5 Powerful Reasons to Own Instead of Rent

Owning a home has great financial benefits.

In a recent research paper, Homeownership and the American Dream, Laurie S. Goodman and Christopher Mayer of the Urban Land Institute explained:

“Homeownership appears to help borrowers accumulate housing and nonhousing wealth in a variety of ways, with tax advantages, greater financial flexibility due to secured borrowing, built-in ‘default’ savings with mortgage amortization and nominally fixed payments, and the potential to lower home maintenance costs through sweat equity.”

Let’s breakdown 5 major financial benefits of homeownership:

1. Housing is typically the one leveraged investment available

Homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. A 20% down payment results in a leverage factor of five, meaning every percentage point rise in the value of your home is a 5% return on your equity. If you put down 10%, your leverage factor is 10.

Example: Let’s assume you purchased a $300,000 home and put down $60,000 (20%). If the house appreciates by $30,000, that is only a 10% increase in value but a 50% increase in equity.

2. You’re paying for housing whether you own or rent

Some argue that renting eliminates the cost of property taxes and home repairs. Every potential renter must realize that all the expenses the landlord incurs (property taxes, repairs, insurance, etc.) are baked into the rent payment already – along with a profit margin!!

3. Owning is usually a form of “forced savings”

Studies have shown that homeowners have a net worth that is 44X greater than that of a renter. As a matter of fact, it was recently estimated that a family buying an average priced home this past January could build more than $42,000 in family wealth over the next five years.

4. Owning is a hedge against inflation

House values and rents tend to go up at or higher than the rate of inflation. When you own, your home’s value will protect you from that inflation.

5. There are still substantial tax benefits to owning

We know that the new tax reform bill puts limits on some deductions on certain homes. However, in the research paper referenced above, the authors explain:

“…the mortgage interest deduction is not the main source of these gains; even if it were removed, homeowners would continue to benefit from a lack of taxation of imputed rent and capital gains.”

Bottom Line

From a financial standpoint, owning a home has always been and will always be better than renting.

San Jose Market Update – Sept 2019

It’s September…school’s back in session and summer is over. And, if you’re thinking about buying or selling a home this fall then be sure to review our insights below as we discuss current market trends as well as what to expect over the next several months.

Let’s start off discussing what’s been top-of-mind lately, like how an impending recession may lead to another housing crisis likened to what we saw in 2008. Well, let’s take this opportunity to dispel these fears.

Although a slowdown in the economy in 2020 is being predicted, this time around housing will not be the cause of the slowdown, and more likely, home values will actually continue to trend upward.  In fact, home values actually increased in three (3) out of the last five (5) recessions, and decreased by less than 2% in the fourth (4th).

The main reason we saw a major housing crash during the last recession in 2008 was from the mortgage meltdown and the subsequent housing market crash that caused it.

For more information about this topic, check out my recent video “Does a Looming Recession Equate to a Housing Crisis?

Looking at national housing prices, if a major housing crash were on the horizon, wouldn’t you expect to see prices falling from last year?

Well, we’re actually seeing good growth across the US as August reported that home prices grew 4.99% nationally compared to last year. Drilling down closer to home, in the Pacific Region of the country, our year-over-year home price appreciation reported to be 4.4%; and even closer to home, Statewide for California we saw a little less price growth with a 4.2% increase.

With these positive numbers, so far it appears that our economy is still strong enough to support growing homeownership rates. And, looking forward, even in the eyes of a slowing economy, the national housing market is actually expected to gain 5.2% appreciation through next year, with California expected to see as much as an 8.2% increase in prices year-over-year.

What’s causing all the positive price growth?

Well, the Federal Reserve is actively combating our recession woes by continuing to ease interest rates which are helping long-term mortgage rates stay low, even recently hitting historic lows not seen since 2016. This is great news as lower mortgage rates help increase purchase power and affordability, something which Bay Area residents can really celebrate.

Now let’s look at the current supply and demand here in San Jose, and compare against last month and last year.

Total ACTIVE inventory was down again for the month of August with 1,126 TOTAL homes available for sale, a decline of 8% from July, but up 1.5% from the same time last year. And, the number of New Listings, which provide us a glimpse into rising or declining listing activity, was also just slightly down by 2.5% from July coming in at 777, but down over 13% from the same time last year…

Now for Buyer Demand…with mortgage rates at or near historic lows, we’d hope to see demand stabilizing. And, with August reporting a slight decline of 2% from last month with 676 Total Closed Sales, and a total of 627 homes receiving a contract, also slightly down from last month, I think we are seeing just that. Plus, Freddie Mac’s Chief Economist recently reported that Homebuyers flocked to lenders in August with purchase applications, which were up 15 percent from a year ago.

So, as long as pending sales, which are being driven by lower rates and softening housing prices, continue to keep up with new listings, we should continue to see a very stable and balanced market.

Median Days that a property is on the market before receiving a contract was 19 days for August, up slightly from the month before, but overall, anything less than 30-days is still a great market. And, the Median Sales-to-List-Price ratio, which compares the sales price received for a home versus its asking price, was slightly down for August compared to last month, reporting at 100.2%…so, on average, homes are still expected to sell for slightly more than the listing price.

Our Median Sales Price this month is continuing on a slight downward trend, dipping to $949,500, down 5% from last month, and down 7.5% from our peak earlier this year in June.

But, our prices are still up 2% from the beginning of the year.

So, have we reached a price-plateau…maybe? The Median Sales Price has been holding pretty steady since last fall.

So, what are these market trends telling us?

The best indicator of what to expect comes from looking at the current month’s worth of supply which measures how quickly new listings are absorbed by the current level of buyer demand, which for August was just under 2.0 months.

As you may recall, anything under 6-months worth of supply is considered a seller’s market.

Although it may not exactly feel like a seller’s market around the Bay Area, as home sellers have unbelievably become accustomed to homes selling at 10-15% above their asking prices within days of being listed, that’s because we’re finally settling into a more balanced market.

So, for anyone looking to sell this Fall, conditions are still in your favor but you must adjust your expectations as the market is not as crazy as it was…your home must be priced appropriately if you wish to generate the interest levels necessary to sell quickly and at a good price.

Market changes always seem to insight fear since things stop behaving exactly how they have been. And with all the negative headlines predicting a looming recession, it’s no wonder why many homebuyers are sitting on the sideline waiting to see what happens.

Well, this is a wake-up call to all homebuyers…don’t miss the opportunity to lock in a very low housing payment and a very reasonable price. The market hasn’t looked this good for first-time homebuyers and move-up buyers in a long time.

So, if you’re still considering a move into your first home or your next home, and you haven’t updated your pre-approval in a few months, it’s a great time to find out how these low rates have improved your purchase power.

What Is the Probability That Home Values Sink?

With the current uncertainty about the economy triggered by a potential trade war, some people are waiting to purchase their first home or move-up to their dream house because they think or hope home prices will drop over the next few years. However, the experts disagree with this perspective.

Here is a table showing the predicted levels of appreciation from six major housing sources:What Is the Probability That Home Values Sink?| MyKCMAs we can see, every source believes home prices will continue to appreciate (albeit at lower levels than we have seen over the last several years). But, not one source is calling for residential real estate values to depreciate.

Additionally, ARCH Mortgage Insurance Company in their current Housing and Mortgage Market Review revealed their latest ARCH Risk Index, which estimates the probability of home prices being lower in two years. There was not one state that even had a moderate probability of home prices lowering. In fact, 34 of the 50 states had a minimal probability.What Is the Probability That Home Values Sink?| MyKCM

Bottom Line

Those waiting for prices to fall before purchasing a home should realize that the probability of that happening anytime soon is very low. With mortgage rates already at near historic lows, now may be the time to act.

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What’s the Latest on Interest Rates?

Mortgage rates have fallen by over a full percentage point since Q4 of 2018, settling at near-historic lows. This is big news for buyers looking to get more for their money in the current housing market.

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According to Freddie Mac’s Primary Mortgage Market Survey,

the 30-year fixed-rate mortgage (FRM) rate averaged 3.60 percent, the lowest it has been since November 2016.

Sam Khater, Chief Economist at Freddie Mac, notes how this is great news for homebuyers. He states,

“…consumer sentiment remains buoyed by a strong labor market and low rates that will continue to drive home sales into the fall.”

As a potential buyer, the best thing you can do is work with a trusted advisor who can help you keep a close eye on how the market is changing. Relying on current expert advice is more important than ever when it comes to making a confident and informed decision for you and your family.

Bottom Line

Even a small increase (or decrease) in interest rates can impact your monthly housing cost. If buying a home is on your short list of goals to achieve, let’s get together to determine your best move.

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VLOG: Top 4 Reasons to Sell this Summer

Summer is now upon us in Silicon Valley, which usually means that the weather is heating up, many families are enjoying their summertime vacations, and that we’re close to reaching our annual peak in housing inventory. So, if you’re looking to sell your home this summer, what are the top considerations you should have before putting your home on the market?

#1. Strong Demand 

So far the real estate market is still bustling…The latest Buyer Traffic Index from the National Association of Realtors shows that buyer demand remains strong throughout the vast majority of the country. 

Motivated by lower interest rates and prices at the beginning of the year, we’ve continued to see strong buyer demand through most price points within Silicon Valley. These buyers are ready, willing, and able to purchase and, they are in the market right now! 

And, even with our current increased inventory levels, when properties are priced right we’re still experiencing multiple buyers competing with each other for the same home.

#2. Less Competition – Speaking of housing inventory, even at our current peak-levels we’re still under a 6-month supply across most price-points, which is usually considered as a “balanced” housing market. This means that, just like in most of the country, there are just not enough homes for sale to satisfy the number of buyers looking to purchase.

Lower inventory levels are something that has continued to plague our housing markets. This trend has remained strong due to an increase in the length of time that homeowners have historically stayed in their homes. 

Many of these homeowners were reluctant to list their home over the last couple of years for fear that they would not find a home to move in to. However, that is now finally changing as more inventory is becoming available at the higher-end. As more choices become available for these “move-up” buyers, the more inventory we’ll see become available at the entry-level market.

So if you’re thinking of selling, don’t wait until additional inventory comes to market before you to decide to sell.

#3. Now is a Great Time to Move Up 

If you’re one of the many home sellers looking to make a move into a larger home, or into a better location, now is “the time” to make that move up! 

We’re currently experiencing higher available inventory of homes for sale in the higher price ranges which has created a buyer’s market for “move-up” buyers. This means that if you are planning on selling an entry-level or trade-up home, it will sell quickly, AND you’ll be able to find a premium home to call your own!

#4. The Selling Process Has Become Quicker 

Today’s competitive environment has forced buyers to do all they can to stand out from the crowd, including getting pre-approved for their mortgage financing and saving up a downpayment before they begin shopping for a home. 

This means that most buyers will know exactly what they can afford before they even take a tour of your home…which has made the entire selling process much faster and simpler as most transactions involving purchase financing are closing within 40-days or less per a recent Origination Insights Report, by Ellie Mae.

In closing…

Although generally speaking, summer seems to be a more difficult time of the year in which to sell a property as we usually experience our highest inventory levels combined with diminishing buyer traffic, this summer looks more optimistic. Interest rates are at their lowest levels in several years, buyer traffic has increased, and prices are still stable.

As always, our goal is to provide some insight into current market conditions so that you can make a more informed decision about whether the timing is right for you to sell your home this summer.

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Starting the Search for Your Dream Home? Here Are 5 Tips!

In today’s real estate market, low inventory dominates the
conversation in many areas of the country. It can often be frustrating
to be a first-time homebuyer if you aren’t prepared.

In a realtor.com article entitled, “How to Find Your Dream Home—Without Losing Your Mind,”
the author highlights some steps that first-time homebuyers can take to
help carry their excitement of buying a home throughout the whole
process.

1. Get Pre-Approved for a Mortgage Before You Start Your Search

One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved
for a mortgage before starting your search. Even if you are in a market
that is not as competitive, understanding your budget will give you the
confidence of knowing whether or not your dream home is within your
reach.

This step will also help you narrow your search based on
your budget and won’t leave you disappointed if the home you tour, and
love, ends up being outside your budget!

2. Know the Difference Between Your ‘Must-Haves’ and ‘Would-Like-To-Haves’

Do
you really need that farmhouse sink in the kitchen to be happy with
your home choice? Would a two-car garage be a convenience or a
necessity? Could the ‘man cave’ of your dreams be a future renovation
project instead of a make-or-break right now?

Before you start your search, list all the features of a home you would like and then qualify them as ‘must-haves’, ‘should-haves’, or ‘absolute-wish list’ items. This will help keep you focused on what’s most important.

3. Research and Choose a Neighborhood You Want to Live In

Every
neighborhood has its own charm. Before you commit to a home based
solely on the house itself, the article suggests test-driving the area.
Make sure that the area meets your needs for “amenities, commute, school district, etc. and then spend a weekend exploring before you commit.”

4. Pick a House Style You Love and Stick to It

Evaluate your family’s needs and settle on a style of home
that would best serve those needs. Just because you’ve narrowed your
search to a zip code, doesn’t mean that you need to tour every listing
in that zip code.

An example from the article says, “if you
have several younger kids and don’t want your bedroom on a different
level, steer clear of Cape Cod–style homes, which typically feature two
or more bedrooms on the upper level and the master on the main.”

5. Document Your Home Visits

Once
you start touring homes, the features of each individual home will
start to blur together. The article suggests keeping your camera handy
to document what you love and don’t love about each property you visit.

Making
notes on the listing sheet as you tour the property will also help you
remember what the photos mean, or what you were feeling while touring
the home.

Bottom Line

In a high-paced,
competitive environment, any advantage you can give yourself will help
you on your path to buying your dream home.

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4 Tips for Making a Competitive Offer

So, you’ve been searching for that perfect house to call ‘home,’
and you’ve finally found it! The price is right, and in such a
competitive market, you want to make sure you make a good offer so that
you can guarantee that your dream of making this house yours comes true!

Below are 4 steps provided by Freddie Mac to help buyers make offers, along with some additional information for your consideration:

1. Determine Your Price

“You’ve found the perfect home and you’re ready to buy.
Now what? Your real estate agent will be by your side, helping you
determine an offer price that is fair.”

Based on your agent’s experience and key
considerations (like similar homes recently sold in the same
neighborhood or the condition of the house and what you can afford),
your agent will help you to determine the offer that you are going to
present.

Getting pre-approved
will not only show home-sellers that you are serious about buying, but
it will also allow you to make your offer with confidence because you’ll
know that you have already been approved for a mortgage in that amount.

2. Submit an Offer

“Once you’ve determined your price, your agent will draw
up an offer, or purchase agreement, to submit to the seller’s real
estate agent. This offer will include the purchase price and terms and
conditions of the purchase.”

Talk with your agent to find out if there are any
ways in which you can make your offer stand out in this competitive
market! A licensed real estate agent who is active in the neighborhoods
you are considering will be instrumental in helping you put in a solid
offer.

3. Negotiate the Offer

“Oftentimes, the seller will counter the offer, typically
asking for a higher purchase price or to adjust the closing date. In
these cases, the seller’s agent will submit a counteroffer to your
agent, detailing their desired changes, at this time, you can either
accept the offer or decide if you want to counter.

Each time changes are made through a counteroffer, you or
the seller have the option to accept, reject or counter it again. The
contract is considered final when both parties sign the written offer.”

If your offer is approved, Freddie Mac urges you to “always get an independent home inspection, so you know the true condition of the home.”
If the inspector uncovers undisclosed problems or issues, you can
discuss any repairs that may need to be made with the seller or even
cancel the contract altogether.

4. Act Fast

The inventory of homes listed for sale has remained well below the 6-month supply that is needed for a ‘normal’
market. Buyer demand has continued to outpace the supply of homes for
sale, causing buyers to compete with each other for their dream homes.

Make
sure that as soon as you decide that you want to make an offer, you
work with your agent to present it as quickly as possible.

Bottom Line

Whether
buying your first home or your fifth, having a local real estate
professional who is an expert in his or her market on your side is your
best bet in making sure the process goes smoothly. Let’s talk about how
we can make your dream of homeownership a reality!

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Selling Your House: Here's Why You Need A Pro In Your Corner!

With home prices on the rise and buyer demand still strong, some sellers may be tempted to try to sell their homes on their own rather than using the services of a real estate professional.

Real estate agents are trained and experienced in negotiation while, in most cases, the seller is not. Sellers must realize that their ability to negotiate will determine whether or not they get the best deal for themselves and their families.

Here is a list of just some of the people with whom the seller must be prepared to negotiate with if they decide to For Sale by Owner (FSBO):

  • The buyer, who wants the best deal possible
  • The buyer’s agent, who solely represents the best interests of the buyer
  • The buyer’s attorney (in some parts of the country)
  • The home inspection companies, which work for the buyer and will almost always find some problems with the house
  • The termite company, if there are challenges
  • The buyer’s lender, if the structure of the mortgage requires the sellers’ participation
  • The appraiser, if there is a question of value
  • The title company, if there are challenges with certificates of occupancy (CO) or other permits
  • The town or municipality, if you need to get the CO permits mentioned above
  • The buyer’s buyer, in case there are challenges with the house your buyer is selling

Bottom Line

The percentage of sellers who have hired real estate agents to sell their homes has increased steadily over the last 20 years. Let’s get together to discuss all that we can do to make the process of selling your house easier for you.

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Buyer Demand Surging as Spring Market Begins

Last fall, some predicted that the 2019 residential real estate market would be a disaster. There was even belief we might experience a housing crash like the one that occurred during the last decade.

However, according to two separate reports*, buyer demand dramatically increased over the last three months, leading into this spring buyers’ market (the March data is not yet available).

Both the ShowingTime Showing Index and the National Association of REALTORS Buyer Traffic Index show that buyer demand has increased in each of the last three months.

Buyer Demand Surging as Spring Market Begins | MyKCM

Why the increase in demand? Increased buying power.

According to the National Association of Realtors’ Economists’ Outlook Blog, purchasing a home has become more affordable, which has led to increased demand.

“Due to the combination of falling home prices and mortgage rates, the income needed to make an affordable mortgage payment (mortgage no more than 25% of income) on a median-priced home with 10% down payment and 30-year fixed rate mortgage decreased from $60,425 in June 2018 to $53,783 as of February 2019, and the difference of $6,642 represents a gain in buying power because one can afford a home purchase at a lower level of income.”

Bottom Line

It appears the spring buyers’ market is going to be much stronger than many had projected. Whether you are selling or buying, this is important news.

*The methodology behind the indices:

The ShowingTime Showing Index

“The ShowingTime Showing Index® tracks the average number of buyer showings on active residential properties on a monthly basis, a highly reliable leading indicator of current and future demand trends.”

The National Association of REALTORS® Buyer Traffic Index

“In a monthly survey of REALTORS®, NAR asks respondents ‘Compared to the same month last year, how would you rate the past month’s traffic in neighborhood(s) or area(s) where you make most of your sales?’ NAR compiles the responses into an index, where an index above 50 indicates that more respondents reported “stronger” traffic than “weaker” traffic.”

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3 Questions You Need To Ask Before Buying A Home

If you are debating purchasing a home right now, you are probably getting a lot of advice. Though your friends and family have your best interests at heart, they may not be fully aware of your needs and what is currently happening in the real estate market.

Ask yourself the following three questions to help determine if now is a good time for you to buy in today’s market.

1. Why am I buying a home in the first place?

This is truly the most important question to answer. Forget the finances for a minute. Why did you even begin to consider purchasing a home? For most, the reason has nothing to do with money.

For example, a study by realtor.com found that “73% said buying in a good school district was “important” in their search.

This report supports a study by the Joint Center for Housing Studies at Harvard University which revealed that the top four reasons Americans buy a home have nothing to do with money. The actual reasons are:

  • A good place to raise children and provide them with a good education
  • A place where you and your family feel safe
  • More space for you and your family
  • Control of that space

What does owning a home mean to you? What non-financial benefits will you and your family gain from owning a home? The answer to that question should be the biggest reason you decide to purchase or not.

2. Where are home values headed?

According to the latest Existing Home Sales Report from the National Association of Realtors (NAR), the median price of homes sold in February (the latest data available) was $249,500. This is up 3.6% from last year. The increase also marks the 84th consecutive month with year-over-year gains.

Looking at home prices year over year, CoreLogic is forecasting an increase of 4.6%. In other words, a home that costs you $250,000 today will cost you an additional $11,500 if you wait until next year to buy it.

What does that mean to you?

Simply put, with prices increasing, it may cost you more if you wait until next year to buy. Your down payment will also need to be higher in order to account for the higher price of the home you wish to buy.

3. Where are mortgage interest rates headed?

A buyer must be concerned about more than just prices. The ‘long-term cost’ of a home can be dramatically impacted by even a small increase in mortgage rates.

Freddie MacFannie Maethe Mortgage Bankers Association and NAR have all projected that mortgage interest rates will increase over the next twelve months, as you can see in the chart below:

3 Questions You Need To Ask Before Buying A Home | MyKCM

Bottom Line

Only you and your family will know for certain if now is the right time to purchase a home. Answering these questions will help you make that decision.