Everyone should realize that unless you are living somewhere rent-free, you are paying a mortgage – either yours or your landlord’s. Buying your own home provides you with a form of ‘forced savings’that allows you to use your monthly housing costs to increase your family’s wealth.
Every month that you pay your mortgage, you are paying off a portion of the debt that you took on to purchase your home. Therefore, you own a little bit more of your home every month in the form of home equity. As your home’s value increases you also gain home equity.
Every quarter, Pulsenomics surveys a nationwide panel of over 100 economists, real estate experts, and investment and market strategists and asks them to project how residential home prices will appreciate over the next five years for their Home Price Expectation Survey (HPES).
The latest data from their Q4 2018 Survey revealed that home prices are expected to round out the year 5.8% higher than they were in January. For the next 5 years, home values will appreciate by an average of nearly 3% a year.
This is still great news for homeowners!
For example, let’s assume a young couple purchases and closes on a $250,000 home in January. Simply through their home appreciating in value, those homeowners can build their home equity by nearly $40,000 over the next five years.
Let’s look at the potential equity gained over the same period of time at some higher price points:
In many cases, home equity is a large portion of a family’s overall net worth.
If your plan for 2019 includes entering the housing market to purchase a home, whether it’s your first or your fifth, let’s get together to make your plan a reality!
National home prices have increased by 5.4% since this time last year. Over that same time period, interest rates have remained near historic lows which has allowed many buyers to enter the market and lock in low rates.
As a seller, you will likely be most concerned about ‘short-term price’ – where home values are headed over the next six months. As a buyer, however, you must not be concerned about price but instead about the ‘long-term cost’ of the home.
The Mortgage Bankers Association (MBA), Freddie Mac, and Fannie Mae all project that mortgage interest rates will increase by this time next year. According to CoreLogic’s most recent Home Price Insights Report, home prices will appreciate by 4.8% over the next 12 months.
What Does This Mean as a Buyer?
If home prices appreciate by 4.8% over the next twelve months as predicted by CoreLogic, here is a simple demonstration of the impact that an increase in interest rate would have on the mortgage payment of a home selling for approximately $250,000 today:
If buying a home is in your plan for this year, doing it sooner rather than later could save you thousands of dollars over the terms of your loan.
An emerging trend for some time now has been the difference between available inventory and demand in the premium and luxury markets and that in the starter and trade-up markets and what those differences are doing to prices!
Inventory continues to rise in the luxury and premium home markets which is causing prices to cool.
Demand continues to rise with lower-than-normal inventory levels in the starter and trade-up home markets, causing prices to rise on a year-over-year basis for 80 consecutive months.
Over the last six years, we have experienced strong price appreciation which has increased home equity levels dramatically. As the number of “cash-out” refinances begins to approach numbers last seen during the crash, some are afraid that we may be repeating last decade’s mistake.
However, a closer look at the numbers shows that homeowners are being much more responsible with their home equity this time around.
What happened then…
When real estate values began to surge last decade, people started using their homes as personal ATMs. Homeowners would refinance their houses and convert their equity into instant cash (known as “cash-out” refinances). Because homes were appreciating so rapidly, many homeowners tapped into their equity multiple times.
This left homeowners with little-or-no equity left in their homes, so when prices started to fall many homeowners found their houses in a negative equity situation (where the mortgage amount was greater than the value of the home). When some of these homeowners saw that there was no value left in their houses, they just stopped paying their mortgages altogether.
Banks eventually foreclosed on those homes and the foreclosures drove prices down even further and put more homes in the negative equity category. This cycle continued, leading to the worst housing crash in almost one hundred years.
What’s happening now…
Again, Americans are seeing their home equity grow. Today, over 48% of all single-family homes in the country have over 50% equity, and yes, some families are tapping into that equity. However, this time around, homeowners are not making irresponsible decisions. According to the latest information from Freddie Mac, the total equity being “cashed out” is a fraction of what it was leading up to the crash. Here are the numbers:
The recklessness that accompanied the build-up in equity prior to the last crash does not exist today. That makes this housing market much more secure than the one we had heading into 2008.
The interest rate you pay on your home mortgage has a direct impact on your monthly payment. The higher the rate, the greater the payment will be. That is why it is important to know where rates are headed when deciding to start your home search.
Below is a chart created using Freddie Mac’s U.S. Economic & Housing Marketing Outlook. As you can see, interest rates are projected to increase steadily throughout 2019.
How Will This Impact Your Mortgage Payment?
Depending on the amount of the loan that you secure, a half of a percent (.5%) increase in interest rate can increase your monthly mortgage payment significantly. But don’t let the prediction that rates will increase stop you from purchasing your dream home this year!
Let’s take a look at a historical view of interest rates over the last 45 years.
Be thankful that you can still get a better interest rate than your older brother or sister did ten years ago, a lower rate than your parents did twenty years ago, and a better rate than your grandparents did forty years ago.
Every three years, the Federal Reserve conducts their Survey of Consumer Finances in which they collect data across all economic and social groups. Their latest survey data covers responses from 2013-2016.
The study revealed that the median net worth of a homeowner was $231,400 – a 15% increase since 2013. At the same time, the median net worth of renters decreased by 5% ($5,200 today compared to $5,500 in 2013).
These numbers reveal that the net worth of a homeowner is over 44 times greater than that of a renter.
There are many who see that statistic and point toward how broad the range of respondents are for the Federal Reserve survey. Their study includes all economic and social groups and also includes all age groups. The argument is that older respondents have a higher likelihood of being homeowners, while the homeownership rate among younger survey takers is much lower.
Recently, the Joint Center for Housing Studies at Harvard University focused on homeowners and renters over the age of 65. Their study revealed that the difference in net worth between homeowners and renters at this age group was actually 47.5 times greater!
Homeowners over the age of 65 are much more financially prepared for retirement and often own their homes outright if they were fortunate enough to purchase their homes before the age of 36. Their 30 years of mortgage payments have paid off as they gained equity through their monthly payments and as home values appreciated.
It is no surprise that lifelong-renters have had a hard time accruing net worth as the latest Censusreport shows that the Median Asking Rent has been climbing consistently over the last 30 years.
As a homeowner you put your monthly mortgage payment to work for you, building your net worth with every payment.
Residential fires during the holiday season are more frequent, more costly, and more deadly than at any other time of the year. The U.S. Fire Administration (USFA) reports more than double the number of open-flame fires on Christmas Day than on an average day, and about twice as many on New Year’s Day. And when those fires occur, they do more damage: Property loss during a holiday fire is 34% greater than in an average fire, and the number of fatalities per thousand fires is nearly 70% higher. When the source of the fire is a highly flammable Christmas tree, the toll in property and lives is even greater.
To keep your household from becoming a holiday fire statistic, here are some safety tips to follow.
Cooking is the top cause of holiday fires, according to the USFA. The most common culprit is food that’s left unattended. It’s easy to get distracted; take a pot holder with you when you leave the kitchen as a reminder that you have something on the stove. Make sure to keep a kitchen fire extinguisher that’s rated for all types of fires, and check that smoke detectors are working.
If you’re planning to deep-fry your holiday turkey, do it outside, on a flat, level surface at least 10 feet from the house.
The incidence of candle fires is four times higher during December than during other months. According to the National Fire Protection Association, four of the five most dangerous days of the year for residential candle fires are Christmas/Christmas Eve and New Year’s/New Year’s Eve. (The fifth is Halloween.)
To reduce the danger, maintain about a foot of space between the candle and anything that can burn. Set candles on sturdy bases or cover with hurricane globes. Never leave flames unattended. Before bed, walk through each room to make sure candles are blown out. For atmosphere without worry, consider flameless LED candles.
It takes less than 30 seconds for a dry tree to engulf a room in flames, according to the Building and Fire Research Laboratory of the National Institute for Standards and Technology. “They make turpentine out of pine trees,” notes Tom Olshanski, spokesman for the USFA. “A Christmas tree is almost explosive when it goes.”
To minimize risk, buy a fresh tree with intact needles, get a fresh cut on the trunk, and water it every day. A well-watered tree is almost impossible to ignite. Keep the tree away from heat sources, such as a fireplace or radiator, and out of traffic patterns. If you’re using live garlands and other greenery, keep them at least three feet away from heating sources.
No matter how well the tree is watered, it will start to dry out after about four weeks, Olshanski says, so take it down after the holidays. Artificial trees don’t pose much of a fire hazard; just make sure yours is flame-retardant.
Inspect light strings, and throw out any with frayed or cracked wires or broken sockets. When decorating, don’t run more than three strings of lights end to end. “Stacking the plugs is much safer when you’re using a large quantity of lights,” explains Brian L. Vogt, director of education for holiday lighting firm Christmas Décor. Extension cords should be in good condition and UL-rated for indoor or outdoor use. Check outdoor receptacles to make sure the ground fault interrupters don’t trip. If they trip repeatedly, Vogt says, that’s a sign that they need to be replaced.
When hanging lights outside, avoid using nails or staples, which can damage the wiring and increase the risk of a fire. Instead, use UL-rated clips or hangers. And take lights down within 90 days, says John Drengenberg, director of consumer safety for Underwriters Laboratories. “If you leave them up all year round, squirrels chew on them and they get damaged by weather.”
Kids Playing with Matches
The number of blazes — and, tragically, the number of deaths — caused by children playing with fire goes up significantly during the holidays. From January through March, 13% of fire deaths are the result of children playing with fire, the USFA reports; in December, that percentage doubles. So keep matches and lighters out of kids’ reach. “We tend to underestimate the power of these tools,” says Meri-K Appy, president of the nonprofit Home Safety Council. “A match or lighter could be more deadly than a loaded gun in the hands of a small child.”
Soot can harden on chimney walls as flammable creosote, so before the fireplace season begins, have your chimney inspected to see if it needs cleaning. Screen the fireplace to prevent embers from popping out onto the floor or carpet, and never use flammable liquids to start a fire in the fireplace. Only burn seasoned wood — no wrapping paper.
When cleaning out the fireplace, put embers in a metal container and set them outside to cool for 24 hours before disposal.
Home sales numbers are leveling off, the rate of price appreciation has slowed to more historically normal averages, and inventory is finally increasing. We are headed into a more normal housing market.
However, some are seeing these adjustments as red flags and are suggesting that we are headed back to the same challenges we experienced in 2008. Today, let’s look at one set of statistics that prove the current market is nothing like the one that preceded the housing crash last decade.
The previous bubble was partially caused by unhealthy levels of mortgage debt. New purchasers were putting down the minimum down payment, resulting in them having little if any equity in their homes.
Existing homeowners were using their homes as ATMs by refinancing and swapping their equity for cash. When prices started to fall, many homeowners found themselves in a negative equity situation (where their mortgage was higher than the value of their home) so they walked away which caused prices to fall even further. When this happened, even more homeowners found themselves in negative equity situations which caused them to walk away as well, and so a vicious cycle formed.
Today, the equity situation is totally different. According to a new report from ATTOM Data Solutions more than 1-in-4 homes with a mortgage have at least 50% equity. The report explains:
“…nearly 14.5 million U.S. properties were equity rich — where the combined estimated amount of loans secured by the property was 50 percent or less of the property’s estimated market value…The 14.5 million equity rich properties in Q3 2018 represented 25.7 percent of all properties with a mortgage.”
If we take both numbers, the 30.3% of all homes without a mortgage and the 17.9% with at least 50% equity (25.7% of the 69.3% of homes with a mortgage), we realize that 48.2% of all homes in the country have at least 50% equity.
Unlike 2008, almost half of the homeowners in the country are sitting on massive amounts of home equity. They will not be walking away from their homes if the housing market begins to soften.
Many sellers believe that spring is the best time to place their homes on the market because buyer demand traditionally increases at that time of year, but what they don’t realize is that if every homeowner believes the same thing, then that is when they will have the most competition!
The #1 Reason to List Your Home in the Winter Months is Less Competition!
Housing supply traditionally shrinks at this time of year, so the choices buyers have will be limited. The chart below was created using the months’ supply of listings from the National Association of Realtors.
As you can see, the ‘sweet spot’ to list your home for the most exposure naturally occurs in the late fall and winter months (November – February).
Temperatures aren’t the only thing that heats up in the spring – so do listings!
In 2017, listings increased by nearly half a million houses from December to June. Don’t wait for these listings to come to market before you decide to list your house.
Added Bonus: Only Serious Buyers Are Out in the Winter
At this time of year, only those purchasers who are serious about buying a home will be in the marketplace. You and your family will not be bothered and inconvenienced by mere ‘lookers.’ The lookers are at the mall or online doing their holiday shopping.
If you have been debating whether or not to sell your home and are curious about market conditions in your area, let’s get together to help you decide the best time to list your house for sale.