Buying Remains Cheaper Than Renting in 39 States!

Buying Remains Cheaper Than Renting in 39 States! | MyKCM

In the latest Rent vs. Buy Report from Trulia, they explained that homeownership remains cheaper than renting with a traditional 30-year fixed rate mortgage in the 100 largest metro areas in the United States.

The updated numbers show that the range is an average of 3.5% less expensive in San Jose (CA), all the way up to 50.1% less expensive in Baton Rouge (LA), and 33.1% nationwide!

A study by GoBankingRates looked at the cost of renting vs. owning a home at the state level and concluded that in 39 states, it is actually ‘a little’ or ‘a lot’ cheaper to own (represented by the two shades of blue in the map below).

Buying Remains Cheaper Than Renting in 39 States! | MyKCM

One of the main reasons owning a home has remained significantly cheaper than renting is the fact that interest rates have remained at or near historic lows. Freddie Mac reports that the current interest rate on a 30-year fixed rate mortgage is 3.91%.

Nationally, rates would have to reach 9.1%, a 128% increase over today’s average of 4.0%, for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.

Bottom Line

Buying a home makes sense socially and financially. If you are one of the many renters who would like to evaluate your ability to buy this year, let’s get together and find you your dream home.

Top 5 Reasons Why Millennials Choose to Buy [INFOGRAPHIC]

Top 5 Reasons Why Millennials Choose to Buy [INFOGRAPHIC] | MyKCM

Some Highlights:

  • “The majority of millennials said they consider owning a home more sensible than renting for both financial and lifestyle reasons — including control of living space, flexibility in future decisions, privacy and security, and living in a nice home.”
  • The top reason millennials choose to buy is to have control over their living space, at 93%.
  • Many millennials who rent a home or apartment prior to buying their own homes dream of the day that they will be able to paint the walls whatever color they’d like, or renovate an outdated part of their living space.

 

Where Are the Home Prices Heading in The Next 5 Years?

Where Are the Home Prices Heading in The Next 5 Years? | MyKCM

Today, many real estate conversations center on housing prices and where they may be headed. That is why we like the Home Price Expectation Survey.

Every quarter, Pulsenomics surveys a nationwide panel of over one hundred economists, real estate experts, and investment & market strategists about where they believe prices are headed over the next five years. They then average the projections of all 100+ experts into a single number.

The results of their latest survey:

Home values will appreciate by 5.0% over the course of 2017, 4.0% in 2018, 3.2% in 2019, 3.0% in 2020, and 3.0% in 2021. That means the average annual appreciation will be 3.64% over the next 5 years.

Where Are the Home Prices Heading in The Next 5 Years? | MyKCM

The prediction for cumulative appreciation increased from 17.8% to 18.4% by 2021. The experts making up the most bearish quartile of the survey are projecting a cumulative appreciation of 6.7%.

Where Are the Home Prices Heading in The Next 5 Years? | MyKCM

 

Bottom Line

Individual opinions make headlines. We believe this survey is a fairer depiction of future values.

Millennials Flock to Low Down Payment Programs

Millennials Flock to Low Down Payment Programs | MyKCM

A recent report released by Down Payment Resource shows that 65% of first-time homebuyers purchased their homes with a down payment of 6% or less in the month of January.

The trend continued through all buyers with a mortgage, as 62% made a down payment of less than 20%, which is consistent with findings from December.

An article by DS News points to the new wave of millennial homebuyers:

“It seems that the long-awaited influx of millennial home buyers is beginning. Ellie Mae reported that mortgages to millennial borrowers for new home purchases continued their ascent in January, accounting for 84 percent of closed loans.”

Among millennials who purchased homes in January, FHA loans remained popular, making up 35% of all loans closed. Ellie Mae’s Executive Vice President of Corporate Strategy Joe Tyrrell gave some insight into why:

“It is not surprising to see Millennial borrowers leverage FHA loans because they typically offer lower down payments and lower average FICO score requirements than conventional loans. Across the board, we’re continuing to see strong interest in homeownership from this younger generation.”

Bottom Line

If you are one of the many millennials who is debating a home purchase this year, let’s get together to help you understand your options and set you on the path to preapproval.

Buy vs Rent: What Really Creates Family Wealth?

Buy vs Rent: What Really Creates Family Wealth? | Keeping Current Matters

There has been recent press regarding whether or not it makes better financial sense to rent rather than buy in today’s housing market. As an example, the recently released June Summary of the BH&J Buy vs. Rent Index reported:

“…as of the end of the first quarter of 2015, the housing market in the U.S. and all cities in the index are trending either closer to renting being the superior option or strictly favoring renting over purchasing a home.”

The summary goes on to explain that:

“The index conducts a “horse race” comparison between an individual that is buying a home and an individual that rents a similar quality home and reinvests all monies otherwise invested in homeownership.” (emphasis added)

Though the math may be correct, we are not as sure of the conclusion. Even if you check the methodology offered by the BH&J report itself, you will find that they realize:

“…any extra savings from renting might be spent on non-wealth enhancing goods resulting in any benefits from renting versus owning disappearing in a cloud of consumption spending rather than savings.”

The Concept of ‘Forced Savings’ and Wealth Accumulation

Many believe the wealth accumulation of homeowners is tied into the concept of “forced savings”. The New York Times late last year published an editorial entitled, Homeownership and Wealth Creation, which discussed this concept. The article explained:

“Homeownership requires potential buyers to save for a down payment, and forces them to continue to save by paying down a portion of the mortgage principal each month.” “Even in instances where renters have excess cash, saving a substantial amount is difficult without a near-term goal, like a down payment. It is also difficult to systematically invest each month in stocks, bonds or other assets without being compelled to do so.”

Many of the points that were made in the article are on track with the research done by the Joint Center for Housing Studies at Harvard University which agrees that “forced savings” is a major advantage of homeownership. In a paper, The Dream Lives On: the Future of Homeownership in America, they concluded:

“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.”

The Truth is in the Historical Data

Edwards Deming once said: “Without data, you’re just another person with an opinion.” Let’s look at the data on this subject. The Federal Reserve has conducted a study titled: Survey of Consumer Finances. The study found that the average net worth of a homeowner ($194,500) is 36 times greater than that of a renter ($5,400).

Bottom Line

The New York Times editorial articulated it best:

“Homeownership long has been central to Americans’ ability to amass wealth; even with the substantial decline in wealth after the housing bust, the net worth of homeowners over time has significantly outpaced that of renters, who tend as a group to accumulate little if any wealth…As a means to building wealth, there is no practical substitute for homeownership.”

If you are a renter who is considering making a purchase, sit with a local real estate professional who can explain the benefits of signing a contract to purchase over renewing your lease!

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