Equity Matters A LOT… Just Ask Freddie Mac

Equity Matters A Lot... Just Ask Freddie Mac | Keeping Current Matters

There are many reasons, both financial and non-financial, that homeownership remains an important part of the American Dream. One of the biggest reasons is the fact that it helps build family wealth. Recently, Freddie Mac wrote about the power of home equity. They explained:

“In the simplest terms, equity is the difference between how much your home is worth and how much you owe on your mortgage. You build equity by paying down your mortgage over time and through your home’s appreciation. In a nutshell, your money is working for you and contributing toward your financial future.”

They went on to show an example where a person bought a home for $150,000 with a down payment of 10% ($15K), resulting in a loan amount of $135,000. The buyer secured a 30-year fixed-rate mortgage at 4.5% with a monthly mortgage payment of $684.03 (not including taxes and insurance).

The chart below demonstrates the home equity built after 7 years of making mortgage payments and assuming the historic national average of 3% per year home appreciation:

Home Equity Earned | Keeping Current Matters

And that number continues to build as you continue to own the home.

Merrill Lynch published a report earlier this year that showed the average equity homeowners have acquired by certain ages.

Average Home Equity | Keeping Current Matters

Bottom Line

Home equity is important to building wealth as a family. Referring to the first scenario above, Freddie Mac explained:

“Now, if you continued to rent, and made the same payment of $684.03 per month, you’d have zero equity and no means to build it. Building equity is a critical part of homeownership and can help you create financial stability.”

Put your housing cost to work for you and your family. Meet with a real estate professional today to explore your options.

Should I Pay a Mortgage Interest Rate over 4%?

Should I Pay a Mortgage Interest Rate over 4%? | Keeping Current Matters

Mortgage interest rates, as reported by Freddie Mac, have increased over the last several weeks. Along with Freddie Mac, Fannie Mae, the Mortgage Bankers Association and the National Association of Realtors are all calling for mortgage rates to continue to rise over the next four quarters.

This has caused some purchasers to lament the fact they may no longer be able to get a rate less than 4%. However, we must realize that current rates are still at historic lows.

Here is a chart showing the average mortgage interest rate over the last several decades.

Historic Mortgage Rates By Decade | Keeping Current Matters

Bottom Line

Though you may have missed getting the lowest mortgage rate ever offered, you can still get a better interest rate than your older brother or sister did ten years ago; a lower rate than your parents did twenty years ago and a better rate than your grandparents did forty years ago.

How to Get the Most Money from the Sale of Your House

How to Get the Most Money from the Sale of Your House | Keeping Current Matters

Every homeowner wants to make sure they maximize the financial reward when selling their home. But, how do you guarantee that you receive maximum value for your house? Here are two keys to insuring you get the highest price possible.

1. Price it a LITTLE LOW

This may seem counterintuitive. However, let’s look at this concept for a moment. Many homeowners think that pricing their home a little OVER market value will leave them room for negotiation. In actuality, this just dramatically lessens the demand for your house. (see chart)

Impact of Price on Visibility | Keeping Current Matters

Instead of the seller trying to ‘win’ the negotiation with one buyer, they should price it so demand for the home is maximized. In that way, the seller will not be fighting with a buyer over the price but instead will have multiple buyers fighting with each other over the house.

In a recent article on realtor.com, they gave this advice:

“Aim to price your property at or just slightly below the going rate. Today’s buyers are highly informed, so if they sense they’re getting a deal, they’re likely to bid up a property that’s slightly underpriced, especially in areas with low inventory.”

2. Use a Real Estate Professional

This too may seem counterintuitive. The seller may think they would net more money if they didn’t have to pay a real estate commission. Yet, studies have shown that typically homes sell for more money when handled by a real estate professional.

Recent research posted by the Economists’ Outlook Blog revealed:

“The median selling price for all FSBO homes was $210,000 last year. When the buyer knew the seller in FSBO sales, the number sinks to the median selling price of $151,900. However, homes that were sold with the assistance of an agent had a median selling price of $249,000 – nearly $40,000 more for the typical home sale.”

Median Selling Price FSBO vs Agent | Keeping Current Matters

Bottom Line

Price it at or slightly below the current market value and hire a professional. That will guarantee you maximize the price you get for your house.

The Importance of Home Equity to a Family

The Importance of Home Equity to a Family | Keeping Current Matters

There has been much written about how dramatically home values have increased over the last several years. With the increase in values, comes an increase in the equity each home owning family now has. The Joint Center of Housing Studies at Harvard University recently reported that, after taking inflation into account, aggregate home equity has increased 60% since 2010. Home equity is the major component of most family’s overall wealth.

Why is this so important?

Throughout history, families have tapped into their homes for many important reasons. Perhaps it was to get seed capital to start a new business; perhaps to help finance their children’s college education; perhaps to get needed medical attention not covered by insurance.

Up to ten years ago, families were able to use the equity in their homes to better the living situation for themselves and their family. More small businesses were created. College students weren’t forced to take on massive student debt. People could get needed medical care.

This hasn’t been the case over the last ten years as families found themselves in a position of having zero equity or, even worse, negative equity post the housing collapse. However, that is about to change.

Using your home as an ATM is not a good idea.

We realize that there are inherent risks to tapping into the equity in your homeespecially if you do it for the wrong reasons. Back in 2005-2007, homeowners were using their homes as their own personal ATM machine to buy depreciating assets like cars, boats and jet skis. This reckless behavior should never be repeated.

However, using your equity (aka family wealth) to invest in yourself, your children or other family members that could use help still makes sense. And the good news is that more and more families can do this as home values continue to increase.

Bottom Line

Home equity gives families an additional financial option when money is needed. The proper use of this family wealth can be used to grow generational wealth.

As Julián Castro, U.S. Secretary of HUD, recently explained:

“Generation after generation, the primary vehicle to create wealth in our country has been through homeownership. In the U.S., homeownership has provided an opportunity for one generation to hand over to the next that opportunity and that wealth.”

Homeownership Builds Wealth and Offers Stability

Homeownership Builds Wealth and Offers Stability | Keeping Current Matters

The most recent Housing Pulse Survey released by the National Association of Realtorsrevealed that the two major reasons Americans prefer owning their own home instead of renting are:

  1. They want the opportunity to build equity.
  2. They want a stable and safe environment.

Building Equity

In a recent article, John Taylor, CEO of the National Community Reinvestment Coalition, explained that those who lack the opportunity to become homeowners have a weakened ability to reinvest their wealth:

“We traditionally have been huge supporters of homeownership. We see it as a way to provide stability for households but also as an asset-building strategy. If you continue to be a renter, locked out of the homeownership arena, increasingly those things are further and further out of reach. They’re joined at the hip. They perpetuate each other.”

Family Stability

Does owning your home really create a more stable environment for your family?

A survey of property managers conducted by rent.com last month disclosed two reasons tenants should feel less stable with their housing situation:

  • 68% of property managers predict that rental rates will continue to rise in the next year by an average of 8%.
  • 53% of property managers said that they were more likely to bring in a new tenant at a higher rate than negotiate and renew a lease with a current tenant they already know.

We can see from these survey results that renting will provide anything but a stable environment in the near future.

Bottom Line

Homeowners enjoy a more stable environment and at the same time are  given the opportunity to build their family’s net worth.

The Importance of Home Equity to a Family

The Importance of Home Equity to a Family | Keeping Current Matters

There has been much written about how dramatically home values have increased over the last several years. With the increase in values, comes an increase in the equity each home owning family now has. The Joint Center of Housing Studies at Harvard University recently reported that, after taking inflation into account, aggregate home equity has increased 60% since 2010. Home equity is the major component of most family’s overall wealth.

Why is this so important?

Throughout history, families have tapped into their homes for many important reasons. Perhaps it was to get seed capital to start a new business; perhaps to help finance their children’s college education; perhaps to get needed medical attention not covered by insurance.

Up to ten years ago, families were able to use the equity in their homes to better the living situation for themselves and their family. More small businesses were created. College students weren’t forced to take on massive student debt. People could get needed medical care.

This hasn’t been the case over the last ten years as families found themselves in a position of having zero equity or, even worse, negative equity post the housing collapse. However, that is about to change.

Using your home as an ATM is not a good idea.

We realize that there are inherent risks to tapping into the equity in your homeespecially if you do it for the wrong reasons. Back in 2005-2007, homeowners were using their homes as their own personal ATM machine to buy depreciating assets like cars, boats and jet skis. This reckless behavior should never be repeated.

However, using your equity (aka family wealth) to invest in yourself, your children or other family members that could use help still makes sense. And the good news is that more and more families can do this as home values continue to increase.

Bottom Line

Home equity gives families an additional financial option when money is needed. The proper use of this family wealth can be used to grow generational wealth.

As Julián Castro, U.S. Secretary of HUD, recently explained:

“Generation after generation, the primary vehicle to create wealth in our country has been through homeownership. In the U.S., homeownership has provided an opportunity for one generation to hand over to the next that opportunity and that wealth.”

Why You Should Sell Now… Before Winter Hits

Why You Should Sell Now... Before Winter Hits | Keeping Current Matters

People across the country are beginning to think about what their life will look like next year. It happens every Fall. We ponder whether we should relocate to a different part of the country to find better year-round weather or perhaps move across the state for better job opportunities.

Homeowners in this situation must consider whether they should sell their house now or wait. If you are one of these potential sellers, here are five important reasons to do it now versus the dead of winter.

1. Demand is Strong

Foot traffic refers to the number of people out actually physically looking at home right now. The latest foot traffic numbers show that buyers are still out in force looking for their dream home. These buyers are ready, willing and able to buy…and are in the market right now!

As we get later into the year, many people have other things (weather, holidays, etc.) that distract them from searching for a home. Take advantage of the buyer activity currently in the market.

2. There Is Less Competition Now

Housing supply is still well under the 6 months’ supply necessary for a normal market. This means that, in many markets, there are not enough homes for sale to satisfy the number of buyers in that market. This is good news for home prices. However, additional inventory is about to come to market.

There is a pent-up desire for many homeowners to move as they were unable to sell over the last few years because of a negative equity situation. Homeowners are now seeing a return to positive equity as real estate values have increased over the last two years. Many of these homes will be coming to the market in the near future.

Also, new construction of single-family homes is again beginning to increase. A study by Harris Poll revealed that 41% of buyers would prefer to buy a new home while only 21% prefer an existing home (38% had no preference).

The choices buyers have will continue to increase over the next few months. Don’t wait until all this other inventory of homes comes to market before you sell.

3. The Process Will Be Quicker

One of the biggest challenges of the housing market in recent times has been the length of time it takes from contract to closing. Banks are requiring more and more paperwork before approving a mortgage. Any delay in the process is always prolonged during the winter holiday season. Getting your house sold and closed before those delays begin will lend itself to a smoother transaction.

4. There Will Never Be a Better Time to Move-Up

If you are moving up to a larger, more expensive home, consider doing it now. Prices are projected to appreciate by over 18.1% from now to 2019. If you are moving to a higher priced home, it will wind-up costing you more in raw dollars (both in down payment and mortgage payment) if you wait. You can also lock-in your 30-year housing expense with an interest rate below 4% right now. Rates are projected to rise by this time next year.

5. It’s Time to Move On with Your Life

Look at the reason you decided to sell in the first place and determine whether it is worth waiting. Is money more important than being with family? Is money more important than your health? Is money more important than having the freedom to go on with your life the way you think you should?

Only you know the answers to the questions above. You have the power to take back control of the situation by putting your home on the market. Perhaps, the time has come for you and your family to move on and start living the life you desire.

That is what is truly important.

Where Are Mortgage Rates Headed? This Winter? Next Year?

Where Are Mortgage Rates Headed? This Winter? Next Year? | Keeping Current Matters

The interest rate you pay on your home mortgage has a direct impact on your monthly payment. The higher the rate the greater the payment will be. That is why it is important to look at where rates are headed when deciding to buy now or wait until next year.

Below is a chart created using Freddie Mac’s October 2015 U.S. Economic & Housing Marketing Outlook. As you can see interest rates are projected to increase steadily over the course of the next 12 months.

Mortgage Rate Projections | Keeping Current Matters

How Will This Impact Your Mortgage Payment?

Depending on the amount of the loan that you secure, a half of a percent (.5%) increase in interest rate can increase your monthly mortgage payment significantly.

According to CoreLogic’s latest Home Price Index, national home prices have appreciated 6.4% from this time last year and are predicted to be 4.7% higher next year.

If both the predictions of home price and interest rate increases become reality, families would wind up paying considerably more for their next home.

Bottom Line

Even a small increase in interest rate can impact your family’s wealth. Meet with a local real estate professional to evaluate your ability to purchase your dream home.

Elk Grove Accepts the Cool California Challenge

Joins City-to-City Competition to Reduce Energy Consumption
Joins City-to-City Competition to Reduce Energy Consumption

Elk Grove, CA – Help our hometown earn new bragging rights and save energy by registering to participate in the CoolCalifornia Challenge.

Elk Grove could be California’s coolest city this year. It is one of 22 cities participating in the 2015-16 CoolCalifornia Challenge, a city-to-city competition encouraging residents and communities to work together to achieve California’s energy reduction and climate change goals. Other participating cities includeClaremont, San Mateo, Buellton, Indio, Burlingame, Long Beach, San Carlos, Lynwood, Martinez, South Pasadena, Redwood City, Huntington Beach, San Pablo, Benicia, Corte Madera, Mill Valley, Sausalito, El Cerrito, Fairfax, Larkspur, and Richmond. The CoolCalifornia Challenge runs through March 30, 2016.

The Challenge, organized by Energy Upgrade California, engages households in participating cities throughout the state to reduce their energy and water use at home as well as reduce their transportation emissions.

Help Elk Grove earn the title of “Coolest California City” and a portion of the $150,000 in prize money to support local sustainability efforts.  You can join the Challenge by following these 3 simple steps:

  1. Register at www.CAChallenge.org; and
  2. Create a MyEnergyUpgrade plan; and
  3. Log your energy use each month during the Challenge (electricity, natural gas, vehicle gasoline) and share energy, transportation and water conservation efforts and activities to gain points for our city.

The city with the highest number of total points by March 30, 2016 will be crowned the winner. Participants can earn points, tracked through online software, if their home or vehicle energy use is below the baseline average in their city. Extra points are earned by participants that re-set their “personal best” for home energy and vehicle fuel consumption from a previous month. And bonus points are earned by signing up for the Challenge, filling out a MyEnergyUpgrade plan, uploading a photo, inviting friends to join the Challenge, sharing energy and water saving tips on social media pages, and committing to do an energy and water saving action and writing a review of that action.

Register today at www.CAChallenge.org. For more information on the City’s participation in the CoolCalifornia Challenge contact Mona Schmidt at (916) 478-3633 or mschmidt@elkgrovecity.org.

Baby Boomers Finding Freedom In Retirement

Baby Boomers Finding Freedom In Retirement | Keeping Current Matters

Within the next five years, Baby Boomers are projected to have the largest household growth of any other generation during that same time period, according to the Joint Center for Housing Studies of Harvard. Let’s take a look at why…

In a recent Merrill Lynch study“Home in Retirement: More Freedom, New Choices” they surveyed nearly 6,000 adults ages 21 and older about housing. 

Crossing the “Freedom Threshold”

Throughout our lives, there are often responsibilities that dictate where we live. Whether being in the best school district for our children, being close to our jobs, or some other factor is preventing a move, the study found that there is a substantial shift that takes place at age 61.

The study refers to this change as “Crossing the Freedom Threshold”. When where you live is no longer determined by responsibilities, but rather a freedom to live wherever you like. (see the chart below)

Crossing The Freedom Threshold | Keeping Current Matters

As one participant in the study stated:

“In retirement, you have the chance to live anywhere you want. Or you can just stay where you are. There hasn’t been another time in life when we’ve had that kind of freedom.”

On the Move

According to the study, “an estimated 4.2 million retirees moved into a new home last year alone.” Two-thirds of retirees say that they are likely to move at least once during retirement.

The top reason to relocate cited was “wanting to be closer to family” at 29%, a close second was “wanting to reduce home expenses”. See the chart below for the top 6 reasons broken down.

Merrill Lynch Moving In Retirement | Keeping Current Matters

Not Every Baby Boomer Downsizes

There is a common misconception that as retirees find themselves with fewer children at home, they will instantly desire a smaller home to maintain. While that may be the case for half of those surveyed, the study found that three in ten decide to actually upsize to a larger home.

Some choose to buy a home in a desirable destination with extra space for large family vacations, reunions, extended visits, or to allow other family members to move in with them.

“Retirees often find their homes become places for family to come together and reconnect, particularly during holidays or summer vacations.”

Bottom Line

If your housing needs have changed or are about to change, meet with a local real estate professional in your area who can help with deciding your next step.