One thing helping homeowners right now is price appreciation, especially in the entry-level market. In the latest Home Price Insights report, CoreLogic reveals how home prices increased by 4% year-over-year and projects prices will rise 5.2% by December 2020.
Why is this good news for the homeowners?
When prices appreciate, homeowners gain equity. In addition, those planning to sell this year, especially in the entry-level market, can potentially earn a substantial profit.
Dr. Frank Nothaft, Chief Economist at CoreLogic, says:
“Moderately priced homes are in high demand and short supply, pushing up values…Homes that sold for 25% or more below the local median price experienced a 5.9% price gain in 2019, compared with a 3.7% gain for homes that sold for 25% or more above the median.”
As Dr. Nothaft indicates, the lack of inventory continues to drive home price growth. This means there’s a high demand for homes in this tier of the market, making it a great time to consider using your equity to move up to a bigger or more premium home.
When you upgrade your home, you may be able to find the amenities or features you’ve dreamed of – such as a yard to plant or garden in with your family this spring, or more outdoor space for entertaining this summer. Maybe it’s the master bath you’ve always hoped for, or a garage to finally park your car inside.
Whatever you choose, if you’re moving out of an entry-level house, you’re likely going to be in the driver’s seat as a seller.
If you’d like to own a bigger home, let’s get together to discuss your situation. You may be surprised by the current value of your home and the equity you’ve gained.
Earlier this month, the National Association of Realtors (NAR) released a special study titled Single-Family Home Price Gains by Years of Tenure. The study estimates median home price appreciation over the last 30 years based on the length of homeownership.
Below are three graphs depicting the most important data revealed in the study.
How much have home prices increased?
One of the first measures of the financial benefits of homeownership is the net worth (in the form of equity) an owner can build over time. The study showed the average increase in home values based on how long homeowners stayed in a home.
What was the percentage of appreciation?
Was this appreciation consistent throughout the country?
Today, when we think of markets that have done well over the last decade, we have a tendency to think about San Francisco, San Diego, Seattle, and other West Coast cities. Though it is true the West Region showed the highest price growth over the last three decades, we can see how every region of the country did quite well in ten-year increments:This data validates the claim that homeownership is great for building wealth. The importance of this information was highlighted in the study’s first sentence:
“Homeownership is an important source of wealth creation, enabling current homeowners and succeeding generations to move up the economic ladder.”
Homeownership has many financial and non-financial benefits. The accumulation of “housing wealth” through increased equity is a major one. If you’re thinking of buying a home for the first time or moving up to your dream home, the sooner you make the move, the sooner your net worth will begin to grow.
- If you’re thinking of buying a home and you’re not sure where to start, you’re not alone.
- Here’s a guide with 10 simple steps to follow in the homebuying process.
- Be sure to work with a trusted real estate professional to find out the specifics of what to do in your local area.
There are great advantages to owning a home, yet many people continue to rent. The financial benefits are just some of the reasons why homeownership has been a part of the long-standing American dream.
Realtor.com reported that:
“Buying remains the more attractive option in the long term – that remains the American dream, and it’s true in many markets where renting has become really the shortsighted option…as people get more savings in their pockets, buying becomes the better option.”
Why is owning a home financially better than renting?
Here are the top 5 financial benefits of homeownership:
- Homeownership is a form of forced savings.
- Homeownership provides tax savings.
- Homeownership allows you to lock in your monthly housing cost.
- Buying a home is less expensive than renting.
- No other investment lets you live inside of it.
Studies have also shown that a homeowner’s net worth is 44x greater than that of a renter.
A family that purchased a median-priced home at the start of 2019 would build more than
$37,750 in family wealth over the next five years with projected price appreciation alone.
Some argue that renting eliminates the cost of taxes and home repairs, but every potential renter must realize that all the expenses the landlord incurs are already baked into the rent payment – along with a profit margin!
Owning a home has many social and financial benefits that cannot be achieved by renting. Let’s connect to determine if buying a home is your best move.
Success is something often worth repeating, and Brent Sutherland, a Certified Financial Planner and Real Estate Investor, has certainly made his way in a momentum-driving direction. Here are 3 tips he shares from a recent piece in Business Insider on the benefits of owning real estate:
1. Real estate diversifies your income
“While it is certainly important to be properly diversified with your investments, it is even more important to be diversified with your income. This is because the largest financial risk for most of you is the loss of your primary source of income, which is typically in the form of a day job.”
The article highlights how having multiple sources of income, such as those derived from real estate investments, can eventually lead to relying less and less on a day job. Sound dreamy? It can be. When done well, real estate investments may eventually open up your time and the financial freedom to explore other things, like travel and other aspirations you may have for the future, particularly in the golden years of retirement.
2. Real estate produces near-immediate results
“You can achieve and feel the results almost immediately. Property improvements are visible and tangible. You can cash, spend, and invest rent payments. Today! Not 30 years in the future.”
Currently, home prices are appreciating in all price ranges, and just last week CoreLogic announced their 12-month home value projection at 5.6%, an increase from 4.5% noted earlier this summer. With that in mind, real estate today is definitely driving immediate results!
3. Passive income can help you become financially independent sooner
“If you need $40,000 a year to live, you could alternatively invest in assets that generate an 8% cash-on-cash return. This is a very reasonable assumption. And it means you would only need to save a total of $500,000 (instead of $1 million). Yet, your investments would still meet your annual household living needs.
While returns, taxes, and inflation can, of course, affect your timeline, cash-flowing real-estate is a clear asset.”
Homeownership is a form of ‘forced savings.’ Every time you pay your mortgage, you’re contributing to your net worth by increasing the equity in your home, bringing you one step closer to true financial independence.
If you want to increase your savings and overall net worth, real estate is a great way to go. To learn how you can make it happen, let’s get together to discuss the process.
Who is Brent Sutherland?
Sutherland was 35 when he bought his first single home to rent out for income, less than five years later, he owns eight additional properties and part of a commercial real estate project.
In a recent article, First American shared how millennials are not really any different from previous generations when it comes to the goal of homeownership; it is still a huge part of their American Dream. The piece, however, also reveals,
“Saving for a down payment is one of the biggest obstacles faced by first-time home buyers. Dispelling the 20 percent down payment myth could open the path to homeownership for many more.”
Myth #1: “I Need a 20% Down Payment”
Buyers often overestimate how much they need to qualify for a home loan. According to the same article:
“Americans still overestimate the qualifications needed to get a mortgage, resulting in qualified potential buyers not even considering homeownership. Indeed, the Urban Institute report revealed that 16 percent of consumers believed that the minimum down payment required by lenders is 20 percent or more, and another 40 percent didn’t know at all.”
While many potential buyers still think they need to put at least 20% down for the home of their dreams, they often don’t realize how many assistance programs are available with as little as 3% down. With a little research, many renters may actually be able to enter the housing market sooner than they ever imagined.
Myth #2: “I Need a 780 FICO® Score or Higher”
In addition to down payments, buyers are also often confused about the FICO® score it takes to qualify for a mortgage, believing a ‘good’ credit score is 780 or higher.
To debunk this myth, let’s take a look at Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans.As indicated in the chart above, 50.23% of approved mortgages had a credit score of 500-749.
Whether buying your first home or moving up to your dream home, knowing your options will make the mortgage process easier. Believe it or not – your dream home may already be within your reach.
- Historically, the choice between renting and buying a home has been a tough decision.
- Looking at the percentage of income needed to rent a median-priced home today (27.7%) vs. the percentage needed to buy a median-priced home (17.5%), the choice is clear.
- Every market is different. Before you renew your lease, find out if you can put your housing costs to work by buying a home this year.
Some are afraid the real estate market may be looking a lot like it did prior to the housing crash in 2008. One of the factors they’re pointing at is the availability of mortgage money. Recent articles about the availability of low-down payment loans and down payment assistance programs are causing concern that we’re returning to the bad habits of a decade ago. Let’s alleviate the fears about the current mortgage market.
The Mortgage Bankers’ Association releases an index several times a year titled: The Mortgage Credit Availability Index (MCAI). According to their website:
“The MCAI provides the only standardized quantitative index that is solely focused on mortgage credit. The MCAI is…a summary measure which indicates the availability of mortgage credit at a point in time.”
Basically, the index determines how easy it is to get a mortgage. The higher the index, the more available the mortgage credit.
Here is a graph of the MCAI dating back to 2004, when the data first became available:As we can see, the index stood at about 400 in 2004. Mortgage credit became more available as the housing market heated up, and then the index passed 850 in 2006. When the real estate market crashed, so did the MCAI (to below 100), as mortgage money became almost impossible to secure.
Thankfully, lending standards have eased since. The index, however, is still below 200, which is half of what it was before things got out of control.
It is easier to get a mortgage today than it was immediately after the market crash, but it is still difficult. The difference in 2006? At that time, it was difficult not to get a mortgage.
- The Veterans Administration (VA) Home Loan is a benefit that is available to more than 22 million veterans and 2 million active duty service members to help them achieve the dream of homeownership.
- In 2018, $161 billion was loaned to veterans and their families through the program.
- In the same year, the average loan amount was $264,197 and 610,513 loans were guaranteed.
Today, on Veterans Day, we salute those who have served our country in war or peace, and we thank them for their sacrifice.
This year marks the 75th anniversary of VA Home Loan Benefit offerings through the Servicemen’s Readjustment Act, also known as the GI Bill. Since 1944, this law has created opportunities for those who have served our country, ranging from vocational training to home loans.
Facts About VA Home Loans:
- Nearly 24 million home loans have been guaranteed by the Veterans Administration.
- Nearly 82% of VA home loans are made with no down payment.
- The VA also provides grants to help seriously disabled Veterans purchase, modify, or construct a home to meet their needs. Last year the VA provided 2,000 grants totaling $104 million.
Benefits of a VA Home Loan:
- No down payment
- No Private Mortgage Insurance*
- Lower credit score requirements
- Limitation on closing costs
- Lower average interest rates
The best thing you can do today to celebrate Veterans Day is to share this information with those who can benefit from these opportunities. For more information, or to find out how to qualify to use a VA Home Loan Benefit, let’s get together to navigate through the process. Thank you for your service!