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Don’t Let Rising Rents Trap You!

Don't Let Rising Rents Trap You! | Simplifying The Market

Don’t Let Rising Rents Trap You!

There are many benefits to homeownership. One of the top ones is being able to protect yourself from rising rents and lock in your housing cost for the life of your mortgage.

 

Don’t Become Trapped

Jonathan Smoke, Chief Economist at realtor.com recently reported on what he calls a “Rental Affordability Crisis”. He warns that,

“Low rental vacancies and a lack of new rental construction are pushing up rents, and we expect that they’ll outpace home price appreciation in the year ahead.”

The Joint Center for Housing Studies at Harvard University recently released their 2015 Report on Rental Housing, in which they reported that 49% of rental households are cost-burdened, meaning they spend more than 30% of their income on housing. These households struggle to save for a rainy day and pay other bills, such as food and healthcare.

It’s Cheaper to Buy Than Rent 

In Smoke’s article, he went on to say,

“Housing is central to the health and well-being of our country and our local communities. In addition, this (rental affordability) crisis threatens the future value of owned housing, as the burdensome level of rents will trap more aspiring owners into a vicious financial cycle in which they cannot save and build a solid credit record to eventually buy a home.”

 “While more than 85% of markets have burdensome rents today, it’s perplexing that in more than 75% of the counties across the country, it is actually cheaper to buy than rent a home. So why aren’t those unhappy renters choosing to buy?”

Know Your Options

Perhaps, you have already saved enough to buy your first home. HousingWire reported that analysts at Nomura believe:

“It’s not that Millennials and other potential homebuyers aren’t qualified in terms of their credit scores or in how much they have saved for their down payment.

It’s that they think they’re not qualified or they think that they don’t have a big enough down payment.” (emphasis added)

Many first-time homebuyers who believe that they need a large down payment may be holding themselves back from their dream home. As we reported last week, in many areas of the country, a first-time home buyer can save for a 3% down payment in less than two years. You may have already saved enough!

Bottom Line

Don’t get caught in the trap so many renters are currently in. If you are ready and willing to buy a home, find out if you are able. Have a professional help you determine if you are eligible to get a mortgage.

Equity Matters A LOT… Just Ask Freddie Mac

Equity Matters A LOT... Just Ask Freddie Mac | Simplifying The Market

Equity Matters A LOT… Just Ask Freddie Mac

There are many reasons, both financial and non-financial, that homeownership remains an important part of the American Dream. One of the biggest reasons is the fact that it helps build family wealth. Recently, Freddie Mac wrote about the power of home equity. They explained:

 

“In the simplest terms, equity is the difference between how much your home is worth and how much you owe on your mortgage. You build equity by paying down your mortgage over time and through your home's appreciation. In a nutshell, your money is working for you and contributing toward your financial future.”

They went on to show an example where a person bought a home for $150,000 with a down payment of 10% ($15K), resulting in a loan amount of $135,000. The buyer secured a 30-year fixed-rate mortgage at 4.5% with a monthly mortgage payment of $684.03 (not including taxes and insurance).

The chart below demonstrates the home equity built after 7 years of making mortgage payments and assuming the historic national average of 3% per year home appreciation:

Home Equity | Simplifying The Market

And that number continues to build as you continue to own the home. 

Merrill Lynch published a report earlier this year that showed the average equity homeowners have acquired by certain ages.

Average Home Equity | Simplifying The Market

Bottom Line

Home equity is important to building wealth as a family. Referring to the first scenario above, Freddie Mac explained:

“Now, if you continued to rent, and made the same payment of $684.03 per month, you'd have zero equity and no means to build it. Building equity is a critical part of homeownership and can help you create financial stability.”

Put your housing cost to work for you and your family. Let's get together to explore your options.

How to Get the Most Money from the Sale of Your House

How to Get the Most Money from the Sale of Your House | Simplifying The Market

How to Get the Most Money from the Sale of Your House

Every homeowner wants to make sure they maximize the financial reward when selling their home. But, how do you guarantee that you receive maximum value for your house? Here are two keys to insuring you get the highest price possible.

 

1. Price it a LITTLE LOW

This may seem counterintuitive. However, let’s look at this concept for a moment. Many homeowners think that pricing their home a little OVER market value will leave them room for negotiation. In actuality, this just dramatically lessens the demand for your house. (see chart)

Impact of Price on Visibility | Keeping Current Matters

Instead of the seller trying to ‘win’ the negotiation with one buyer, they should price it so demand for the home is maximized. In that way, the seller will not be fighting with a buyer over the price but instead will have multiple buyers fighting with each other over the house.

In a recent article on realtor.com, they gave this advice:

“Aim to price your property at or just slightly below the going rate. Today’s buyers are highly informed, so if they sense they’re getting a deal, they’re likely to bid up a property that’s slightly underpriced, especially in areas with low inventory.”

2. Use a Real Estate Professional

This too may seem counterintuitive. The seller may think they would net more money if they didn’t have to pay a real estate commission. Yet, studies have shown that typically homes sell for more money when handled by a real estate professional.

Recent research posted by the Economists’ Outlook Blog revealed:

“The median selling price for all FSBO homes was $210,000 last year. When the buyer knew the seller in FSBO sales, the number sinks to the median selling price of $151,900. However, homes that were sold with the assistance of an agent had a median selling price of $249,000 – nearly $40,000 more for the typical home sale.”

Median Selling Price FSBO vs Agent | Keeping Current Matters

Bottom Line

Price it at or slightly below the current market value and hire a professional. That will guarantee you maximize the price you get for your house.

Selling Your Home? The Importance of Using a Real Estate Professional

Selling Your Home? The Importance of Using a Real Estate Professional | Simplifying The Market

Selling Your Home? The Importance of Using a Real Estate Professional

When a homeowner decides to sell their house, they obviously want the best possible price with the least amount of hassles. However, for the vast majority of sellers, the most important result is to actually get the home sold.

 

In order to accomplish all three goals, a seller should realize the importance of using a real estate professional. We realize that technology has changed the purchaser’s behavior during the home buying process. For the past three years, 92% of all buyers have used the internet in their home search according to the National Association of Realtors’ most recent Profile of Home Buyers & Sellers.

However, the report also revealed that 95% percent of buyers that used the internet when searching for a home purchased their home through either a real estate agent/broker or from a builder or builder’s agent. Only 2% purchased their home directly from a seller whom the buyer didn’t know.

Buyers search for a home online but then depend on an agent to find the actual home they will buy (53%) or negotiate the terms of the sale & price (48%) or understand the process (60%).

The plethora of information now available has resulted in an increase in the percentage of buyers that reach out to real estate professionals to “connect the dots”. This is obvious, as the percentage of overall buyers who used an agent to buy their home has steadily increased from 69% in 2001.

Bottom Line

If you are thinking of selling your home, don’t underestimate the role a real estate professional can play in the process.

The Importance of Home Equity to a Family

The Importance of Home Equity to a Family | Simplifying The Market

The Importance of Home Equity to a Family

There has been much written about how dramatically home values have increased over the last several years. With the increase in values, comes an increase in the equity each home owning family now has. The Joint Center of Housing Studies at Harvard University recently reported that, after taking inflation into account, aggregate home equity has increased 60% since 2010. And home equity is the major component of most family’s overall wealth.

 

Why is this so important?

Throughout history, families have tapped into their homes for many important reasons. Perhaps it was to get seed capital to start a new business; perhaps to help finance their children’s college education; perhaps to get needed medical attention not covered by insurance.

Up to ten years ago, families were able to use the equity in their homes to better the living situation for themselves and their family. More small businesses were created. College students weren’t forced to take on massive student debt. People could get needed medical care.

This hasn’t been the case over the last ten years as families found themselves in a position of having zero equity or, even worse, negative equity post the housing collapse. However, that is about to change.

Using your home as an ATM is not a good idea.

We realize that there are inherent risks to tapping into the equity in your home especially if you do it for the wrong reasons. Back in 2005-2007, homeowners were using their homes as their own personal ATM machine to buy depreciating assets like cars, boats and jet skis. This reckless behavior should never be repeated.

However, using your equity (aka family wealth) to invest in yourself, your children or other family members that could use help still makes sense. And the good news is that more and more families can do this as home values continue to increase.

Bottom Line

Home equity gives families an additional financial option when money is needed. The proper use of this family wealth can be used to grow generational wealth.

As Julián Castro, U.S. Secretary of HUD, recently explained:

“Generation after generation, the primary vehicle to create wealth in our country has been through homeownership. In the U.S., homeownership has provided an opportunity for one generation to hand over to the next that opportunity and that wealth.”

Homeownership Builds Wealth and Offers Stability

Homeownership Builds Wealth and Offers Stability | Simplifying The Market

Homeownership Builds Wealth and Offers Stability

The most recent Housing Pulse Survey released by the National Association of Realtors revealed that the two major reasons Americans prefer owning their own home instead of renting are:

 

  1. They want the opportunity to build equity.
  2. They want a stable and safe environment.

Building Equity

In a recent article, John Taylor, CEO of the National Community Reinvestment Coalition, explained that those who lack the opportunity to become homeowners have a weakened ability to reinvest their wealth:

“We traditionally have been huge supporters of homeownership. We see it as a way to provide stability for households but also as an asset-building strategy. If you continue to be a renter, locked out of the homeownership arena, increasingly those things are further and further out of reach. They’re joined at the hip. They perpetuate each other.”

Family Stability

Does owning your home really create a more stable environment for your family?

survey of property managers conducted by rent.com last month disclosed two reasons tenants should feel less stable with their housing situation:

  • 68% of property managers predict that rental rates will continue to rise in the next year by an average of 8%.
  • 53% of property managers said that they were more likely to bring in a new tenant at a higher rate than negotiate and renew a lease with a current tenant they already know.

We can see from these survey results that renting will provide anything but a stable environment in the near future.

Bottom Line

Homeowners enjoy a more stable environment and at the same time are  given the opportunity to build their family’s net worth.

Waiting until after the Holidays Isn’t a Smart Decision

Waiting until after the Holidays, Isn’t a Smart Decision | Simplifying The Market

Waiting until after the Holidays Isn’t a Smart Decision

Every year at this time, many homeowners decide to wait until after the holidays to put their home on the market for the first time. Others who already have their home on the market decide to take it off the market until after the holidays. Here are six great reasons not to wait:

 

1. Relocation buyers are out there. Companies are not concerned with holiday time and if the buyers have kids, they want them to get into school after the holidays.

2. Purchasers that are looking for a home during the holidays are serious buyers and are ready to buy.

3. You can restrict the showings on your home to the times you want it shown. You will remain in control.

4. Homes show better when decorated for the holidays.

5. There is less competition for you as a seller right now. Let’s take a look at listing inventory as compared to the same time last year:

Supply of Homes | Simplifying The Market

6. The supply of listings increases substantially after the holidays. Also, in many parts of the country, new construction will make a comeback in 2016. This will lessen the demand for your house.

Bottom Line

Waiting until after the holidays to sell your home probably doesn't make sense.

House Hasn’t Sold Yet? Take Another Look at the Price

House Hasn’t Sold Yet? Take Another Look at the Price | Simplifying The Market

House Hasn’t Sold Yet? Take Another Look at the Price

The residential housing market has been hot. Home sales have bounced back solidly and are now at their second highest pace since February 2007. Demand remains strong going into the winter. Many real estate professionals are reporting that multiple offers are occurring regularly and listings are actually selling above listing price. What about your house?

If your house hasn’t sold, it is probably the price.

 

If your home is on the market and you are not receiving any offers, look at your price. Pricing your home just 10% above market value dramatically cuts the number of prospective buyers that will even see your house. (See Chart)

Proper Pricing Pyramid | Simplifying The Market

Bottom Line

The housing market is hot. If you are not seeing results you want, sit down with your agent and revisit the pricing conversation.

2016: Homeowner’s Net Worth Will Be 45x Greater Than a Renter

2016: Homeowner’s Net Worth Will Be 45x Greater Than a Renter | Simplifying The Market

2016: Homeowner’s Net Worth Will Be 45x Greater Than a Renter

Every three years the Federal Reserve conducts a Survey of Consumer Finances in which they collect data across all economic and social groups. The latest survey, which includes data from 2010-2013, reports that a homeowner’s net worth is 36 times greater than that of a renter ($194,500 vs. $5,400).

In a recent Forbes article the National Association of Realtors’ (NAR) Chief Economist Lawrence Yun predicts that in 2016 the net worth gap will widen even further to 45 times greater. 

The graph below demonstrates the results of the last two Federal Reserve studies and Yun’s prediction:

Increasing Gap in Family Wealth | Simplifying The Market

Put Your Housing Cost to Work For You

Simply put, homeownership is a form of ‘forced savings’. Every time you pay your mortgage you are contributing to your net worth. Every time you pay your rent, you are contributing to your landlord’s net worth.

The latest National Housing Pulse Survey from NAR reveals that 80% of consumers believe that purchasing a home is a good financial decision. Yun comments:

“Though there will always be discussion about whether to buy or rent, or whether the stock market offers a bigger return than real estate, the reality is that homeowners steadily build wealth. The simplest math shouldn’t be overlooked.”

Bottom Line

If you are interested in finding out if you could put your housing cost to work for you through homeownership, let's get together and discuss your options.

Here Come the Millennials!!

Here Come the Millennials!! | Simplifying The Market

Here Come the Millennials!!

Many have been wondering when the much anticipated move by Millennials’ into homeownership would actually take place. We know the belief in owning a home is there.

 

According to a recent Merrill Lynch study, eighty one percent of Millennials believe “homeownership is an important part of the American Dream”. This compares favorably to previous generations.

American Dream by Generation | Simplifying The Market

The obstacle seemed to be employment. It appears that is about to change.

The most recent jobs report disappointed many economists. However, the silver lining in that cloud of doubt was Millennials. Jonathan Smoke, realtor.com Chief Economist, reported:

“About 33% of civilian jobs created over the last 12 months have been for the young adults who are most likely to buy their first home. This should help support continued growth in the share of homes purchased by first time buyers, as economic success has been influencing older Millennials to jump into the housing market this year.”

Selma Hepp, chief economist at Truliaconcurred:

“The faster rate of job growth among Millennials will continue to bolster both the rental and for-sale housing markets for an extended period of time.” 

It appears that Millennials will be entering the housing market in great numbers in the very near future.

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