Every three years, the Federal Reserve conducts its Survey of Consumer Finances. Data is collected across all economic and social groups. The latest survey data covers 2013-2016.
The study revealed that the median net worth of a homeowner is $231,400 – a 15% increase since 2013. At the same time, the median net worth of renters decreased by 5% ($5,200 today compared to $5,500 in 2013).
These numbers reveal that the net worth of a homeowner is over 44 times greater than that of a renter.
Owning a home is a great way to build family wealth.
As we’ve said before, simply put, homeownership is a form of ‘forced savings.’ Every time you pay your mortgage, you are contributing to your net worth by increasing the equity in your home.
That is why Gallupreported Americans picked real estate as the best long-term investment for the sixth year in a row. According to this year’s results, 35% of Americans chose real estate. Stocks followed at 27%, then savings accounts and gold.
If you want to find out how you can use your monthly housing cost to increase your family’s wealth, meet with a real estate professional in your area who can guide you through the process.
It seems you can’t find a headline with the term “housing affordability” without the word “crisis” attached to it. That’s because some only consider the fact that residential real estate prices have continued to appreciate. However, we must realize it’s not just the price of a home that matters, but the price relative to a purchaser’s buying power.
Homes, in most cases, are purchased with a mortgage. The current mortgage rate is a major component of the affordability equation. Mortgage rates have fallen by over a full percentage point since December 2018. Another major piece of the affordability equation is a buyer’s income. The median family income has risen by 3.5% over the last year.
Let’s look at three different reports issued recently that reveal how homes are very affordable in comparison to historic numbers, and how they have become even more affordable over the past several months.
Here is a graph showing the index going all the way back to 1990. The higher the column, the more affordable homes are:We can see that homes are less affordable today (the green bar) than they were during the housing crash (the red bars). This was when distressed properties like foreclosures and short sales saturated the market and sold for massive discounts. However, homes are more affordable today than at any time from 1990 to 2008.
NAR’s report on the index also shows that the percentage of a family’s income needed for a mortgage payment (16.5%) is dramatically lower than last year and is well below the historic norm of 21.2%.
This report reveals that as a result of falling interest rates and slowing home price appreciation, affordability is the best it has been in 18 months. Black Knight Data & AnalyticsPresident Ben Graboske explains:
“For much of the past year and a half, affordability pressures have put a damper on home price appreciation. Indeed, the rate of annual home price growth has declined for 15 consecutive months. More recently, declining 30-year fixed interest rates have helped to ease some of those pressures, improving the affordability outlook considerably…And despite the average home price rising by more than $12K since November, today’s lower fixed interest rates have worked out to a $108 lower monthly payment…Lower rates have also increased the buying power for prospective homebuyers looking to purchase the average-priced home by the equivalent of 15%.”
While affordability has increased recently, Mark Fleming, First American’s Chief Economist explains:
“If the 30-year, fixed-rate mortgage declines just a fraction more, consumer house-buying power would reach its highest level in almost 20 years.”
Fleming goes on to say that the gains in affordability are about mortgage rates and the increase in family incomes:
“Average nominal household incomes are nearly 57 percent higher today than in January 2000. Record income levels combined with mortgage rates near historic lows mean consumer house-buying power is more than 150 percent greater today than it was in January 2000.”
If you’ve put off the purchase of a first home or a move-up home because of affordability concerns, you should take another look at your ability to purchase in today’s market. You may be pleasantly surprised!
Over the last couple of years, we’ve heard quite a bit about rising home prices. Today, expert projections still forecast continued growth, just at a slower pace. One of the often-overlooked benefits of rising home prices is the positive impact they have on home equity. Let’s break down three ways this is a win for homeowners.
1. Move-Up Opportunity
With the rise in prices, homeowners naturally experience an increase in home equity. According to the Homeowner Equity Insights from CoreLogic,
“In the first quarter of 2019, the average homeowner gained approximately $6,400 in equity during the past year.”
This increase in profit means if homeowners decide to sell, they’ll be able to put their equity to work for them as they make plans to move up into their next home.
2. Gain in Seller’s Profit
ATTOM Data Solutions recently released their Q2 2019 Home Sales Report, indicating the seller’s profit jumped at one of the fastest rates since 2015. They said:
“A look at the national numbers showed that U.S. homeowners who sold in the second quarter of 2019 realized an average home price gain since the original purchase of $67,500…the average home seller gain of $67,500 in Q2 2019 represented an average 33.9 percent return as a percentage of the original purchase price.”
Looking at the amount paid when they bought their homes, and then the amount they received after selling, we can see that some homeowners were able to walk away with a significant gain.
3. Out of a Negative Equity Situation
Negative equity occurs when there is a decline in home value, an increase in mortgage debt, or both. Many families experienced these challenges over the last decade. According to the same report from CoreLogic,
“U.S. homeowners with mortgages (roughly 63% of all properties) have seen their equity increase by a total of nearly $485.7 billion since the first quarter 2018, an increase of 5.6%, year over year.
In the first quarter of 2019, the total number of mortgaged residential properties with negative equity decreased…to 2.2 million homes, or 4.1% of all mortgaged properties.”
The good news is, many families have moved beyond a negative equity situation, and no longer owe more on their mortgage than the value of their home.
If you’re a current homeowner, you may have more equity than you realize. Your equity can open the door to future opportunities, such as moving up to your dream home. Contact a real estate professional in your area to discuss your options and start to put your equity to work for you.
Have you ever been flipping through the channels, only to find yourself glued to the couch in an HGTV binge session? We’ve all been there, watching entire seasons of shows like “Property Brothers,” “Fixer Upper,”and “Love It or List It,” all in one sitting.
When you’re in the middle of your real estate-themed TV show marathon, you might start to think everything you see on the screen must be how it works in real life. However, you may need a reality check.
Reality TV Show Myths vs. Real Life:
Myth #1: Buyers look at 3 homes and decide to purchase one of them. Truth: There may be buyers who fall in love and buy the first home they see, but according to the National Association of Realtors, the average homebuyer tours 10 homes as a part of their search.
Myth #2: The houses the buyers are touring are still for sale. Truth: Everything is staged for TV. Many of the homes shown are already sold and are off the market.
Myth #3: The buyers haven’t made a purchase decision yet. Truth: Since there is no way to show the entire buying process in a 30-minute show, TV producers often choose buyers who are further along in the process and have already chosen a home to buy.
Myth #4: If you list your home for sale, it will ALWAYS sell at the open house. Truth: Of course, this would be great! Open houses are important to guarantee the most exposure to buyers in your area, but they are only one piece of the overall marketing of your home. Keep in mind, many homes are sold during regular showing appointments as well.
Myth #5: Homeowners decide to sell their homes after a 5-minute conversation. Truth: Similar to the buyers portrayed on the shows, many of the sellers have already spent hours deliberating the decision to list their homes and move on with their lives and goals.
Having an experienced professional on your side while navigating the real estate market is the best way to guarantee you can make the home of your dreams a true reality.
The U.S. Census Bureau recently released their 2019 Q2 Homeownership Report. Some began to see the sky falling, believing the report showed Americans may be stepping back from their belief in homeownership.
The national homeownership rate (Americans who owned vs. rented their primary residence) increased significantly during the housing boom, reaching its peak of 69.2% in 2004. The Census Bureau reported that the second quarter of 2019 ended with a homeownership rate of 64.1%, which is down from the 64.8% rate for the fourth quarter of 2018. Based on this news, some started to question the consumer’s belief in the idea of homeownership as a major part of the American Dream.
Everyone Calm Down…
It is true the homeownership rate did fall. However, if you look at the national rate over the last 35 years (1984-2019), you can see that the current homeownership rate has returned to historical norms. The 64.1% rate is equivalent to the rates in 1984 and 1994.
What Will the Future Bring?
Part of the reason the homeownership rate slipped is a lack of inventory available for purchase for first-time home buyers. The demand is there, but currently, the supply is not. It seems, however, that is about to change.
In a recent report, Ivy Zelman explained that builders have finally started to increase the number of homes they’re constructing at the lower-end price points:
“Robust growth in the entry-level price point of late should translate to a reacceleration in homeownership rates moving forward.”
Today, the homeownership rate sits at historic norms. In all probability, it will increase as more inventory becomes available. There is no reason for concern.
There’s no doubt that today’s housing market is changing, and everything we see right now indicates it is time to sell. Here’s a look at why selling now is likely to drive the greatest return on your largest investment.
Home values have been appreciating for several years now, growing at a strong, steady, and impressive pace. In fact, the average annual appreciation rate since 2012 has nearly doubled the average rate from the more normal market of the 1990s (think: pre-bubble).Appreciation, however, is projected to shift back toward normal, meaning home prices will likely keep climbing over the next few years, but they are not projected to continue to increase at such a high rate.
Here’s What That Means for Homeowners:
As noted in the latest Home Price Expectation Survey (HPES) powered by Pulsenomics, experts forecast an average annual appreciation rate closer to 3.2% over the next five years, which is more in line with a historically normal market (3.6%). The good news is, there’s still time to take advantage of the current strength of home prices by selling your house now.Looking at the projections as they stand today, 2019 is slated to drive the strongest appreciation as compared to the upcoming few years. With average home prices still on the rise, the pace at which they are predicted to continue increasing will likely soften by 2020.
If you’re thinking about selling your house, now is a great time to make your move. Don’t get stuck waiting until projected home price appreciation rates potentially re-accelerate again in 2023. You’ll likely earn the greatest return on your investment by selling now before the prices start to normalize next year.
Whether you’ve owned a home before, or you’re ready to jump into homeownership for the first time, there are always a lot of questions swirling around about what is truly required for a down payment, and how to best source down payment assistance. Let’s tackle these two today.
1. How much do you really need for a down payment?
There is a long-standing misconception about down payment requirements. A survey from Fannie Mae shows only 17% of consumers know the minimum options are actually between 1 – 5% of the purchase price and 40% don’t know how much they need at all.There are many mortgage loans available that require as little as 3% down for first-time buyers, and some ask for only 3.5% down from repeat buyers. There are even loans available for Veterans that provide 0% down payment options too.
We’ve mentioned recently that you don’t need to come up with a 20% down payment to buy, and we’ve also shared how quickly you can save for a 3% or 10% down payment, depending on where you live. If you’re planning to put down just 3%, the research shows it may be possible in most states to have enough saved for a down payment in less than a year. That puts homeownership in a much closer reach for many potential buyers, maybe even you!
2. How can I get help with my down payment?
Regardless of the loans available, many buyers still need assistance with a down payment. The great news is, there are a lot of ways to tap into down payment assistance options. Here are just a couple of them:
Assistance from Family Members
The National Association of Realtors (NAR) said, “a third of recent first-time buyers received down payment assistance from family members.” They also mentioned, “the average net worth of those aged 75 and over stands at $264,800…They just might offer the boost the next generation needs to become homeowners.”
That means one of the ways to find help with a down payment is to accept a gift from a family member. If this is an option for you, make sure you talk to your loan officer before you accept the money, to ensure you document the process the way it is required by your loan. This way, it will be received properly and you can still potentially qualify.
Down Payment Assistance Programs
The reality is, not everyone has a loved one or a family member who can provide help with a down payment. There are, however, more than 2,500 down payment assistance programs available (by local areas like city, county, or neighborhood), and some of them are even specifically for first-time buyers.
The gap, as mentioned in the same survey, is “only 23% of consumers are familiar with low down payment programs.”
That’s why it is so important to get familiar with these options by doing your homework before you plan to buy a home. Determine what is available in the area where you ultimately want to live, so you have all the details you need to take advantage of the down payment assistance option that is best for your family.
If buying a home is one of your long-term goals, you may be able to get there sooner than you think by tapping into one of the many down payment assistance programs available.
On his personal website, self-made millionaire David Bach makes a striking statement:
“Not prioritizing homeownership is the single biggest mistake millennials are making.”
He further stated, “Buying a home is an escalator to wealth.”
“Young adults in particular aren’t hopping on this escalator, and it’s a costly mistake…If millennials don’t buy a home, their chances of actually having any wealth in this country are little to none.”
He then elaborates on the game of homeownership:
“Start by crunching the numbers…actually do the math…This way, you’re really clear on your goals and you won’t just say to yourself, ‘I’ll never afford this!’
A good rule of thumb is to make sure your total monthly housing payment doesn’t consume more than 30 percent of your take-home pay.”
Bach concludes by saying,
“Oftentimes, buying your first home means you’re not buying your dream home…You’re just getting into the market.”
Whenever a well-respected millionaire gives investment advice, listeners usually clamor to hear it. This millionaire shares some simple and straightforward insights: “The fact is, you aren’t really in the game of building wealth until you own some real estate.”
Who is David Bach?
Bach is a self-made millionaire who has written nine consecutive New York Times bestsellers. His book, “The Automatic Millionaire,” spent 31 weeks on the New York Times bestseller list. He is one of the only business authors in history to have four books simultaneously on the New York Times, Wall Street Journal, BusinessWeek, and USA Today bestseller lists.
He has been a contributor to NBC’s Today Show, appearing more than 100 times, as well as a regular on ABC, CBS, Fox, CNBC, CNN, Yahoo, The View, and PBS. He has also been profiled in many major publications, including the New York Times, BusinessWeek, USA Today, People, Reader’s Digest, Time, Financial Times, Washington Post, Wall Street Journal, Working Woman, Glamour, Family Circle, Redbook, Huffington Post, Business Insider, Investors’ Business Daily, and Forbes.