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      2 Myths Holding Back Home Buyers

      2 Myths Holding Back Home Buyers | MyKCM

      In Realtor.com’s recent article, “Home Buyers’ Top Mortgage Fears: Which One Scares You?” they mention that “46% of potential home buyers fear they won’t qualify for a mortgage to the point that they don’t even try.”

      Myth #1: “I Need a 20% Down Payment”

      Buyers overestimate the down payment funds needed to qualify for a home loan. According to the First Quarter 2017 Homeownership Program Index (HPI) from Down Payment Resource, saving for a down payment was the barrier that kept 70% of renters from buying.

      Rob Chrane, CEO of Down Payment Resource had this to say,

      There are many mortgage-ready renters today, but they don’t know it. Often, homebuyers remain sidelined for years due to the down payment.

      Many believe that they need at least 20% down to buy their dream home, but programs are available that allow buyers put down as little as 3%. 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.

      Myth #2: “I Need a 780 FICO® Score or Higher to Buy”

      The survey revealed that 59% of Americans either don’t know (54%) or are misinformed (5%) about what FICO® score is necessary to qualify.

      Many Americans believe a ‘good’ credit score is 780 or higher.

      To help debunk this myth, let’s take a look at Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans.

      2 Myths Holding Back Home Buyers | MyKCM

      As you can see in the chart above, 53.2% of approved mortgages had a credit score of 600-749.

      Bottom Line

      Whether buying your first home or moving up to your dream home, knowing your options will make the mortgage process easier. Your dream home may already be within your reach.

      The Importance of Home Equity in Retirement Planning

      The Importance of Home Equity in Retirement Planning | MyKCM

      We often discuss the difference in family wealth between homeowner households and renter households. Much of that difference is the result of the equity buildup that homeowners experience over the time that they own their home. In a report recently released by the nonpartisan Employee Benefit Research Institute (EBRI), they reveal how valuable equity can be in retirement planning.

      Craig Copeland, Senior Research Associate at EBRI, recently authored a report, Importance of Individual Account Retirement Plans and Home Equity in Family Total Wealth, in which he reveals:

      “Individual account retirement plan assets, plus home equity, represent almost all of what families have to use for retirement expenses outside of Social Security and traditional pensions. Those families without individual account assets typically have very low overall assets, so they have almost nothing to draw from for retirement expenses.”

      The report echoed the findings of a working paper, Home Equity Patterns Among Older American Households, authored by Barbara Butrica and Stipica Mudrazija of Urban Institute. Fannie Mae highlighted these findings for their blog The Home Story this past winter, quoting Butrica and Mudrazija:

       “For most adults near traditional retirement age, a home is their most valuable asset — dwarfing retirement accounts, other financial assets, and other nonfinancial assets. Although relatively few retirees tap into their home equity, having it provides financial security… In fact, many retirement security experts argue that the conventional three-legged stool of retirement resources — Social Security, pensions, and savings — is incomplete because it ignores the home.”

      USAToday interviewed two area experts to comment on the EBRI report. Randy Bruns, a private wealth adviser with HighPoint Planning Partners, agreed with the findings:

      “Social Security and home equity are major pieces of the retirement puzzle.”

      Wade Pfau, Professor of Retirement Income at The American College of Financial Services and author of Reverse Mortgages: How to use Reverse Mortgages to Secure Your Retirement, said having the equity without a plan to use it won’t help:

      “Home equity is a very important asset for American retirees, and so it is important to think about how to make best use of home equity in retirement planning.”

      The TRUTH Behind the RENT vs. BUY Debate

      The TRUTH Behind the RENT vs. BUY Debate | MyKCM

      In a blog post published last Friday, CNBC’s Diana Olnick reported on the latest results of the FAU Buy vs. Rent Index. The index examines the entire US housing market and then isolates 23 major markets for comparison. The researchers at FAU use a “‘horse race’ comparison between an individual that is buying a home and an individual that rents a similar-quality home and reinvests all monies otherwise invested in homeownership.”

      Having read both the index and the blog post, we would like to clear up any confusion that may exist. There are three major points that we would like to counter:

      1. The Title

      The CNBC blog post was titled, “Don’t put your money in a house, says a new report.” The title of the press release about the report on FAU’s website was “FAU Buy vs. Rent Index Shows Rising Prices and Mortgage Rates Moving Housing Markets in the Direction of Renting.”

      Now, we all know headlines can attract readers and the stronger the headline the more readership you can attract, but after dissecting the report, this headline may have gone too far. The FAU report notes that rising home prices and the threat of increasing mortgage rates could make the decision of whether to rent or to buy a harder one in three metros, but does not say not to buy a home.

      2. Mortgage Interest Rates are Rising

      According to Freddie Mac, mortgage interest rates reached their lowest mark of 2017 last week at 3.89%. Interest rates have hovered around 4% for the majority of 2017, giving many buyers relief from rising home prices and helping with affordability.

      While experts predict that rates will increase by the end of 2017, the latest projections have softened, with Freddie Mac predicting that rates will rise to 4.3% in Q4.

      3. “Renting may be a better option than buying, according to the report.”

      Of the 23 metros that the study reports on, 11 of them are firmly in buy territory, including New York, Boston, Chicago, Cleveland, and more. This means that in nearly half of all the major cities in the US, it makes more financial sense to buy a home than to continue renting one.

      In 9 of the remaining metros, the decision as to whether to rent or buy is closer to a toss-up right now. This means that all things being equal, the cost to rent or buy is nearly the same. That leaves the decision up to the individual or family as to whether they want to renew their lease or buy a home of their own.

      The 3 remaining metros Dallas, Denver and Houston, have experienced high levels of price appreciation and have been reported to be in rent territory for well over a year now, so that’s not news…

      Beer & Cookies

      One of the three authors of the study, Dr. Ken Johnson has long reported on homeownership and the decision between renting and buying a home. The methodology behind the report goes on to explain that even in a market where a renter would be able to spend less on housing, they would have to be disciplined enough to reinvest their remaining income in stocks/bonds/other investments for renting a home to be a more attractive alternative to buying.

      Johnson himself has said:

      “However, in perhaps a more realistic setting where renters can spend on consumption (beer, cookies, education, healthcare, etc.), ownership is the clear winner in wealth accumulation. Said another way, homeownership is a self-imposed savings plan on the part of those that choose to own.” 

      Bottom Line

      In the end, you and your family are the only ones who can decide if homeownership is the right path to go down. Real estate is local and every market is different. Let’s get together to discuss what’s really going on in your area and how we can help you make the best, most informed decision for you and your family.

      Homeownership Is a Good Financial Investment!

      Homeownership Is a Good Financial Investment! | MyKCM

      According to a recent report by Trulia“buying is cheaper than renting in 100 of the largest metro areas by an average of 33.1%.” The report may have some people thinking about buying a home instead of signing another lease extension, but does that make sense from a financial perspective?

      Ralph McLaughlin, Trulia’s Chief Economist explains:

      “Owning a home is one of the most common ways households build long-term wealth, as it acts like a forced savings account. Instead of paying your landlord, you can pay yourself in the long run through paying down a mortgage on a house.”

      The article listed five reasons why owning a home makes financial sense:

      1. Mortgage payments can be fixed while rents go up.
      2. Equity in your home can be a financial resource later.
      3. You can build wealth without paying capital gains.
      4. A mortgage can act as a forced savings account.
      5. Overall, homeowners can enjoy greater wealth growth than renters.

      Bottom Line

      Before you sign another lease, let’s get together and discuss all your options.

      69% of Buyers are Wrong About Down Payment Needs

      69% of Buyers are Wrong About Down Payment Needs | MyKCM

      According to a recent survey conducted by Genworth Financial Inc. at the Annual Mortgage Bankers’ Association Secondary Market Conference, 69% of mortgage professionals say that first-time buyers still believe a 20% down payment is necessary to buy in today’s market.

      Nearly 40% of mortgage industry professionals surveyed believe that a lack of knowledge about the home-buying process is keeping potential buyers on the sidelines. Saving for a down payment is often cited as a huge barrier for first-time homebuyers to make the leap into homeownership.

      If homeowners believe that they need a 20% down payment to enter the market, they also believe that they will have to wait years (in some markets) to come up with the necessary funds to buy their dream homes.

      The greatest source of confusion cited in the survey results centered around down payments. The results are broken down in the chart below:

      69% of Buyers are Wrong About Down Payment Needs | MyKCM

      Rohit Gupta, CEO of Genworth Mortgage Insurance had this to say,

      "While first-time homebuyers continue to drive the purchase market, we believe many are staying on the sidelines due to the misconception that a 20 percent down payment is required to secure a mortgage.

      There are various low down payment options available today that allow prospective homebuyers to reach their dreams of homeownership sooner. It is crucial that, as an industry, we proactively educate eligible borrowers about solutions that will enable them to buy a home when they're ready."

      Bottom Line

      Don’t let a lack of understanding of the home-buying process keep you and your family out of the housing market. Let’s get together to discuss your options!

      3 Reasons the Housing Market is NOT in a Bubble

      3 Reasons the Housing Market is NOT in a Bubble | MyKCM

      With housing prices appreciating at levels that far exceed historical norms, some are fearful that the market is heading for another bubble. To alleviate that fear, we just need to look back at the reasons that caused the bubble ten years ago.

      Last decade, demand for housing was artificially propped up because mortgage lending standards were way too lenient. People that were not qualified to purchase were able to attain a mortgage anyway. Prices began to skyrocket. This increase in demand caused homebuilders in many markets to overbuild.

      Eventually, the excess in new construction and the flooding of the market with distressed properties (foreclosures & short sales), caused by the lack of appropriate lending standards, led to the housing crash.

      Where we are today…

      1. If we look at lending standards based on the Mortgage Credit Availability Index released monthly by the Mortgage Bankers Association, we can see that, though standards have become more reasonable over the last few years, they are nowhere near where they were in the early 2000s.

      3 Reasons the Housing Market is NOT in a Bubble | MyKCM

      2. If we look at new construction, we can see that builders are not “over building.” Average annual housing starts in the first quarter of this year were not just below numbers recorded in 2002-2006, they are below starts going all the way back to 1980.

      3 Reasons the Housing Market is NOT in a Bubble | MyKCM

      3. If we look at home prices, most homes haven’t even returned to prices seen a decade ago. Trulia just released a report that explained:

      “When it comes to the value of individual homes, the U.S. housing market has yet to recover. In fact, just 34.2% of homes nationally have seen their value surpass their pre-recession peak.”

      Bottom Line

      Mortgage lending standards are appropriate, new construction is below what is necessary and home prices haven’t even recovered. It appears fears of a housing bubble are over-exaggerated.

      Inventory Shortages Are Slowing Down the Market

      Inventory Shortages Are Slowing Down the Market | MyKCM

      The real estate market is moving more and more into a complete recovery. Home values are up. Home sales are up. Distressed sales (foreclosures and short sales) have fallen dramatically. It seems that 2017 will be the year that the housing market races forward again.

      However, there is one thing that may cause the industry to tap the brakes: a lack of housing inventory. While buyer demand looks like it will remain strong throughout the summer, supply is not keeping up.

      Here are the thoughts of a few industry experts on the subject:

      Lawrence Yun, Chief Economist at NAR:

      "Sellers are in the driver's seat this spring as the intense competition for the few homes for sale is forcing many buyers to be aggressive in their offers. Buyers are showing resiliency given the challenging conditions. However, at some point — and the sooner the better — price growth must ease to a healthier rate. Otherwise sales could slow if affordability conditions worsen."

      Tom O’Grady, Pro Teck CEO

      “The lack of inventory is very real and could have a severe impact on home sales in the months to come. Traditionally, a balanced market would have an MRI (Months Remaining Inventory) between six and 10 months.

      This month, only eight metros we track have MRIs over 10, compared to 27 last year and 48 two years ago—illustrating that this lack of inventory is not being driven by traditionally ‘hot’ markets, but is rather a broad-based, national phenomenon.”

      Ralph McLaughlin, Chief Economist at Trulia

      “Nationally, housing inventory dropped to its lowest level on record in 2017 Q1. The number of homes on the market dropped for the eighth consecutive quarter, falling 5.1% over the past year.”

      Freddie Mac

      “Tight housing inventory has been an important feature of the housing market at least since 2016. For-sale housing inventory, especially of starter homes, is currently at its lowest level in over ten years. If inventory continues to remain tight, home sales will likely decline from their 2016 levels. …all eyes are on housing inventory and whether or not it will meet the high demand.”

      Bottom Line

      If you are thinking of selling, now may be the time. Demand for your house will be strongest at a time when there is very little competition. That could lead to a quick sale for a really good price.

      Homes are Selling Fast Across the Country [INFOGRAPHIC]

      Homes are Selling Fast Across the Country [INFOGRAPHIC] | MyKCM

      Some Highlights:

      • The National Association of REALTORS® surveyed their members for their monthly Confidence Index.
      • The REALTORS® Confidence Index is a key indicator of housing market strength based on a monthly survey sent to over 50,000 real estate practitioners. Practitioners are asked about their expectations for home sales, prices and market conditions.
      • Homes sold in 60 days or less in 36 out of 50 states, and Washington D.C.
      • Homes typically went under contract in 34 days in March!

      Your Tax Return: Bring it Home

       

      Your Tax Return: Bring it Home | MyKCM

      This time of year, many people eagerly check their mailboxes looking for their tax return check from the IRS. But, what do most people plan to do with the money? GO Banking Rates recently surveyed Americans and asked the question - “What do you plan on doing with your tax refund?”

      The results of the survey were interesting. Here is what they plan to do with their money:

      • 41% - Put it into savings
      • 38% - Pay off debt
      • 11% - Go on a vacation
      • 5% - Make a major purchase (car, home, etc.)
      • 5% - Splurge on a purchase

      Upon seeing the research, The National Association of Realtors (NAR) wondered if this could help with a constant challenge cited by many people who wish to purchase a home – saving for the down payment.

      In a recent post in NAR’s Economists’ Outlook Blog, they explained:

      “With a sizable tax refund, the average American would have a decent down payment depending on which region or market you live in.”

      They went on to add:

      “[A]pproximately 5 percent of all respondents indicated they would make a major purchase which does not seem like a lot. However, there is a bigger group 41 percent who see saving the tax return is best and that group could be potential homebuyers if they are not already.”

      In other words, putting that money toward purchasing a home is a form of savings.

      Bottom Line

      When one considers that first-time home buyers in 2016 had an average down payment of 6%, a decent tax return could go a long way toward the necessary funds needed for a down payment on a house. Or perhaps, the down payment needed by a son or daughter to make their homeownership dream a reality. How are you going to spend your return?

      Real Estate Mogul: Here's Why You Should Buy

       

      Real Estate Mogul: Here’s Why You Should Buy | MyKCM

      Real Estate mogul, Sean Conlon, host of The Deed: Chicago on CNBC, was recently asked the question, should you buy? Or should you rent a house?

      Conlon responded:

      “I am a true believer that you save every penny and you buy your first house… and that is still the fastest path to wealth in this country.”

      Conlon went on to suggest that first-time buyers put down 10-20% “if they can make it work,” and to remain in their home at least 4-5 years to see a return on their investment.

      Who is Sean Conlon, and why should you listen to his advice?

      Within a few years of working in the real estate industry, Conlon had established himself as one of the leading agents in the United States and has founded 3 billion-dollar brokerages dealing in residential, commercial and investment sales. Since immigrating to America from the United Kingdom in 1990, he believes very strongly in the American Dream and the role that homeownership plays in achieving it. Conlon is quoted on his website as saying:

      “I treat people the way I would like to be treated if I went in to buy a house and I work harder than anybody I know. I think if you do that in America, you will always succeed.”

      Bottom Line

      Homeownership is an investment you can leverage against in the future that not only provides shelter and safety but also helps you build your family’s wealth. If you are debating whether or not to purchase a home this year, let’s get together to discuss the opportunities available in today’s market!

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