This housing market has many people talking about home values; where they are and where they are headed. It’s also interesting to look back and see how home prices compare to values prior to the housing crisis.
Every quarter, Freddie Mac releases their House Price Index. The index usually provides monthly home values for:
the nation as a whole
each of the 50 states
367 metropolitan statistical areas
This quarter, the report also included a look at today’s home values as compared to Pre-2008 values. Here is a graphic that breaks down the numbers on a state-by-state basis:
In a recent blog post on Marginal Revolution, economist Alex Tabarrok discussed homeownership as an investment.
Here is what Mr. Tabarrok had to say:
“Housing is overrated as a financial investment. First, it’s not good to have a significant share of your wealth locked into a single asset. Diversification is better and it’s easier to diversify with stocks. Second, unless you are renting the basement, houses don’t pay dividends. Stocks do. You can hope that your house will accumulate in value but don’t count on it. Indeed, you should expect that as an investment your house will appreciate less than does the stock market. You didn’t expect to get a great investment and a place to live in the meantime, did you?”
Here is a rebuttal:
We have reported many times that the American Dream of homeownership is alive and well. Tomorrow, we’ll touch on the personal benefits to homeownership.
Let’s use some quotes from Belsky’s study to address comments by Mr. Tabarrok:
“Housing is overrated as a financial investment.”
“Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”
“You can hope that your house will accumulate in value but don’t count on it. Indeed, you should expect that as an investment your house will appreciate less than does the stock market.”
“Homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”
“You didn’t expect to get a great investment and a place to live in the meantime, did you?”
“Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.
Homeowners are able to deduct mortgage interest and property taxes from income…On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.”
We realize that homeownership makes sense for many Americans for an assortment of social and family reasons. It also makes sense financially. If you are considering a purchase this year, contact a local professional who can help evaluate your ability to do so.
A survey by The Joint Center of Housing Studies at Harvard University reveals that when a family is buying a home they consider the financial benefits of homeownership along with the social benefits. The survey mentions things like:
Paying rent does not make sense
Homeownership provides a good financial opportunity
Owning a home helps you building family wealth
Buying a home is investing in your retirement
Home equity gives you something to borrow against
So how did homeownership match up against other investments in 2015? Here is a chart that compares its return on investment against precious metals and the stock market last year:
Not only did homeownership offer all its social benefits. It also was a great investment financially.
In most areas in California, at close of escrow the buyer pays:
escrow fees (50/50 split)
title insurance fees (for 2 policies protecting the interests of themselves and their lender)
loan origination fee and discount points
miscellaneous doc drawing and courier fees
inspection and appraisal fees
loan closing costs, like prepayments of property taxes, interest, insurance and homeowner’s insurance or HOA dues, when the buyer is obtaining a loan with an impound account or as otherwise required by the buyer’s lender.
And the seller pays:
escrow fees (50/50 split)
a re-conveyance fee to their lender
buyers home warranty
However, ALL of this is open to negotiation. These are standard practices, but vary more and more in this market climate.
Also, be aware that with bank-owned properties the standard allocations are somewhat different. For example, banks often will pay for the buyer’s title insurance policy, assuming the buyer uses a title provider the bank chooses. Or, the bank may defer to the buyer to elect the title company at which point the buyer is responsible for title and escrow fees.
Also, costs like HOA transfer and documentation fees, city and county transfer taxes, and even escrow fees are often negotiated between buyer and seller. Additionally, many times buyers agree to “pay” their customarily allocated fees, but then negotiate a closing cost credit from the seller that covers some or all of that.
Loan closing fees vary significantly by loan type (i.e., FHA vs. conventional). Also, transfer taxes also vary widely in different California counties; I see transactions where buyers need to be prepared to pay anywhere from 2 to 6% of the purchase price in closing costs – depending on the location. Again, this can be reduced if the buyer is able to negotiate for the seller to pay some or all of their closing costs.
Public Information Office, Elk Grove Police Department
**New slurry seal and asphalt overlays will restore neighborhood streets to like new condition**
Preventing potholes and keeping local streets in good condition is the goal of the City’s annual Street Repair Project. The City’s Public Works Department has announced that pavement maintenance work scheduled in several neighborhoods throughout Elk Grove will begin next week and extend through November.
Annual pavement maintenance projects extend the life of the pavement and avoid more costly repair or replacement of streets. The pavement maintenance being done this year includes asphalt slurry seal and asphalt overlay. This work includes replacing small areas of damaged pavement, sealing cracks, placement of the slurry seal or asphalt overlay treatment, and replacing striping as needed. The work will restore the surface quality to like new condition.
This work requires temporary full street closures. During the closures, residents will need to park their vehicles on adjacent streets until the roads are reopened to traffic. Barricades with “No Parking” signs will be placed on affected streets 48 hours in advance of the street closures. Residents affected by the work will also receive door hanger notices not less than 3 days in advance of the scheduled operations. A complete listing and map of the streets scheduled for repairs can be found on the City’s web site at www.elkgrovecity.org/street-repair.
Preparation activities such as crack sealing and replacement of damaged pavement will begin as early as Monday, September 28th. Slurry seal operations are expected to begin on October 22nd and continue through November 5th. Asphalt overlay and final striping will take place in late October and early November.
The City appreciates the public’s patience during these pavement maintenance activities. For more information regarding the project, please visit the web page or call the City’s Public Works hotline (916) 478-2256.
Giving thought to selling a home? Before you place it on the market, consider these five very important factors:
1. PRICE A home that is priced correctly will attract the greatest number of buyers. Since there is a direct correlation between the number of potential buyers who view a residence and its final sales price, properties that are priced competitively generate the largest possible net profits for the seller.
If you are considering the sale of a residence or investment property, please give serious thought to pricing it correctly. To determine the best possible asking price, employ the services of a licensed real estate expert. He/she can provide you with an accurate professional property evaluation.
2. CONDITION The condition of a home is nearly as important as are the asking price and the terms being offered. Homebuyers purchase properties as much on their emotional appeal as on any other single factor.
Home sellers who are willing to make their residences sparkle receive a greater net profit and sell their properties more quickly. Staging is a great way to make your home as appealing as possible, and hiring an experienced agent who has the expertise you need to make your residence shine.
3. LOCATION A property’s value is, in part, determined by its surroundings. Homes in great locations sell for higher prices and more quickly.
Neither a real estate professional nor the seller can control a home’s location. For this reason, location must be given serious consideration when pricing a house.
4. MARKET CONDITIONS The overall economic conditions in a home’s locale often determine the length of time it takes to sell and its final selling price.
If economic times are difficult, supply and demand must be given consideration when preparing a home for the market and when pricing it. When local economies are suffering, the demand for homes goes down and the supply of homes goes up. Under these circumstances, the only properties that sell are those that are in excellent condition and are priced correctly.
5. MARKETING An agent’s marketing skills are critical to maximizing a seller’s net proceeds and to minimizing inconveniences.
It is your real estate professional’s responsibility to attract as many well-qualified buyers as possible into a seller’s home. The agent’s ability to accomplish this task will determine the size of the seller’s net proceeds check. For this reason, it is very important for a seller to choose an agent carefully. Hire only an agent who has an organized marketing plan.
Four recent news articles confirmed that most Americans still see real estate as a great long term investment. The Gallup organization polled the American people and discovered that they believe that real estate is a better long term investment than stocks/mutual funds, gold, savings or bonds:
A second survey was done by Edelman Berland which showed that:
At the same time, Tim Rood, chairman of the business advisory firm The Collingwood Group, explained that real estate is:
“…one of the last legitimate wealth creation opportunities…The leveraged return if you put down 10 percent on a house, the trajectory of appreciation lately is you’re going to get your money back inside of a year and then after that 5 to 10 percent appreciation rates. It’s phenomenal.”
Real estate continues to be a sensational long term investment. If you need help with any of your real estate needs, contact a local real estate professional and discuss the opportunities available in today’s market.