow issued a press release which revealed:
“If the housing bubble and bust had not happened, and home values had instead appreciated at a steady pace, the median home value would be higher than its current value.”Here are two graphs that help show why home prices are exactly where they should be. The first graph shows actual median home sales prices from 2000 through 2017. [caption id="attachment_37136" align="alignnone" width="650"] Are Home Values Really Overinflated[/caption] By itself, this graph could heighten concerns as it shows home values rose in the early 2000s, came tumbling down and are now headed up again. It gives the feel of a rollercoaster ride that is about to take another turn downward. However, if we also include where prices would naturally be, had there not been a boom & bust, we see a different story. The blue bars on this graph represent were prices would be if they had increased by the normal annual appreciation rate (3.6%). By adding 3.6% to the actual 2000 price and repeating that for each subsequent year, we can see that prices were overvalued during the boom, undervalued during the bust, and a little bit LOWER than where they should be right now.
Bottom LineBased on historic appreciation levels, we should be very comfortable that current home values are not overinflated.
- The Cost of Waiting to Buy is defined as the additional funds it would take to buy a home if prices & interest rates were to increase over a period of time.
- Freddie Mac predicts interest rates to rise to 5.1% by 2019.
- CoreLogic predicts home prices to appreciate by 4.3% over the next 12 months.
- If you are ready and willing to buy your dream home, find out if you are able to!
There are some people who have not purchased homes because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize, however, that unless you are living with your parents rent-free, you are paying a mortgage – either yours or your landlord’s. As Entrepreneur Magazine, a premier source for small business, explained in their article, “12 Practical Steps to Getting Rich”:
“While renting on a temporary basis isn’t terrible, you should most certainly own the roof over your head if you’re serious about your finances. It won’t make you rich overnight, but by renting, you’re paying someone else’s mortgage. In effect, you’re making someone else rich.”Christina Boyle, Senior Vice President and head of the Single-Family Sales & Relationship Management organization at Freddie Mac, explains another benefit of securing a mortgage as opposed to paying rent:
“With a 30-year fixed rate mortgage, you’ll have the certainty & stability of knowing what your mortgage payment will be for the next 30 years – unlike rents which will continue to rise over the next three decades.”As an owner, your mortgage payment is a form of ‘forced savings’ which allows you to build equity in your home that you can tap into later in life. As a renter, you guarantee the landlord is the person building that equity. Interest rates are still at historic lows, making it one of the best times to secure a mortgage and make a move into your dream home. Freddie Mac’s latest report shows that rates across the country were at 4.22% last week.
Bottom LineWhether you are looking for a primary residence for the first time or are considering a vacation home on the shore, now may be the time to buy.
[caption id="" align="alignnone" width="648"] Home Buyer Myths[/caption] Urban Institute recently released a report entitled, “Barriers to Accessing Homeownership,” which revealed that “eighty percent of consumers either are unaware of how much lenders require for a down payment or believe all lenders require a down payment above 5 percent.”
Myth #1: “I Need a 20% Down Payment”Buyers often overestimate the down payment funds needed to qualify for a home loan. According to the same report:
“Consumers are often unaware of the option to take out low-down-payment mortgages. Only 19% of consumers believe lenders would make loans with a down payment of 5% or less… While 15% believe lenders require a 20% down payment, and 30% believe lenders expect a 20% down payment.”These numbers do not differ much between non-owners and homeowners; 39% of non-owners believe they need more than 20% for a down payment and 30% of homeowners believe they need more than 20% for a down payment. While many believe that they need at least 20% down to buy their dream home, they do not realize that programs are available that allow them to put down as little as 3%. Many renters may actually be able to enter the housing market sooner than they ever imagined with programs that have emerged allowing less cash out of pocket.
Myth #2: “I Need a 780 FICO® Score or Higher to Buy”Similar to the down payment, many either don’t know or are misinformed about what FICO® score is necessary to qualify. Many Americans believe a ‘good’ credit score is 780 or higher. To help debunk this myth, let’s take a look at Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans. As you can see in the chart above, 53.5% of approved mortgages had a credit score of 600-749.
Bottom LineWhether buying your first home or moving up to your dream home, knowing your options will make the mortgage process easier. Your dream home may already be within your reach.
- Atlas Van Lines recently released the results of their annual Migration Patterns Survey in which they tracked their customer’s movement from state-to-state over the course of 2017.
- Idaho held on to the top spot of ‘high inbound’ states for the 2nd year in a row followed by Washington.
- The ‘outbound’ states seem to draw a line straight across the country from Connecticut to Wyoming.
Home PricesOver the next five years, home prices are expected to appreciate on average by 3.35% per year and to grow by 24.34% 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 purchases and closes on a $250,000 home this month (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? [caption id="attachment_36730" align="alignnone" width="650"] Home Prices[/caption] Since the experts predict that home prices will increase by 4.2% in 2018, the young homeowners will have gained $10,500 in equity in just one year. Over a five-year period, their equity will increase by nearly $45,000! 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 LineNot 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!
- Existing home sales are currently at an annual pace of 5.81 million, the highest pace since December 2006.
- The inventory of existing homes for sale has dropped year-over-year for the last 30 consecutive months and is now at a 3.4-month supply.
- NAR’s Chief Economist Lawrence Yun had this to say: “Faster economic growth in recent quarters, the booming stock market and continuous job gains are fueling substantial demand for buying a home as 2017 comes to an end.”