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      Blog :: 06-2015

      Buy vs Rent: What Really Creates Family Wealth?

      There has been recent press regarding whether or not it makes better financial sense to rent rather than buy in today’s housing market. As an example, the recently released June Summary of the BH&J Buy vs. Rent Index reported:

      “…as of the end of the first quarter of 2015, the housing market in the U.S. and all cities in the index are trending either closer to renting being the superior option or strictly favoring renting over purchasing a home.”

      The summary goes on to explain that:

      “The index conducts a “horse race” comparison between an individual that is buying a home and an individual that rents a similar quality home andreinvests all monies otherwise invested in homeownership.”(emphasis added)

      Though the math may be correct, we are not as sure of the conclusion. Even if you check the methodology offered by the BH&J report itself, you will find that they realize:

      “…any extra savings from renting might be spent on non-wealth enhancing goods resulting in any benefits from renting versus owning disappearing in a cloud of consumption spending rather than savings.”

      The Concept of ‘Forced Savings’ and Wealth Accumulation

      Many believe the wealth accumulation of homeowners is tied into the concept of “forced savings”. The New York Times late last year published an editorial entitled,Homeownership and Wealth Creation, which discussed this conceptThe article explained:

      “Homeownership requires potential buyers to save for a down payment, and forces them to continue to save by paying down a portion of the mortgage principal each month.”

      “Even in instances where renters have excess cash, saving a substantial amount is difficult without a near-term goal, like a down payment. It is also difficult to systematically invest each month in stocks, bonds or other assets without being compelled to do so.”

      Many of the points that were made in the article are on track with the research done by the Joint Center for Housing Studies at Harvard University which agrees that “forced savings” is a major advantage of homeownership. In a paper, The Dream Lives On: the Future of Homeownership in America, they concluded:

      “Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”

      The Truth is in the Historical Data

      Edwards Deming once said: “Without data, you’re just another person with an opinion.”

      Let’s look at the data on this subject. The Federal Reserve has conducted a study titled:Survey of Consumer Finances. The study found that the average net worth of a homeowner ($194,500) is 36 times greater than that of a renter ($5,400).

      Bottom Line

      The New York Times editorial articulated it best:

      “Homeownership long has been central to Americans’ ability to amass wealth; even with the substantial decline in wealth after the housing bust, the net worth of homeowners over time has significantly outpaced that of renters, who tend as a group to accumulate little if any wealth…As a means to building wealth, there is no practical substitute for homeownership.”

      If you are a renter who is considering making a purchase, sit with a local real estate professional who can explain the benefits of signing a contract to purchase over renewing your lease!

      4 Reasons to Buy NOW!!!

      4 Reasons to Buy NOW! | Keeping Current Matters

      Summer is here! The temperature isn't the only thing heating up right now, so too is the housing market! Here are four great reasons to consider buying a home today instead of waiting.

      1. Prices Will Continue to Rise

      The Home Price Expectation Survey polls a distinguished panel of over 100 economists, investment strategists, and housing market analysts. Their most recent report projects appreciation in home values over the next five years to be between 11.8% (most pessimistic) and 26.7% (most optimistic).

      The bottom in home prices has come and gone. Home values will continue to appreciate for years. Waiting no longer makes sense.

      2. Mortgage Interest Rates Are Projected to Increase

      Freddie Mac's Primary Mortgage Market Survey shows that interest rates for a 30-year mortgage have started to inch up, most experts predict that they will begin to rise even more over the next 12 months. The Mortgage Bankers Association, Fannie Mae, Freddie Mac & the National Association of Realtors are in unison projecting that rates will be up approximately three quarters of a percentage point over the next 12 months.

      An increase in rates will impact YOUR monthly mortgage payment. Your housing expense will be more a year from now if a mortgage is necessary to purchase your next home.

      3. Either Way You are Paying a Mortgage

      As a recent paper from the Joint Center for Housing Studies at Harvard University explains:

      “Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return. That's yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

      4. It's Time to Move On with Your Life

      The 'cost' of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise.

      But, what if they weren't? Would you wait?

      Look at the actual reason you are buying and decide whether it is worth waiting. Whether you want to have a great place for your children to grow up, you want your family to be safer or you just want to have control over renovations, maybe it is time to buy.

      Bottom Line

      If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could lead to substantial savings.

      Mortgage Rates Just Jumped Over 4%. Now What?

      Mortgage Rates Just Jumped Over 4%. Now What? | Keeping Current Matters

      Last week, mortgage interest rates jumped over the 4% mark for the first time this year according to Freddie Mac’s Mortgage Market Survey.

      In an article in Housing Wire, a Bankrate analyst explained:

      “Mortgage rates rocketed higher following a stronger than expected monthly employment report. The good news on the job front further solidifies the notion that the Federal Reserve will likely begin raising interest rates soon, perhaps in the third quarter of this year.”

      This is the same type of commentary we heard back in the spring of 2013 when the talk of the Fed possibly raising rates caused mortgage interest rates to surge by a full percentage point from the end of April through the end of June of that year.

      Will We See that Same Surge in 2015?

      No one knows for sure. However, Fannie Mae, Freddie Mac, the Mortgage Bankers Association and the National Association of Realtors are each calling for rates to continue their upswing over the next six quarters.

      Here is a chart comparing 2013 to this year:

      Mortgage Rate Spike Comparison | Keeping Current Matters

      Bottom Line

      Though no one can definitely say where rates will be six months from now, most experts believe they will be higher. If you are thinking of buying your first home or are considering a move up to the house of your family’s dreams, now may be the best time to do it.

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      Think You Should FSBO?...Think Again!

      Think You Should FSBO? Think Again!! [INFOGRAPHIC] | Keeping Current Matters

      Some Highlights:

      According to NAR's Profile of Home Buyers & Sellers:

      • 88% of buyers look for their new home online
      • Using a real estate agent can net you 13% more than FSBO'ing
      • There is a long list of people that you will have to negotiate with when you decide to sell your home, using an experienced professional can help ease the process.

      Where Will Mortgage Rates Be in 12 Months?

      One of the biggest questions plaguing the current housing market is where mortgage interest rates will be at this time next year. Over the last two months, rates have begun to creep up (see chart).

      Interest Rates.1

      Though we don’t like to project rates moving forward, we do want you and your family to have the information you need in order to decide whether to wait before buying your first house or moving up to your ultimate dream home.

      Here are the most current mortgage rate projections from Fannie Mae, Freddie Mac, the Mortgage Bankers’ Association and the National Association of Realtors.

      Interest Rates.2

      Projecting interest rates is not easy. So what should you do – do it now or wait? We like the advice Doug Duncan, senior vice president and chief economist at Fannie Mae, recently gave:

      “The rule for when is it time to buy is always the same: given your household budget and where current interest rates are, if it makes good financial sense to take out a home loan today, then today is the day to do it.”

      Bottom Line

      If you are ready, willing and able and are thinking of buying a home over the next twelve months, waiting may not make sense.

      The Number One Reason to Buy Now...The Money!!!

      The #1 Reason to Buy Right Now - THE MONEY!! | Keeping Current Matters

      People often ask whether they should buy a home now or wait. Recently released data suggests that waiting may not make sense as prices seem to again be on the rise. Let’s take a look at some of the data and commentary on the subject:

      Ed Stansfield, chief property economist at Capital Economics:

      “The current tightness of supply conditions would normally be consistent with much faster price growth. The continued steady growth in home sales that we expect this year will only add to this upward pressure on prices.”

      Case Shiller Home Price Index

      “The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a 4.1% annual gain in March 2015 … with a 0.8% increase for the month.”

      Anand Nallathambi, CEO of CoreLogic

      “All signs are pointing toward continued price appreciation throughout 2015… Tight inventories, job growth and the impact of demographics and household formation are pushing price levels in many states toward record levels.”

      Danielle Hale, Director of Housing Statistics at NAR

      “Even without further acceleration, the pace of price growth remains too high. Strong buyer demand and low inventories coupled with relatively low new construction are helping to push prices up, keeping the housing market tipped in favor of sellers.”

       

      FHFA Principal Economist Andrew Leventis

      "The first quarter saw strong and widespread home price growth throughout most of the country. Home prices are now, on average, roughly 20 percent above where they were three years ago. This run-up has been historically exceptional and is particularly notable in light of the limited household income growth and modest rate of overall inflation observed during that same time period."

       

      Bottom Line

      If you are planning on buying a home in the near future, waiting probably doesn’t make sense from a purely pricing standpoint.

       

       

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