75% of Renters Have Been Misinformed
Recently, multiple headlines have been written asserting that homeownership is less affordable today than at any other time in the last decade. Though the headlines are accurate, they lack context and lead too many Americans to believe that they can’t partake in a major part of the American Dream – owning a home.
In 2008, the housing market crashed and home values fell by as much as 60% in certain markets. This was the major trigger to the Great Recession we experienced from 2008 to 2010. To come back from that recession, mortgage interest rates were pushed down to levels that were never seen before.
For the last ten years, you could purchase a home at a dramatically discounted price and attain a mortgage at a historically low mortgage rate.
Now that home values have returned to where they should be, and mortgage rates are beginning to increase, it is less affordable to own a home than it was over the last ten years.
However, what is not being reported is that it is MORE AFFORDABLE to own a home today than at any other time since 1985 (when data was first collected on this point).
If you take out the years after the crash, affordability today is greater than it has been at almost any time in American history.
This has not been adequately reported which has led to many Americans believing that they cannot currently afford a home.
As an example, the latest edition of Freddie Mac’s Research: Profile of Today’s Renter reveals that 75% of renters now believe it is more affordable to rent than to own their own homes. This percentage is the highest ever recorded. The challenge is that this belief is incorrect. Study after study has proven that in today’s market, it is less expensive to own a home than it is to rent a home in the United States.
Thankfully, some are starting to see this situation and accurately report on it. The National Association of Realtors, in their 2019 Housing Forecast, mentions this concern:
“While the U.S. is experiencing historically normal levels of affordability, potential buyers may be staying out of the market because of perceived problems with affordability.”
If you are one of the many renters who would like to own their own homes, let’s get together to find out if homeownership is affordable for you right now.
Are We About to Enter a Buyers’ Market?
Home sales are below last year’s levels, home values are appreciating at a slower pace, and there are reports showing purchasing demand softening. This has some thinking we may be entering a buyers’ market after sellers have had the upper hand for the past several years. Is this really happening?
The market has definitely softened. However, according to two chief economists in the industry, we are a long way from a market that totally favors the purchaser:
“These seller challenges don’t indicate we’re suddenly in a buyers’ market – we don’t expect market conditions to shift decidedly in favor of buyers until 2020 or later. But buyers certainly are starting to balk at the rapid rise in prices and home values are starting to grow at a less frenetic pace.”
“The signs are pointing to a market that’s shifting toward buyers. But, in most places, we’re still a long way from a full reversal.”
In addition, Pulsenomics Inc. recently surveyed over one hundred economists, real estate experts, and investment & market strategists and asked this question:
“When do you expect U.S. housing market conditions to shift decidedly in favor of homebuyers?”
Only 5% said the market has already shifted. Here are the rest of the survey results:
The market is beginning to normalize but that doesn’t mean we will quickly shift to a market favoring the buyer. We believe Ivy Zelman, author of the well-respected ‘Z’ Report, best explained the current confusion:
“With the rate of home price appreciation starting to decelerate alongside the uptick in inventory…we expect significant debate about whether this is a bullish or bearish sign.
In our view, the short-term narrative will probably be confusing, but more sustainable growth and affordability will likely be the end result.”
What Does the Future Hold for Home Prices?
Home prices are at the top of everyone’s minds. Can they maintain their current pace of appreciation? Will rising mortgage rates negatively impact home values? Will the next economic slowdown cause prices to crash?
Let’s try to answer these questions based on what has happened in the past as well as what we know about the current real estate market.
The Impact of Rising Interest Rates
We explained earlier this year that rising mortgage rates have not negatively impacted home prices in the past and probably wouldn’t this time either. Freddie Mac’s comments were very direct:
“In the current housing market, the driving force behind the increase in prices is a low supply of both new and existing homes combined with historically low rates. As mortgage rates increase, the demand for home purchases will likely remain strong relative to the constrained supply and continue to put upward pressure on home prices.”
They were correct. So far this year, home values have continued to appreciate above normal historic percentages and it appears the gradual increase in rates has had little impact on prices.
The Impact of an Economic Slowdown
Many people fear that when the economy turns, we may see the same depreciation in home values as we did a decade ago.
However, we recently reported that the same group of economists, real estate experts, and investment & market strategists who predicted the next recession will occur in the next 18-24 months have also projected that house prices will continue to appreciate for the next five years, albeit at smaller percentages.
It Comes Down to Supply and Demand
As always, home prices will be determined by the demand to purchase compared to the available inventory of homes for sale. For the last six years, demand has far exceeded the available supply which has resulted in the average annual appreciation to top 6% since 2012. That is far greater than the historic norm of 3.6% annual appreciation that we saw prior to the housing boom.
There are currently small signs that housing inventory is slowly beginning to increase. Months supply of houses for sale matched last year’s numbers for the last two months after 37 consecutive months of decreasing inventory. New construction data has also shown positive signs that inventory will be increasing.
As inventory begins to meet demand, we will see appreciation return to more normal levels. We are already seeing projections coming in lower than the 6.2% annual average we have seen more recently.
CoreLogic is predicting that home values will appreciate by 5.1% over the next twelve months and the Home Price Expectation Survey calls for values to increase by 4.2% in 2019.
Mark Fleming, Chief Economist at First American, explained it best:
“We’re seeing the first indications that price appreciation may be slowing, but the underlying fundamental housing market conditions support a natural moderation of house prices rather than a sharp decline.”
4 Reasons To Buy A Home This Fall
There are quite a few compelling reasons discussed in depth in our free Fall 2018 buyers guide that will help you decide that now is the time to buy. Here are the main points. Download the guide today and then call me personally at (850) 420-7200 with any questions.
1. Prices Will Continue to Rise
2. Mortgage Interest Rates Are Projected to Increase
3. Either Way, You Are Paying a Mortgage
4. It’s Time to Move on with Your Life
Rent or Buy: Either Way You’re Paying A Mortgage!
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.”
With home prices rising, many renters are concerned about their house-buying power. Mark Fleming, Chief Economist at First American, explained:
“Over the last three years, renter house-buying power has increased fast enough to keep pace with house price appreciation, so the share of homes that a renter can afford to buy has remained the same since 2015.
Although mortgage rates are expected to rise, they are still low by historic standards, and real household incomes are the highest they have ever been. Assuming this trend continues, our measure of affordability, which takes into account income, interest rates, and house prices, indicates thathomeownership is still within reach for renters.”
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 4.51% last week.
Whether 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.
5 Reasons to Hire a Real Estate Professional Now!
Whether you are buying or selling a home, it can be quite the adventure. In this world of instant gratification and internet searches, many sellers think that they can ‘For Sale by Owner’ or ‘FSBO,’ but it’s not as easy as it may seem. That’s why you need an experienced real estate professional to guide you on the path to achieving your ultimate goal!
The 5 reasons you need a real estate professional in your corner haven’t changed but have rather been strengthened by the projections of higher mortgage interest rates and home prices as the market continues to pick up steam.
1. What do you do with all this paperwork?
Each state has different regulations regarding the contracts required for a successful sale, and these regulations are constantly changing. A true real estate professional is an expert in his or her market and can guide you through the stacks of paperwork necessary to make your dream a reality.
2. So you found your dream house, now what?
There are over 230 possible steps that need to take place during every successful real estate transaction. Don’t you want someone who has been there before, someone who knows what these actions are, to ensure you achieve your dream?
3. Are you a good negotiator?
So maybe you’re not convinced that you need an agent to sell your home. After looking at the list of parties that you will need to be prepared to negotiate with, you’ll soon realize the value in selecting a real estate professional. From the buyers (who want the best deals possible), to the home inspection companies, all the way to the appraisers, there are at least 11 different people who you will need to be knowledgeable of, and answer to, during the process.
4. What is the home you’re buying/selling really worth?
It is important for your home to be priced correctly from the start in order to attract the right buyers and shorten the amount of time that it’s on the market. You need someone who is not emotionally connected to your home to give you its true value. According to a recent article by the National Association of Realtors, FSBOs achieve prices significantly lower than the prices of similar properties sold by real estate agents:
“FSBOs earn an average of $60,000 to $90,000 less on the sale of their homethan sellers who work with a real estate agent.”
Get the most out of your transaction by hiring a professional!
5. Do you know what’s really going on in the market?
There is so much information out there on the news and on the internet about home sales, prices, and mortgage rates; how do you know what’s going on specifically in your area? Who do you turn to in order to competitively and correctly price your home at the beginning of the selling process? How do you know what to offer on your dream home without paying too much, or offending the seller with a lowball offer?
Dave Ramsey, the financial guru, advises:
“When getting help with money, whether it’s insurance, real estate or investments, you should always look for someone with the heart of a teacher, not the heart of a salesman.”
Hiring an agent who has his or her finger on the pulse of the market will make your buying or selling experience an educated one. You need someone who is going to tell you the truth, not just what they think you want to hear.
You wouldn’t replace the engine in your car without a trusted mechanic, so why would you make one of the most important financial decisions of your life without hiring a real estate professional?
Owning Your Home Can Help You Retire Sooner!
In a CNBC article, self-made millionaire David Bach explained that: “Buying a home is the escalator to wealth in America. Homeownership can also help you retire early, that is, if you pay your mortgage off.”
Bach suggests that homebuyers should, “Take out a 30-year mortgage, but with the intention of paying it off in 25, 20 or ideally, 15 years.”
How does he suggest you do this? Here’s the secret:
“…If you were paying $1,000 a month, now you’re going to make $1,100 payments every month. Inform the bank that you are doing this and that you want the extra $100 a month to be applied to the principal (not the interest).”
What will happen to your mortgage?
Bach explains that, “If you keep this up, you’ll wind up paying off your 30-year mortgage in about 25 years. Increase your monthly payment by 20 percent, and you’ll have that mortgage retired in about 22 years.”
Whenever a well-respected millionaire gives investment advice, people usually clamor to hear it. This millionaire gave simple advice – buy a home and pay off your mortgage early so that you can retire sooner with the money you will have saved!
Who is David Bach?
Bach is a self-made millionaire who has written nine consecutive New York Times bestsellers. His book, “The Automatic Millionaire,” spent 31 weeks on the New York Times bestseller list. He is one of the only business authors in history to have four books simultaneously on the New York Times, Wall Street Journal, BusinessWeek and USA Today bestseller lists.
He has been a contributor to NBC’s Today Show, appearing more than 100 times, as well as a regular on ABC, CBS, Fox, CNBC, CNN, Yahoo, The View, and PBS. He has also been profiled in many major publications, including the New York Times, BusinessWeek, USA Today, People, Reader’s Digest, Time, Financial Times, Washington Post, the Wall Street Journal, Working Woman, Glamour, Family Circle, Redbook, Huffington Post, Business Insider, Investors’ Business Daily, and Forbes.
4 REAL Reasons Why We Buy A Home!
We often talk about why it makes financial sense to buy a home, but more often than not, the emotional reasons are the more powerful or compelling ones.
No matter what shape or size your living space is, the concept and feeling of home can mean different things to different people. Whether it’s a certain scent or a favorite chair, the emotional reasons why we choose to buy our own homes are typically more important to us than the financial ones.
1. Owning your home offers you the stability to start and raise a family
Between the best neighborhoods and the best school districts, even buyers without children at the time of purchase may have these things in mind as major reasons for choosing the locations of the homes that they purchase.
2. There’s no place like home
Owning your own home offers you not only safety and security, but also a comfortable place that allows you to relax after a long day!
3. You have more space for you and your family
Whether your family is expanding, an older family member is moving in, or you need to have a large backyard for your pets, you can take this all into consideration when buying your dream home!
4. You have control over renovations, updates, and style
Looking to actually try one of those complicated wall treatments that you saw on Pinterest? Tired of paying an additional pet deposit in your apartment building? Or maybe you want to finally adopt that puppy or kitten you’ve seen online 100 times? Who’s to say that you can’t do just that in your own home?
Whether you are a first-time homebuyer or a move-up buyer who wants to start a new chapter in your life, now is a great time to reflect on the intangible factors that make a house a home.