How Misunderstandings about Affordability Could Cost You

There's a lot of discussion about affordability as home prices continue to appreciate rapidly. Even though the most recent index on affordability from the National Association of Realtors (NAR) shows homes are more affordable today than the historical average, some still have concerns about whether or not its truly affordable to buy a home right now.

When addressing this topic, there are various measures of affordability to consider. However, very few of the indexes compare the affordability of owning a home to renting one. In a paper just published by the Urban Institute, Homeownership Is Affordable Housing, author Mike Loftin examines whether its more affordable to buy or rent. Here are some of the highlights included.

1. Renters pay a higher percentage of their income toward their rental payment than homeowners pay toward their mortgage.

The report explains:

When we look at the median housing expense ratio of all households, the typical homeowner household spends 16 percent of its income on housing while the typical renter household spends 26 percent. This is true, you might say, because people who own their own home must make more money than people who rent. But if we control for income, it is still more affordable to own a home than to rent housing, on average.

Here's the data from the report shown in a graph:

2. Renters don't have extra money to invest in other assets.

The report goes on to say:

Buying a home is not a decision between investing in real estate versus investing in stocks, as financial advisers often claim. Instead, the home buying investment simply converts some portion of an existing expense (renting) into an investment in real estate.

It explains that you still have a housing expense (rent payments) even if you don't buy a home. You cant live in your 401K, but you can transfer housing expenses to your real estate investment. A mortgage payment is forced savings; it goes toward building equity you will likely get back when you sell your home. There's no return on your rent payments.

3. Your mortgage payment remains relatively the same over time. Your rent keeps going up.

The report also notes:

Whereas renters are continuously vulnerable to cost increases, rising home prices do not affect homeowners. Nobody rebuys the same home every year. For the homeowner with a fixed-rate mortgage, monthly payments increase only if property taxes and property insurance costs increase. The principal and interest portion of the payment, the largest portion, is fixed. Meanwhile, the renters entire payment is subject to inflation.

Consequently, over time, the homeowners and renters differing trajectories produce starkly different economic outcomes. Homeownerships major affordability benefit is that it stabilizes what is likely the homeowners biggest monthly expense, assuming a buyer has a fixed-rate mortgage, which most American homeowners do. The only portion of the homeowners housing expenses that can increase is taxes and insurance. The principal and interest portion stays the same for 30 years.

A mortgage payment remains about the same over the 30 years of the mortgage. Heres what rents have done over the last 30 years:

4. If you want to own a home and can afford it, waiting could cost you.

As the report also indicates:

We need to stop seeing housing as a reward for financial success and instead see it as a critical tool that can facilitate financial success. Affordable homeownership is not the capstone of economic well-being; it is the cornerstone.

Homeownership is the first rung on the ladder of financial success for most households, as their home is most often their largest asset.

Bottom Line

If the current headlines reporting a supposed drop-off in home affordability are making you nervous, lets connect to go over the real insights into our area.

 

 Don't Forget to Budget for Closing Costs

When buying a home, its important to have a budget and make sure you plan ahead for certain homebuying expenses. Saving for a down payment is the main cost that comes to mind for many, but budgeting for the closing costs required to get a mortgage is just as important.

What Are Closing Costs?

According to Trulia:

When you close on a home, a number of fees are due. They typically range from 2% to 5% of the total cost of the home, and can include title insurance, origination fees, underwriting fees, document preparation fees, and more.

For example, for someone buying a 300,000 home, they could potentially have between 6,000 and 15,000 in closing fees. If you're in the market for a home above this price range, your closing costs could be greater. As mentioned above, closing costs are typically between 2% and 5% of your purchase price.

Trulia gives more great advice, explaining:

There will be lots of paperwork in front of you on closing day, and not enough time to read them all. Work closely with your real estate agent, lender, and attorney, if you have one, to get all the documents you need ahead of time.

The most important thing to read is the closing disclosure, which shows your loan terms, final closing costs, and any outstanding fees. You'll get this form about three days before closing since, once you (the borrower) sign it, there's a three-day waiting period before you can sign the mortgage loan docs. If you have any questions about the numbers or what any of the mortgage terms mean, this is the time to ask your real estate agent is a great resource for getting you all the answers you need.

Bottom Line

As home prices are rising and more buyers are finding themselves competing in bidding wars, its more important than ever to make sure your plan includes budgeting for closing costs. Lets connect to be sure you have everything you need to land your dream home.

 

 

Window Coverings Help Beat the Summer Heat

Keeping your home cool during the hot summer months can be an expensive prospect. This is especially true if you have large windows or rooms that have multiple windows that let sunlight in. While it’s great to have natural light during the day, it can work against your AC by heating up the air in those rooms at the same time you’re pumping cool air throughout the house. This can lead to your air conditioning running almost constantly throughout the day, and in some cases may even prompt an expensive HVAC upgrade if your current unit can’t keep up with the summer heat to your liking.

There’s some good news, though: It’s likely possible to cut your cooling costs during the summer without having to spend potentially thousands of dollars on a more powerful air conditioning solution. Through the use of various types of window coverings, you can make a big difference in how much heat is added to your home through your windows. Not only does this have the potential to cut your cooling costs significantly, but it can enhance the overall style of your home as well.

Curtains and Internal Coverings

Curtains, blinds, and other internal window coverings can have a significant impact on how much heat you gain from the sun during the summer. Medium to dark-colored curtains and drapes, especially those with white backings, block sunlight and heat gain significantly and can also help to hold heat in during the cold winter months. Blinds and rolling shades also offer some protection against heat gain, though their effectiveness depends on a number of factors including color, material, and reflectiveness.

Regardless of the covering type you choose, they are typically most effective when closed on south or west-facing windows, since these are the most likely to get direct sunlight during the hottest parts of the day. Closing the curtains or blinds on any window receiving direct sunlight can have at least some beneficial effect, however.

Window Films

One of the big problems with using coverings such as curtains and shades to prevent heat gain during the summer is that they block light and visibility as well as heat. If you still want to be able to see through your windows and enjoy some natural sunlight while preventing heat gain, a low-E window film might be a better option to meet your needs.
Low-E films are mildly tinted plastic films that have reflective particles of metal or metal oxide in them, reflecting UV rays while still allowing for some natural light and visibility. Because the UV rays are reflected back out into the outside, they are not able to heat up the air inside of your home. While the effectiveness of low-E films can vary depending on the manufacturer, thickness of the film, and how well they are installed, it’s estimated that some low-E films can reduce summer heat gain from sunlight by as much as 70 percent or more.

Shutters and Other Upgrades

There are a variety of other upgrades you can make to your home that will also help to block UV rays and prevent unwanted heat gain during the summer. Functional shutters that can be closed during the heat of the day can make a significant difference in solar heat gain, blocking the sunlight from actually reaching your windows in the first place. Awnings installed over windows can also block some light and heat, while still allowing for some visibility. Exterior solar screens are also an option, blocking UV rays and increasing your energy efficiency while preserving some light and visibility as well.

Of course, some of these options may be a bit more than you want to tackle as a DIY project. Even installing low-E films can be tricky if you have little experience with window films or have large windows to cover. Fortunately, HomeKeepr is here to help. Sign up for a free account today and get connected with installation pros in your area that can have you fixed up and staying cool in no time.

Americans See Real Estate as a Better Investment Than Stocks or Gold

Americans See Real Estate as a Better Investment Than Stocks or Gold

Last month, in a post on the Liberty Street Economics blog, the Federal Reserve Bank of New York noted that Americans believe buying a home is definitely or probably a better investment than buying stocks. Last week, a Gallup Poll reaffirmed those findings.

In an article on the current real estate market, Gallup reports:

Gallup usually finds that Americans regard real estate as the best long-term investment among several options — seeing it as superior to stocks, gold, savings accounts and bonds. This year, 41% choose real estate as the best investment, up from 35% a year ago, with stocks a distant second.

Here's the breakdown:The article goes on to say:

The 41% choosing real estate is the highest selecting any of the five investment options in the 11 years Gallup has asked this question.

Is real estate really a secure investment right now?

Some question American confidence in real estate as a good long-term investment right now. They fear that the build-up in home values may be mirroring what happened right before the housing crash a little more than a decade ago. However, according to Merrill Lynch, J.P. Morgan, Morgan Stanley, and Goldman Sachs, the current real estate market is strong and sustainable.

As Morgan Stanley explains to their clients in a recent Thoughts on the Market podcast:

Unlike 15 years ago, the euphoria in today’s home prices comes down to the simple logic of supply and demand. And we at Morgan Stanley conclude that this time the sector is on a sustainably, sturdy foundation . . . . This robust demand and highly challenged supply, along with tight mortgage lending standards, may continue to bode well for home prices. Higher interest rates and post pandemic moves could likely slow the pace of appreciation, but the upward trajectory remains very much on course.

Bottom Line

Americas belief in the long-term investment value of homeownership has been, is, and will always be, very strong.

 

Sellers Are Ready To Enter the Housing Market

One of the biggest questions in real estate today is, When will sellers return to the housing market? An ongoing shortage of home supply has created a hyper-competitive environment for hopeful buyers, leading to the ultimate sellers market. However, as the economy continues to improve and more people get vaccinated, more sellers may finally be in sight.

The Home Purchase Sentiment Index (HPSI) by Fannie Mae recently noted the percentage of consumer respondents who say its a good time to sell a home increased from 61% to 67%. Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae, indicates:

Consumer positivity regarding home-selling conditions nearly matched its all-time high. (See graph below):

Fannie Mae isn't the only expert group noticing a rise in the percentage of people thinking about selling. George Ratiu, Senior Economist at realtor.com, shares:

The results of a realtor.com survey . . . showed that one-in-ten homeowners plans to sell this year, with 63 percent of those, looking to list in the next 6 months. Just as encouragingly, close to two-thirds of sellers plan to sell their homes at prices under 350,000, which would offer a tremendous boost to affordable housing for first-time buyers.

Bottom Line

If you're considering selling your house, don't wait for more competition to pop up in your neighborhood. Lets connect today to explore the benefits of selling your house now before more homes come to the market.

 

 

Considering a Yard Pond?

Ponds are increasingly popular water features for homeowners. Having a small decorative pond in your yard can help you unwind, provide a unique ecosystem for certain animals, and just generally add some beauty to your property. With that said, it’s important to realize that installing a yard pond is a bigger task than just digging a hole and adding some water. Before diving into a pond project, it’s important that you stop to consider everything that’s involved with the installation, as well as some of the things you’ll need for upkeep once the pond is finished. This isn’t meant to discourage you, just to make you sure that you’re aware of all of this before you get too far into your planning.

Installing a Yard Pond

Yard ponds can range in size between a small 550-gallon pond to one that holds 2,000 gallons or more, so it’s important to take the time to plan exactly how large you want your pond to be. Try outlining your pond with a rope to get an idea of its dimensions, then add an extra 2 feet or so around the entire border to account for transitionary plants, rocks, and other border features. You’ll want to keep an eye on the area once you have it outlined, since most pond plants require at least six hours of sunlight or more per day to thrive.

You’ll also need to have a way to get power to the pond to power any pumps or fountains that you use to circulate water, and a means to add additional water as needed if your local rainfall isn’t sufficient to counter evaporation. Other necessities include a pond liner to keep the water from simply soaking into the ground, any fish or plants that you want to add to the pond once it’s installed, and a pond net or skimmer to keep leaves, seed pods, and similar items from clogging up your pump in the spring and fall. In addition to all of that, you may also need permits or other legal documents before you can break ground, and you will likely have to have a survey to mark underground pipes and wires to avoid potential fines.

Yard Pond Upkeep

Once a pond is installed, there are some things you should keep in mind as part of your ongoing maintenance plan. You’ll need to check your pond every week for leaves, debris, and other things that might gunk up the works and potentially harm fish or plants, though this can be negated with a pond net during the fall or other times when a lot of potential debris is likely. Checking the water level is also important, especially during the summer. If you have cold winters, you may also need a heater or air bubbler to keep everything from freezing as well. In most cases you will only need to spend around 15 to 30 minutes a week checking on these issues, but that can vary depending on where you live.

Another thing you’ll want to consider is insects. While dragonflies and similar insects are often a welcome sight around ponds, water features like this can also be a breeding ground for mosquitoes if you aren’t careful. Making sure that the water is sufficiently circulated or adding products that are designed to prevent mosquito growth without harming fish or other animals are good ways to take care of this problem, though some of these treatments may have to be repeated multiple times per year. Certain fish may also help to keep the mosquito population under control.

Ready to Build Your Pond?

A yard pond can be a major undertaking, but it can really pay off once it’s finished. If you’re not sure where to start, it’s a good idea to consult with a landscaper or water feature installer in your area to see what will work best for your property. HomeKeepr can help you connect with the pros you need to make your pond dreams a reality; sign up for a free account today to get started.

Should I Move or Refinance?

The level of equity homeowners have is at an all-time high. According to the U.S. Census, over 38% of owner-occupied homes are owned free and clear, meaning they don't have a mortgage. Those with a mortgage are seeing their equity skyrocket too. Every time real estate values increase, homeowners get a dollar-for-dollar gain in their home equity.

According to the first-quarter 2021 U.S. Home Equity Report from ATTOM Data Solutions:

17.8 million residential properties in the United States were considered equity-rich, meaning that the combined estimated amount of loans secured by those properties was 50 percent or less of their estimated market value.

The count of equity-rich properties in the first quarter of 2021 represented 31.9 percent, or about one in three, of the 55.8 million mortgaged homes in the United States. That was up from 30.2 percent in the fourth quarter of 2020, 28.3 percent in the third quarter and 26.5 percent in the first quarter of 2020.

This surge in home equity has given most homeowners the opportunity to use that equity in one of two ways:

1. Refinance to cash out some of the equity or lower their current payment
2. Move to a home that better fits their current needs

Lets break down the possibilities.

1. Refinance

An abundance of equity and record-low mortgage rates can make refinancing a home very easy. Some homeowners choose to refinance so they can lower their payments. Others convert a portion of the equity to cash while keeping their monthly payment the same.

There are many homeowners who could take advantage of lower rates and higher levels of equity, but they haven't yet. According to an Economic & Housing Research Note from earlier this month, there were over five million homeowners with a loan funded by Freddie Mac who would benefit by refinancing their loan. As of January 2021, there were:

• 452,122 loans with an average mortgage rate of 6.17%
• 1,027,834 loans with an average mortgage rate of 4.39%
• 3,687,780 loans with an average mortgage rate of 4.21%

With mortgage rates currently hovering around 3%, any of these homeowners would benefit from refinancing. They could lower their payments by hundreds of dollars per month or cash out large sums of equity while keeping their monthly payment the same.

Example:

If a homeowner has a 200,000 fixed-rate mortgage with a 6% interest rate and refinances that loan to a 3% interest rate, their monthly mortgage payment (principal and interest) will go from 1,199 per month to 843 per month a savings of 356 a month, or 4,272 each year.

On the other hand, if they keep their mortgage payment the same, they could cash out a significant amount of their equity.

2. Move into your dream home

The past year prompted many households to redefine what a dream home really means, and its something different to everyone. Those who have a high mortgage rate could use their equity as a down payment and perhaps buy their next home without significantly raising their mortgage payment.

Example:

Suppose a person bought a house for 216,000 at the height of the market in 2006. (The median home price in May of 2006). If they put 10% down and took out a mortgage of 194,400 at 6.41% (the average rate in 2006), the monthly mortgage payment (principal and interest) would have been 1,217.

According to the National Association of Realtors (NAR), a typical single-family home has grown in value by approximately 150,000 over the last fifteen years. That means the 216,000 house would be worth about 366,000 today.

After deducting selling expenses, they would be left with about 130,000 (150,000 minus approximately 20,000 in selling expenses).

A seller could take that equity and use it as a down payment on a new house. Lets assume they purchased a home for 450,000 (roughly 80,000 more than the value of their current home). If they put the 130,000 down, they could take out a mortgage of 320,000 with a 3% interest rate. The monthly mortgage payment (principal and interest) would be 1,349. Therefore, they could buy a home worth 80,000 more than the one they have today and only spend an extra 132 per month.

Bottom Line

Whether you're refinancing your house or moving to a new home, your current mortgage rate and your level of equity are crucial in your decision-making process. Look at your mortgage documentation to find out your interest rate, and then lets connect to determine the potential equity in your home. You may be surprised by the opportunities you have.