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      Buying Is Now 33.1% Cheaper Than Renting in the US

      Buying Is Now 33.1% Cheaper Than Renting in the US | MyKCM

      The results of the latest Rent VS Buy Report from Trulia show 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 actually 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!

      Other interesting findings in the report include:

      • Interest rates have remained low and, even though home prices have appreciated around the country, they haven’t greatly outpaced rental appreciation.
      • With rents & home values moving in tandem, shifts in the ‘rent vs. buy’ decision are largely driven by changes in mortgage interest rates.
      • 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.

      Bottom Line

      Buying a home makes sense socially and financially. If you are one of the many renters out there who would like to evaluate your ability to buy this year, let's get together to find your dream home.

       

      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!

      More Americans Chose to Own a Home Than Rent in Q1

       

      More Americans Chose to Own a Home Than Rent in Q1 | MyKCM

      According to the latest report from the US Census Bureau, more Americans chose purchasing a home over signing a lease to rent in the first quarter of 2017. This marks the first time since 2006 that the number of new homeowner households outpaced the number of new renter households.

      Of the 1.22 million new households that were formed in the first quarter, 854,000 were new-owner households making the jump straight to homeownership rather than renting first.

      That means that the homeownership rate amongst new households was 70%!

      This is huge news as the national homeownership rate is currently 63.6% and has only ever come close to this figure in the second quarter of 2004 when the homeownership rate reached an all-time high of 69.2%.

      A recent Wall Street Journal article pointed to the uptick in first-time homebuyers coming to market as a reason for the jump:

      “The return of first-time buyers is accelerating. In all they have accounted for 42% of buyers this year, up from 38% in 2015 and 31% at the lowest point during the recent housing cycle in 2011, according to Fannie Mae, which defines first-time buyers as anyone who hasn’t owned a home in the past three years.”

      Ralph McLaughlin, Trulia’s Chief Economist, had this to say about what a bump in new homeowner households could mean for the housing market:

      “Strong renter household formation is one of the reasons why the homeownership rate has continued to drop since the onset of the housing crisis, so any sign this trend is reversing is something to take note of. We look forward to future releases of these data to determine whether this is a statistical blip or a trend.”

      Bottom Line

      As more and more potential first-time buyers realize their ability to buy a home without having to rent first, not only will the homeownership rate benefit, but so will the overall economy.

      Do You Know the Cost of NOT Owning Your Home?

      Do You Know the Cost of NOT Owning Your Home? | MyKCM

      Owning a home has great financial benefits, yet many continue renting! Today, let’s look at the financial reasons why owning a home of your own has been a part of the American Dream for as long as America has existed.

      Zillow recently reported that:

      “With Rents continuing to climb and interest rates staying low, many renters find themselves gazing over the homeownership fence and wondering if the grass really is greener. Leaving aside, for the moment, the difficulties of saving for a down payment, let’s focus on the monthly expenses of owning a home: it turns out that renters currently paying the median rent in many markets could afford to buy a higher-quality property than the typical (read: median-valued) home without increasing their monthly expenses.”

      What proof exists that owning is financially better than renting?

      1. The latest Rent Vs. Buy Report from Trulia pointed out the top 5 financial benefits of homeownership:

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

      2. Studies have shown that a homeowner’s net worth is 45x greater than that of a renter.

      3. Just a few months ago, we explained that a family buying an average priced home at the beginning of 2017 could build more than $42,000 in family wealth over the next five years.

      4. 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!!

      Bottom Line

      Owning a home has always been, and will always be, better from a financial standpoint than renting.

      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.

      Gallup: Real Estate is Best Long-Term Investment 4 Years Running

      Gallup: Real Estate is Best Long-Term Investment 4 Years Running | MyKCM

      Every year, Gallup surveys  Americans to determine their choice for the best long-term investment. Respondents are given a choice between real estate, stocks/mutual funds, gold, savings accounts/CDs, or bonds.

      For the fourth year in a row, Real Estate has come out on top as the best long-term investment! This year’s results showed that 34% of Americans chose real estate, followed by stocks at 26%. The full results are shown in the chart below.

      Gallup: Real Estate is Best Long-Term Investment 4 Years Running | MyKCM

      The study makes it a point to draw attention to the contrast of the sentiment over the last four years compared to that of 2011-2012 when gold took the top slot with 34% of the votes. Real estate and stocks took second and third place, respectively, while still in recovery from the Great Recession.

      Bottom Line

      As the real estate market has recovered, so has the belief of the American people in the stability of housing as a long-term investment.

      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.

      Buying a Home? Do You Know the Lingo?

      Buying a Home? Do You Know the Lingo? | MyKCM

      Buying a home can be intimidating if you are not familiar with the terms used during the process. To start you on your path with confidence, we have compiled a list of some of the most common terms used when buying a home.

      Freddie Mac has compiled a more exhaustive glossary of terms in their "My Home" section of their website.

      Annual Percentage Rate (APR) – This is a broader measure of your cost for borrowing money. The APR includes the interest rate, points, broker fees and certain other credit charges a borrower is required to pay. Because these costs are rolled in, the APR is usually higher than your interest rate.

      Appraisal – A professional analysis used to estimate the value of the property. This includes examples of sales of similar properties. This is a necessary step in getting your financing secured as it validates the home’s worth to you and your lender.

      Closing Costs – The costs to complete the real estate transaction. These costs are in addition to the price of the home and are paid at closing. They include points, taxes, title insurance, financing costs, items that must be prepaid or escrowed and other costs. Ask your lender for a complete list of closing cost items.

      Credit Score – A number ranging from 350-800, that is based on an analysis of your credit history. Your credit score plays a significant role when securing a mortgage as it helps lenders determine the likelihood that you’ll repay future debts. The higher your score, the better, but many buyers believe they need at least a 780 score to qualify when, in actuality, over 55% of approved loans had a score below 750.

      Discount Points – A point equals 1% of your loan (1 point on a $200,000 loan = $2,000). You can pay points to buy down your mortgage interest rate. It’s essentially an upfront interest payment to lock in a lower rate for your mortgage.

      Down Payment – This is a portion of the cost of your home that you pay upfront to secure the purchase of the property. Down payments are typically 3 to 20% of the purchase price of the home. There are zero-down programs available through VA loans for Veterans, as well as USDA loans for rural areas of the country. Eighty percent of first-time buyers put less than 20% down last month.

      Escrow – The holding of money or documents by a neutral third party before closing. It can also be an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.

      Fixed-Rate Mortgages – A mortgage with an interest rate that does not change for the entire term of the loan. Fixed-rate mortgages are typically 15 or 30 years.

      Home Inspection – A professional inspection of a home to determine the condition of the property. The inspection should include an evaluation of the plumbing, heating and cooling systems, roof, wiring, foundation and pest infestation.

      Mortgage Rate – The interest rate you pay to borrow money to buy your house. The lower the rate, the better. Interest rates for a 30-year fixed rate mortgage have hovered between 4 and 4.25% for most of 2017.

      Pre-Approval Letter – A letter from a mortgage lender indicating that you qualify for a mortgage of a specific amount. It also shows a home seller that you're a serious buyer. Having a pre-approval letter in hand while shopping for homes can help you move faster, and with greater confidence, in competitive markets.

      Primary Mortgage Insurance (PMI) – If you make a down payment lower than 20% on your conventional loan, your lender will require PMI, typically at a rate of .51%. PMI serves as an added insurance policy that protects the lender if you are unable to pay your mortgage and can be cancelled from your payment once you reach 20% equity in your home. For more information on how PMI can impact your monthly housing cost.

      Real Estate Professional – An individual who provides services in buying and selling homes. Real estate professionals are there to help you through the confusing paperwork, to help you find your dream home, to negotiate any of the details that come up, and to help make sure that you know exactly what’s going on in the housing market. Real estate professionals can refer you to local lenders or mortgage brokers along with other specialists that you will need throughout the home-buying process.

      The best way to ensure that your home-buying process is a confident one is to find a real estate professional who will guide you through every aspect of the transaction with ‘the heart of a teacher,’ and who puts your family’s needs first.

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