Buying A Home Remains 38% Less Expensive than Renting!

In Trulia’s latest Rent vs. Buy Report, they explained that homeownership remains cheaper than renting with a traditional 30-year fixed rate mortgage throughout the 100 largest metro areas in the United States. The updated numbers actually show that the range is from an average of 17% in Honolulu, all the way to 63% in Detroit, and 38% Nationwide! This is up from an average of only 5% cheaper in Honolulu in April. The other interesting findings in the report include: Rents have continued to increase nationally even as home price increases are starting to slow. Current low mortgage rates have kept homeownership from becoming more expensive than renting. Some markets might tip in favor of renting next year if home prices increase at a greater rate than rents and if – as most economists expect – mortgage rates rise, due to the strengthening economy. Nationally, rates would have to rise to 10.6% for renting to be cheaper than buying – and rates haven’t been that high since 1989. Bottom Line Buying a home makes sense. Rental costs have historically increased at a higher rate of inflation. Lock in a mortgage payment now before home prices and mortgage rates rise as experts expect they will.

Three Questions You Must Ask If You Are Going To Buy A Home

If you are thinking about purchasing a home right now, you are surely getting a lot of advice. Though your friends and family have your best interests at heart, they may not be fully aware of your needs and what is currently happening in real estate. Let’s look at whether or not now is actually a good time for you to buy a home. There are three questions you should ask before purchasing in today’s market: 

1. Why am I buying a home in the first place?

This truly is the most important question to answer. Forget the finances for a minute. Why did you even begin to consider purchasing a home? For most, the reason has nothing to do with finances. A study by the Joint Center for Housing Studies at Harvard University reveals that the four major reasons people buy a home have nothing to do with money:

• A good place to raise children and for them to get a good education
• A place where you and your family feel safe
• More space for you and your family
• Control of the space

What non-financial benefits will you and your family derive from owning a home? The answer to that question should be the biggest reason you decide to purchase or not.

2. Where are home values headed?

When looking at future housing values, Home Price Expectation Survey provides a fair assessment. Every quarter, Pulsenomics surveys a nationwide panel of over one hundred economists, real estate experts and investment & market strategists about where prices are headed over the next five years. They then average the projections of all 100+ experts into a single number. Here is what the experts projected in the latest survey:

• Home values will appreciate by 4% in 2015.
• The cumulative appreciation will be 19.5% by 2018.
• Even the experts making up the most bearish quartile of the survey still are projecting a cumulative appreciation of over 11.2% by 2018.

3. Where are mortgage interest rates headed?

A buyer must be concerned about more than just prices. The ‘long term cost’ of a home can be dramatically impacted by an increase in mortgage rates. The Mortgage Bankers Association (MBA), the National Association of Realtors, Fannie Mae and Freddie Mac have all projected that mortgage interest rates will increase by approximately one full percentage over the next twelve months.

Bottom Line

Only you and your family can know for certain the right time to purchase a home. Answering these questions will help you make that decision. 

New Construction Homes-Competition?

For the last several years, home sellers had to compete with huge inventories of distressed properties (foreclosures and short sales). The great news is that the supply of these properties is falling like a rock in the vast majority of housing markets. Many homeowners are now thinking of selling as the impact of this substantially discounted competition has disappeared.

However, every seller of an existing residential property must realize that there is a new form of competition about to hit the market: newly constructed homes.

As the economy improves, builders will again be bringing their housing developments to the market. Trulia recently reported that the purchaser, given a choice, actually prefers new construction. Here are two charts showing the results of the Trulia survey:

Bottom Line

If you are thinking of selling, perhaps you should do it now to avoid the additional competition that will come to the market later this year.

School or Pool?

Millenials and Living With Parents

Every day we are pleasantly surprised with the research coming forward regarding the Millennial generation. Whether it was the over-exaggeration of the student debt challenge, the misbelief that they are not yet ready to buy or the under estimation of their actual home purchases, evidence is beginning to debunk the myths many have held about this generation and home ownership. Now, one more strongly held belief is being questioned.

Do Millennials Live in their Parents Basements?

It seems not as many as once was reported. Our friends at Calculated Risk (CR) alerted us to a post by Derek Thompson in theAtlantic: The Misguided Freakout About Basement-Dwelling Millennials. The article explains that according to the Census Reports:

“It is important to note that the Current Population Survey counts students living in dormitories as living in their parents' home.”

What?!? If you live in a college dorm, the census counts you as living with your parents. Thompson has some fun with this when he explains:

“When you were adjusting to your freshman roommate, you were ‘living with your parents’. When you snagged that sweet triple with your best friends in grad housing, you were ‘living with your parents’. That one time you launched butt-rattling bottle rockets at the stroke of midnight off your fraternity roof? I hope you didn't make too much noise. After all, you were ‘living with your parents’."

The data is “Criminally Misleading”

According to Thompson, the counting of those living in college dorms as living with their parents is “criminally misleading”. He explains that part of the increase in these numbers is actually attributed to the fact that more people are attending college:

“[T]he share of 25- to 29-year-olds with a bachelor degree has grown by almost 50 percent since the early 1980s. More than 84 percent of today's 27-year-olds spend at least some time in college and now 40 percent have a bachelor's or associate's degree. More young people going to school means more young people living in dorms, which means more young people ‘living with their parents’, according to the weird Census.”

Thompson then goes on to reveal that:

"[T]he share of 18-to-24-year-olds living at home who aren't in college has declined since 1986. But the share of college students living "at home" (i.e.: in dorms, often) has increased.
So the Millennials-living-in-our-parents meme is almost entirely a result of higher college attendance.”

The Other Side of the Argument

However, Trulia’s chief economist Jed Kolko, doesn’t totally agree. In a post in response to the Thompson article, Kolko explains:

“The Current Population Survey’s (CPS) Annual Social and Economic Supplement (ASEC) counts college students who are living in dorms as living with their parents, and college enrollment has indeed gone up. But it does not follow that basement-dwelling millennials are a myth. The ASEC and other Census data show that after adjusting for college enrollment and for dormitory living, millennials were more likely to live with parents in 2012 and 2013 than at any other time for which a consistent data series is available.”

Bottom Line

There are more Millennials living with their parents than ever before. However, the numbers being quoted by some seem to be exaggerated.  Millenials can buy homes, if you are interested in making a home purchase call me directly and let's see how we can make this dream a reality, 661-702-4767.

A Great Reason To Sell Now

The price of any item (including residential real estate) is determined by ‘supply and demand’. If many people are looking to buy an item and the supply of that item is limited, the price of that item increases.  

According to the National Association of Realtors (NAR), the supply of homes for sale is still below the normal 6 month level of inventory. That means less competition.

However, a recent study revealed that 71% of current homeowners are considering selling their home this year. Putting your home on the market now instead of waiting for this increased competition to come to the market might make a lot of sense.

Buyers currently in the market are motivated purchasers. They want to buy now. With limited inventory available in most markets, a seller will be in a great position to negotiate their best possible price.

Thinking Of Buying A Vacation Home?

The sales of vacation homes skyrocketed last year. A recent study also revealed that 25% of those surveyed said they’d likely buy a second home, such as a vacation or beach house, to use during retirement. For many Baby Boomers, the idea of finally purchasing that vacation home (that they may eventually use in retirement) makes more and more sense as the economy improves and the housing market recovers.

If your family is thinking about purchasing that second home, now may be the perfect time. Prices are still great. If you decide to lease the property until you’re ready to occupy it full time, the rental market in most areas is very strong. And you can still get a great mortgage interest rate.

But current mortgage rates won’t last forever…

According to FreddieMac, the interest rate for a 30 year fixed rate mortgage at the beginning of April was 4.4%. However, FreddieMacpredicts that mortgage rates will steadily climb over the next six quarters.

Let’s assume you want to purchase a home for $500,000 with a 20% down payment ($100,000). That would leave you with a $400,000 mortgage. What happens if you wait to buy this dream house?

Prices are projected to increase over the next year and a half. However, for this example, let’s assume prices remain the same. Your mortgage payment will still increase as mortgage rates climb to more historically low levels.