Housing Wealth: The Missing Piece of the Affordability Equation

The real estate market is soaring today. Residential home values are rising, and that's a big win for homeowners. In 2020, there was a double-digit increase in home values a trend that's expected to head toward similar levels this year.

However, skyrocketing prices are causing some to start questioning affordability in the current housing market. Many are quick to emphasize the fact that homes today are less affordable than they were last year. Black Knight, a leading provider of data and analytics across the homeownership life cycle, just reported on the issue.

The findings show the historical averages of the national payment to income ratio, which they define as the share of the median income needed to make the monthly payments on the median-priced home. Their study reveals:

• The average over the last 25 years was 23.6%
• The average over the last 5 years was 20.1%
• The average today stands at 20.5%

Right now, housing payments are slightly less affordable than the five-year average but only by less than a percentage point. However, they're significantly more affordable than the 25-year average. Put another way, a buyer will likely make a slightly greater financial sacrifice to afford a home right now than if they purchased a home within the last five years. On the other hand, it also means the potential financial sacrifice is not nearly as great as it was over the last 25 years.

Does making a sacrifice to buy a home today make financial sense in the long term?

Last week, the Federal Reserve announced that, in the first three months of the year, household net worth increased by 968 billion based solely on the values of the real estate they owned. Another report from CoreLogic reveals the average annual gain in homeowner equity was 33,400 per borrower.

Homeownership continues to be the cornerstone to building personal wealth. For most Americans, their home is the largest asset they own. On top of that, the difference between the net worth of homeowners and renters is significant at every income level. Here's a table detailing that point using data from a study done by First American:Owning a home is an essential steppingstone to grow a households net worth. Despite the slightly greater sacrifice in the percentage of monthly income youll spend on housing today, for most homebuyers, the payoff of starting to build equity now will be worth it.

Bottom Line

Since prices have risen dramatically over the past 18 months, its slightly less affordable to buy a home today than it was a year ago. However, when you consider the equity gain and weigh the long-term benefits of building your net worth, you may question if you can afford not to buy now.

 

Owning a Home Has Distinct Financial Benefits Over Renting

Some Highlights

• When you rent, you build your landlords wealth, your monthly payment depends on ever-rising rents, and you don't benefit from home price appreciation.
• On the other hand, when you own your home, you build your own wealth, your monthly payment is locked in, and you benefit directly from home price appreciation.
• If you're feeling the challenges of a competitive market, remember that homeownership is a long-term game. Persevering today will lead to financial rewards in the future.

Why You May Want To Cash in on Your Second Home

When stay-at-home mandates were enforced last year, many households realized their homes didn't really fulfill their new lifestyle needs. An office (in some cases two), a media room, space for children to learn, a gym, and a large yard are all examples of amenities that became highly desirable almost overnight.

Zelman & Associates recently reported that sales of primary residences grew by 9% in 2020. That increase in demand was met by the lowest supply of homes for sale in history. High demand and low supply caused prices to skyrocket over the past twelve months. Here are three home price indexes released most recently that show how home values have risen:

• FHFA Agency House Price Index shows a 13.9% increase
• CoreLogic Home Price Insights Report shows an 11.3% increase
• S&P Case-Shiller U.S. National Home Price Index shows a 13.2% increase

Prices increased by double digits in every region of the country and in 19 of 20 major metros. Chicago was the only exception, where prices still rose by 9%.

What does this mean to those who purchased a second home during the pandemic?

Many people didn't want to give up a home in the city or close to their office. Instead, they purchased a larger second home farther away and moved there to stay safe and have more space. According to the same Zelman report, sales for second homes rose an astonishing 27% in 2020.

That large second-home retreat on a lake or in the mountains would demand a higher price than the average house. Lets assume a buyer purchased such a home for 500,000. Assuming the middle 13.2% appreciation shown above, that home would now be worth about 566,000.

Those who bought second homes to improve their lifestyle during the height of the pandemic, or those who just wanted to be in a safer environment, also made a great investment.

What should these homeowners do now as the pandemic is receding, and the economy is reopening?

The buyers of those second homes now have a decision to make. Many will move back to the original home they still own (the one that's closer to work, friends, and family). Should they keep the second home? That could depend on answers to questions like these:

• Now that you may have to go back to the office (at least a few days a week) and students are required to physically attend school, would you still use the second house enough to warrant the expenses of an additional home?
• Would you go to the second home on most weekends, or would you return to the movie theater, attend sporting events, eat out at fine restaurants, or spend your time traveling again?

Bottom Line

If you purchased a larger second home during the pandemic, you were able to make day-to-day life much easier for those important to you. You also made it much safer. However, with those goals already accomplished, you now need to decide whether to continue paying the extra expenses or sell the house and cash in your profit. If you decide selling makes sense, lets connect today to discuss the value of your second home.

 

 

How Do You Use a Bug Zapper?

To get this out there, there’s very little chance that you don’t know what a bug zapper is. There’s also at least a chance that you’ve never actually used one in real life and have just seen them used in a cartoon, movie, or TV show. Bug zappers have all but become a part of pop culture, usually indicating that a character lives in a very rural setting and more often than not comes from the poorer side of the tracks. So let’s get rid of that mental image right off the bat, because bug zappers are actually very useful tools that can make your home and yard a bit more comfortable as bugs that bite are out looking for a nibble in the heat of summer.

How Bug Zappers Work

While the “zap” in the name gives away a large part of how bug zappers work, the system is a bit more complex than just tossing out some voltage and killing wayward bugs. Inside the average bug zapper is an ultraviolet light source, which depending on the model of the zapper could be a light bulb, a fluorescent light tube or even UV LEDs. It’s this light source that attracts insects to the device, causing them to fly in between a grid of wires in hopes of reaching the light within. This is where the zap comes in; the grid contains electrified wires that provide a small shock to any insects that fly inside, killing them and causing them to drop onto a removable tray for easy cleanup.

It’s important to keep in mind that this is just a general description of how they work, of course; different models may have additional features such as scent or pheromone cartridges designed to attract specific types of insects. There also may be some differences in design between bug zappers intended for indoor use and those designed to use outside. Some small units may even be battery powered or built into the form factor of a flyswatter to make killing specific insect pests easier.

Placing Bug Zappers

For stationary bug zappers, there are two main types: Indoor units and outdoor units. Indoor bug zappers are typically only needed in residential homes if you have problems with bugs in certain areas (such as flies in the kitchen or flying bugs coming in through sliding doors in the summer.) If that’s the case, a bug zapper can be placed around the area where you have the largest problem or near the most obvious entry point.

Outdoor bug zappers are much more commonly used by homeowners, especially during the summer when everyone wants to spend time outdoors. The best locations to place bug zappers outdoors are typically around the edges of the area where you plan to spend time, such as the outskirts of a pool or play area, so that insects will be drawn to the zappers instead of the people within that perimeter. It can also be beneficial to place a bug zapper near outdoor tables where you’ll be serving food, just so long as it’s far enough away that wayward zapped bugs won’t fall out and land on the table. Garden hangers and shepherd’s hooks can be used to hold up the bug zapper units wherever you place them.

Bug Zapper Safety

Because bug zappers use electricity, keep in mind that you’re likely going to need extension cords to provide them with the juice they need. This means that you’ll need cords that are rated for outdoor use, as well as a grounded outdoor outlet to plug them into. It’s also important that the zappers are mounted in such a way that pets or children aren’t going to grab them; even though bug zappers don’t provide enough of a zap to be dangerous to people or pets, it could still hurt or startle them and cause them to knock the bug zapper over (which could then hit someone or become a tripping hazard.)

Using a bug zapper can be beneficial around the house, though it’s important to remember that not all bugs will be attracted to one. For other insect pests, calling in an exterminator or other pest removal pro can be a good idea. Sign up for a free HomeKeepr account today to find pest pros in your area that can help keep your home insect free and take care of whatever the bug zapper doesn’t.

In Todays Market, Listing Prices Are Like an Auctions Reserve Price

For generations, the process of buying and selling a home never really changed. A homeowner would try to estimate the market value of their house, then tack on a little extra to give themselves some negotiating room. That figure would become the listing price. Buyers would then try to determine how much less than the full price they could offer and still get the home. As a result, the listing price was generally the ceiling of the negotiation. The actual sales price would almost always be somewhat lower than what was listed. It was unthinkable to pay more than what the seller was asking.

Today is different.

The record-low supply of homes for sale coupled with very strong buyer demand is leading to a rise in bidding wars on many homes. Because of this, homes today often sell for more than the list price. In some cases, they sell for a lot more.

According to Lawrence Yun, Chief Economist at the National Association of Realtors (NAR):

For every listing there are 5.1 offers. Half of the homes are being sold above list price.

You may need to change the way you look at the asking price of a home.

In this market, you likely cant shop for a home with the former approach of negotiating to a lower price.

Due to the low supply of houses for sale, many homes are now being offered in an auction-like atmosphere in which the highest bidder wins the home. In an actual auction, the seller of an item agrees to take the highest bid, and many sellers set a reserve price on the item they're selling. A reserve price is the minimum amount a seller will accept as the winning bid.

When navigating a competitive housing market, think of the list price of the house as the reserve price at an auction. Its the minimum the seller will accept in many cases. Today, the asking price is often becoming the floor of the negotiation rather than the ceiling. Therefore, if you really love a home, know that it may ultimately sell for more than the sellers are asking. So, as you're navigating the homebuying process, make sure you know your budget, know what you can afford, and work with a trusted advisor who can help you make all the right moves as you buy a home.

Bottom Line

Someone whos more familiar with the housing market of the past than that of today may think its foolish to offer more for a home than the listing price. However, frequent and competitive bidding wars are creating an auction-like atmosphere in many real estate transactions right now. Lets connect today so you have a trusted real estate professional on your side to provide the best advice on how to make a competitive offer on a home.

 

 

HVAC Hacks for High Ceilings

Many people like homes with high ceilings because of the spaciousness they convey and the vertical space they provide for hangings, artwork, and a variety of other items. There are a few drawbacks to high ceilings, though, and one significant one is how difficult they can make heating and cooling your home. If you aren’t careful, those high ceilings that look so nice can result in a significant increase in your heating and cooling costs when compared to similar homes with lower ceilings. This doesn’t mean that you’re doomed to spend a lot on heating and cooling, however; there are a few things that you can do to make your HVAC system more efficient in your home even if you do have high ceilings.

Improve Air Circulation

One big thing that you can do is to get the air in your home moving by using ceiling fans or other types of fans. Even though the fans won’t heat or cool the air on their own, they do move the hot or cold air around to provide a more comfortable environment overall. This can be especially important during the hottest parts of summer and the coldest parts of winter, as in both instances fans keep hot air from collecting up high and cool air from staying too low for you to really enjoy.

A whole-house fan can help in this regard as well, especially in the heat of summer. This type of fan will remove the hottest air from your home, which keeps your attic from heating up the rest of the house or trapping warm air. Once the days start cooling down, the fan can then be shut off and insulated to keep warm air from escaping.

Make Use of the System Fan

Most people keep their HVAC system on automatic, which uses the system fan to circulate air while the air conditioning or heater is on and then shuts it off afterward. Just like with ceilings fans, though, the system fan can help to circulate air even when the unit isn’t actively heating or cooling the air. This circulation helps to eliminate stagnant, still air that can seem uncomfortable regardless of the temperature you’re shooting for.

Turning on the system fan can be useful throughout the year, but it’s especially useful during the summer when it’s coolest near the floors. HVAC registers at the floor level will move that cool air higher into your home. The added air circulation also provides some benefit in winter too, helping to get heat out from around the high ceilings and down into the rest of the house. During the milder spring and fall, you can enjoy the added air circulation if you wish or simply switch the fan back to auto.

Consider Your HVAC System

If your HVAC system can’t keep up even with additional air circulation, it may be that your unit is too exposed outdoors or simply isn’t powerful enough to fully heat and cool your home. If possible, your HVAC unit should be in the shade for at least part of the day to keep its components as cool as possible even during the heat of summer. Installing a shade or awning over the unit can be one way to accomplish this, just so long as you don’t use large supports or side pieces that could restrict airflow. If the unit is too small, though, there’s not much that you can do other than installing supplementary air conditioning or heating solutions or upgrading the whole system.

If you’re not sure whether you need an HVAC upgrade, HomeKeepr can help with this. You can connect with HVAC pros in your area who will help you determine whether your unit is the right size for your home and who can provide the maintenance necessary to keep it running smoothly all year long. Best of all, you can sign up with HomeKeepr for free.

Home Price Appreciation Is as Simple as Supply and Demand

Home price appreciation continues to accelerate. Today, prices are driven by the simple concept of supply and demand. Pricing of any item is determined by how many items are available compared to how many people want to buy that item. As a result, the strong year-over-year home price appreciation is simple to explain. The demand for housing is up while the supply of homes for sale hovers at historic lows.

Lets use three maps to show how this theory continues to affect the residential real estate market.

Map #1 State-by-state price appreciation reported by the Federal Housing Finance Agency (FHFA) for the first quarter of 2021 compared to the first quarter of 2020:As the map shows, certain states (colored in red) have appreciated well above the national average of 12.6%.

Map #2 The change in state-by-state inventory levels year-over-year reported by realtor.com:Comparing the two maps shows a correlation between change in listing inventory and price appreciation in many states. The best examples are Idaho, Utah, and Arizona. Though the correlation is not as easy to see in every state, the overall picture is one of causation.

The reason prices continue to accelerate is that housing inventory is still at all-time lows while demand remains high. However, this may be changing.

Is there relief around the corner?

The report by realtor.com also shows the monthly change in inventory for each state.

Map #3 State-by-state changes in inventory levels month-over-month reported by realtor.com:As the map indicates, 39 of the 50 states (plus the District of Columbia) saw increases in inventory over the last month. This may be evidence that homeowners who have been afraid to let buyers in their homes during the pandemic are now putting their houses on the market.

Well know for certain as we move through the rest of the year.

Bottom Line

Some are concerned by the rapid price appreciation we've experienced over the last year. The maps above show that the increases were warranted based on great demand and limited supply. Going forward, if the number of homes for sale better aligns with demand, price appreciation will moderate to more historical levels.