[caption id="" align="alignnone" width="648"] Moving Up[/caption] If you are considering selling your current home, to either moving up to a larger home or into a home in an area that better suits your current family needs, great news was just revealed. Last week, Trulia posted a blog, Not Your Father’s Housing Market, which examined home affordability over the last 40+ years (1975-2016). Their research revealed that:
“Nationally, homes are just about the most affordable they’ve been in the last 40 years… the median household could afford a home 1.5 times more expensive than the median home price. In 1980, the median household could only afford about 3/4 of the median home price. Despite relatively stagnant incomes, affordability has grown due to the sharp drop in mortgage rates over the last 30 years – from a high of over 16% in the 1980s to under 4% by 2016. Of the nation’s 100 largest metros, only Miami became unaffordable between 1990 and 2016. Meanwhile, 22 metros have flipped from being unaffordable to becoming affordable in that same time frame.”Here is a graph showing the Affordability Index compared to the 40-year average: [caption id="attachment_37198" align="alignnone" width="650"] Affordability Index[/caption]
The graph shows that housing affordability is better now than at any other time in the last forty years, except during the housing crash last decade.(Remember that during the crash you could purchase distressed properties – foreclosures and short sales – at 20-50% discounts.) There is no doubt that with home prices and mortgage rates on the rise, the affordability index will continue to fall. That is why if you are thinking of moving up, you probably shouldn’t wait.
Bottom LineIf you have held off on moving up to your family’s dream home because you were hoping to time the market, that time has come.
[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.
- Don’t forget to set your clocks forward this Sunday, March 11th at 2:00 AM EST in observance of Daylight Saving Time.
- Unless of course, you are a resident of Arizona or Hawaii!
- Every hour in the United States: 614 homes are sold, 81 homes regain equity (meaning they are no longer underwater on their mortgage), and the median home price rises $1.51!
[caption id="" align="alignnone" width="648"] Housing Bubble[/caption] A recent report by CoreLogic revealed that U.S. home values appreciated by more than 37% over the last five years. Some are concerned that this is evidence we may be on the verge of another housing “boom & bust” like the one we experienced from 2006-2008. Recently, several housing experts weighed in on the subject to alleviate these fears.
Sean Becketti, Freddie Mac Chief Economist
“The evidence indicates there currently is no house price bubble in the U.S., despite the rapid increase of house prices over the last five years.”
Edward Golding, a Senior Fellow at the Urban Institute’s Housing Finance Policy Center
“There is not likely to be a national bubble in the way that we saw the first decade of the century.”
Christopher Thornberg, Partner at Beacon Economics
“There is no direct or indirect sign of any kind of bubble.”
Bill McBride, Calculated Risk
“I wouldn’t call house prices a bubble.”
David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices
“Housing is not repeating the bubble period of 2000-2006.”A recent article by Teo Nicolais, a real estate entrepreneur who teaches courses on real estate principles, markets, and finance at Harvard Extension School concluded that the next housing bubble may not occur until 2024. The article, How to Use Real Estate Trends to Predict the Next Housing Bubble, looks at previous peaks in real estate values going all the way back to 1818. Nicolais uses the research of several economists. The article details the four phases of a real estate cycle and what defines each phase. Nicolais concluded his article by saying:
“Those who study the financial crisis of 2008 will (we hope) always be weary of the next major crash. If George, Harrison, and Foldvary are right, however, that won’t happen until after the next peak around 2024. Between now and then, aside from the occasional slow down and inevitable market hiccups, the real estate industry is likely to enjoy a long period of expansion.”
Bottom LineThe reason for the price appreciation we are seeing is an imbalance between supply and demand for housing. This has created a natural increase in values, not a bubble in prices. Contact me if you'd like to see research of home prices in your town!
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!
Thinking of Selling Your Home?The number of building permits issued for single-family homes is the best indicator of how many newly built homes will rise over the next few months. According to the latest U.S. Census Bureau and U.S. Department of Housing & Urban Development Residential Sales Report, the number of these permits were up 7.4% over last year.
How will this impact buyers?More inventory means more options. Lawrence Yun, NAR’s Chief Economist, explained this is good news for the housing market – especially for those looking to buy:
“This rise in single-family housing construction will help tame home price growth, and the increase in multifamily units should continue to help slow rent growth.”
How will this impact sellers?More inventory means more competition. Today, because of the tremendous lack of inventory, a seller can expect:
- A great price on their home as buyers outbid each other for it
- A quick sale as buyers have so little to choose from
- Fewer hassles as buyers don’t want to “rock the boat” on the deal
“Because existing home inventory has been so low for so long, new construction is taking a larger share of the market…Builders meet the buyers and see the demand firsthand.”
Bottom LineIf you are considering selling your home, you’ll want to beat this new competition to market to ensure you get the most attention for your listing and the best price. Call me at 516-429-9399 if you would like to discuss.
[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.