Homeownership is a major part of the American Dream. As evidence of that, 91% of Americans believe that owning a home is either essential (43%) or important (48%) to achieving that “dream.” In a market where some people may be unsure about the benefits and possibilities of buying a home, it is important that we remember this.
Homeownership is NOT just about the money. In fact, some of the major benefits are non-financial. Here are a few of those benefits as per the National Association of Realtors:
Homeownership means something more to people and their families than just the financial considerations.
In the latest Rent vs. Buy Report from Trulia, they explained that homeownership remains cheaper than renting with a traditional 30-year fixed rate mortgage in the 100 largest metro areas in the United States.
The updated numbers show that the range is an average of 3.5% less expensive in San Jose (CA), all the way up to 50.1% less expensive in Baton Rouge (LA), and 33.1% nationwide!
A study by GoBankingRates looked at the cost of renting vs. owning a home at the state level and concluded that in 39 states, it is actually ‘a little’ or ‘a lot’ cheaper to own (represented by the two shades of blue in the map below).
One of the main reasons owning a home has remained significantly cheaper than renting is the fact that interest rates have remained at or near historic lows. Freddie Mac reports that the current interest rate on a 30-year fixed rate mortgage is 3.91%.
Nationally, rates would have to reach 9.1%, a 128% increase over today’s average of 4.0%, for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.
Buying a home makes sense socially and financially. If you are one of the many renters who would like to evaluate your ability to buy this year, let’s get together and find you your dream home.
The Aspiring Home Buyers Profile from the National Association of Realtors (NAR) found that the American public is still somewhat confused about what is required to qualify for a home mortgage loan in today’s housing market. The results of the survey show that non-homeowners cite the main reason for not currently owning a home, as not being able to afford one.
This brings us to two major misconceptions that we want to address today.
NAR’s survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 39% of non-homeowners say they believe they need more than 20% for a down payment on a home purchase. In actuality, there are many loans written with a down payment of 3% or less.
Many renters may actually be able to enter the housing market sooner than they ever imagined with new programs that have emerged allowing less cash out of pocket.
An Ipson survey revealed that 62% of respondents believe they need excellent credit to buy a home, with 43% thinking a “good credit score” is over 780. In actuality, the average FICO® scores of approved conventional and FHA mortgages are much lower.
The average conventional loan closed in August had a credit score of 752, while FHA mortgages closed with a score of 683. The average across all loans closed in August was 724. The chart below shows the distribution of FICO® Scores for all loans approved in August.
If you are a prospective buyer who is ‘ready’ and ‘willing’ to act now, but are not sure if you are ‘able’ to, let’s sit down to help you understand your true options.
Six months ago, we reported that the mismatch between the type of inventory of homes for sale and the demand of buyers in the US was causing the formation of two markets.
In the starter and trade-up home categories, there were significantly more buyers than there were homes for sale, causing a seller’s market. In the premium, or luxury, home categories, the opposite was true as there was a surplus of these homes compared to the buyers that were out searching for their dream homes, which created a buyer’s market.
According to the National Association of Realtors latest Existing Home Sales Report, the inventory of existing homes for sale in today’s market is at a 4.2-month supply. Inventory is now 6.5% lower than this time last year, marking the 27th consecutive month of year-over-year decreases.
Looking at the latest report from Trulia, we can see that not much has changed, and in fact, recent natural disasters across the country have made inventory conditions even more dire.
Trulia’s market mismatch score measures the search interest of buyers against the category of homes that are available on the market. For example: “if 60% of buyers are searching for starter homes but only 40% of listings are starter homes, [the] market mismatch score for starter homes would be 20.”
The results of their latest analysis are detailed in the chart below.
Nationally, buyers are searching for starter and trade-up homes and are coming up short with the listings available, which is leading to a highly competitive seller’s market in these categories.
Premium homebuyers, on the other hand, have the best chance of less competition and more inventory of listings in their price range with a 14.7-point surplus, which is creating more of a buyer’s market.
Real estate is local. If you are thinking about buying OR selling this fall, let’s get together to discuss the exact market conditions in your area.
There is no doubt that the largest challenge in today’s housing market is a lack of housing inventory for sale. This challenge has been defined as an “overwhelming lack of supply,” and even a “straight up inventory crisis.”
First American just released the results of a survey which sheds light on the reasons for the current lack of supply.
The survey asked title agents and real estate professionals to identify what they believe are the top reasons for this lack of inventory in their markets. Here are the results of the survey:
As the survey revealed, there is a shortage of current homeowners willing to put their homes on the market for one of three reasons (see numbers 1, 3 and 4 above).
The report on the survey explains:
“The crowd has spoken, and it seems in many markets home buyers and sellers alike are ‘imprisoned’ by the lack of housing inventory."
That leaves a tremendous opportunity for every homeowner not facing these concerns. If you can put your home on the market today, you are subject to far less competition than at any time in recent history. That will result in your home selling quickly and for the highest possible price.
While many homeowners are feeling imprisoned for multiple reasons, those who are not handcuffed by these concerns have a once in a lifetime opportunity to sell their houses at a peak selling time.
A recent caller to my radio show asked whether saving 20 percent of one’s income is sufficient.
The answer, of course, depends on your situation. And in truth, no matter how much you’re saving, you should be saving more. (After all, nobody has ever complained to me about accumulating too much money, while many have lamented having too little.)
So, how do you know that you’re saving the right amount each month? It hurts.
Say you’re putting aside a portion of every paycheck into your retirement plan at work. You’re also adding to your IRA and stocking away some cash into a bank account. Does it hurt? If not, you’re not saving enough.
What do I mean by “hurt”? Simple. If your saving isn’t causing you to refrain from spending, you’re not saving enough.
You need to find yourself saying, “I’d really like to buy that item, but I can’t afford it because I’m saving money instead.”
So if you haven’t denied yourself some new clothes, a shrimp cocktail or an upgraded seat on a flight, you’re not saving enough.
Pass this advice along to your children and grandchildren to help them enjoy a bright financial future.
*Originally published in Inside Personal Finance August 2017.
MORTGAGE PRICES ARE AT THEIR BEST LEVELS SINCE 2016... TIME TO REFINANCE?