Buying is Still Cheaper than Renting!

My last blog was about how the interest rate is rising and how it could be costing the potential home buyer more money to wait to purchase a property.  This week I will be discussing how even though interest rates are creeping up it is still cheaper to buy a home than to continue renting and paying someone else's mortgage!

Mortgage rates are still near long-term lows, and because prices fell so much after the housing bubble burst and remain low relative to rents even after recent price increases, buying is still much cheaper than renting. That means that the recent jump in rates doesn’t change the rent-versus-buy math much.

Rates are likely to keep rising, but how far must rates rise before buying a home starts to look expensive relative to renting?

We updated our Rent vs. Buy analysis with the latest asking prices and rents from March, April, and May 2013. We calculated the cost of buying and renting for identical sets of properties, including maintenance, insurance, taxes, closing costs, down payment, sales proceeds, and, of course, the monthly mortgage payment on a 30-year fixed-rate loan with 20% down and monthly rent. We assume people will stay in their homes for 7 years, deduct their mortgage interest and property tax payments at the 25% tax bracket, and get modest home price appreciation.

Buying remains cheaper than renting so long as mortgage rates are below 10.5%. At 3.9%, the current 30-year fixed rate according to Freddie Mac, buying is 41% cheaper than renting nationally. With a 5% mortgage rate, buying is still 34% cheaper than renting nationally. Mortgage rates would have to rise a huge amount – to 10.5% – to tip the math in favor of renting, which isn’t impossible. Rates were that high throughout the 1980s, but have been consistently below 10.5% since May 1990.

Each local market, of course, has its own mortgage rate “tipping point” when renting becomes cheaper than buying a home. At 3.9%, buying is cheaper than renting in all of the 100 largest metros, which means the tipping point is above 3.9% everywhere. 

10 Metros with the Lowest Mortgage-Rate Tipping Point
#	U.S. Metro	Mortgage rate below which buying is cheaper than renting
1	San Jose, CA	5.2%
2	San Francisco, CA	5.4%
3	Honolulu, HI	5.8%
4	New York, NY-NJ	6.8%
5	Orange County, CA	6.8%
6	Los Angeles, CA	7.5%
7	San Diego, CA	7.5%
8	Ventura County, CA	8.0%
9	Sacramento, CA	8.0%
10	Oakland, CA	8.2%

 But for 78 of the 100 largest metros, the tipping point is 10% or higher. In fact the tipping point is above 20% in Cleveland, Memphis, Detroit, and several other metros in the Midwest and South.

10 Metros with the Highest Mortgage-Rate Tipping Point
#	U.S. Metro	Mortgage rate below which buying is cheaper than renting
1	Detroit, MI	35.8%
2	Memphis, TN-MS-AR	21.0%
3	Gary, IN	20.8%
4	Warren-Troy-Farmington Hills, MI	20.2%
5	Toledo, OH	20.1%
6	Cleveland, OH	20.0%
7	Dayton, OH	19.2%
8	Grand Rapids, MI	18.4%
9	Akron, OH	17.4%
10	Kansas City, MO-KS	16.9%

As you can see from the charts above, the immediate New England area is not within these calculations.  The cost to buy a new home in the Boston/South Shore area continues to remain less expensive than renting !

Of course, the tipping point also depends on how long you plan to stay in your next home (we assume 7 years) and whether you itemize your deductions (we assume you do). For instance, if you don’t itemize, or if the mortgage interest and property tax deductions were eliminated entirely, buying would still be 29% cheaper than renting at a mortgage rate of 3.9%, and the tipping point when renting becomes cheaper than buying would be 7.5%.

So, if you have the resources to buy, what's making you hesitate?  

Is Now the Time to Buy a House?

The real estate community is often criticized for always seeming to have a Pollyanna attitude about the housing market. Many believe that the industry’s current call ‘to buy now’ is nothing more than a scare tactic with the sole purpose of creating more commissions for the industry. Let’s take a look at whether or not that advice was good advice over the last year.

According to the most recent S&P Home Price Index home values have risen over 10% in the last year. If we look at Freddie Mac’s Weekly Primary Mortgage Market Survey®, the 30 year mortgage rate has increased from 3.67% to 3.91% during that same period.

Take a Look at the Following Table Comparison:

*We can see that the advice to buy a year ago made complete financial sense.

Regarding interest rates, the 30 year mortgage rate has soared by over a half point already this year and many believe that the increases will continue. Even those trying to be the voice of reason on this issue are projecting higher rates, going up to as high as 5%.

Bottom Line

The next time a real estate professional says that now is the time to buy they may not be giving you a ‘sales pitch’. They may be giving you nothing but excellent advice.

Housing Bubble: Is There a New One Forming?

Are we in another Housing Bubble like the one of 2005-2006?

The housing market is recovering so nicely that it has caused some to wonder
whether a new housing bubble is forming.  Trulia revealed some great data on this point in a recent blog post. They explained that, even with the recent price increases, national home prices are still 7 percent undervalued.

Three reasons there will NOT be another bubble

Prices are determined by the ratio between supply and demand. Here are three reasons a bubble will be avoided.

1. Supply is beginning to increase. A lack of inventory is creating a market of multiple bids which has caused prices to rise. The National Association of Realtors (NAR), in their latest Existing Home Sales Report, revealed that the months’ supply of inventory has increased from 4.3 to 5.2 months since January.
2. Demand will decrease in certain demographics. For an example, investors have been a large part of the housing market over the last several years. As prices continue to rise, a certain percentage of these buyers will back off.
3. As mortgage rates increase, buyers will be able to afford less. The Mortgage Bankers Association, Fannie Mae and NAR have all projected an increase in mortgage rates over the next year. Buying power will decrease as borrowers can no longer afford the same price point as monthly payments will increase.

For these reasons the fear of a new housing bubble are currently unfounded.

Thinking of Selling, Top 10 Home Improvements that Pay You Back!

If you're planning to sell your house any time soon, home improvements that build property value should be on your to-do list.  With the market picking up, more and more people are starting to get their homes on the market and the demand for new homes is still out there!   With so much competition out there it is always a good idea to stage your home well and have it in "move-in ready" condition.  It will be make it more appealing to those looking at your home and comparing it to the other homes on the market.

Planning home improvements that pay you back at the time of sale requires a strategic vision as well as design, finish and product selections that welcome the widest possible range of buyer tastes. Drawing on tips from real estate pros, along with Remodeling magazine's annual Cost vs. Value Report, here are 10 home improvements that pay you back when you sell.
  

Front entry doors: Curb appeal is the first step in a successful home sale, and installing a beautiful, high-quality entry door is a simple home improvement that delivers impact both in buyer drive-by's and online listings. A new entry door will also help lower home energy costs and stand up to weather extremes. 


Siding: A tight, tidy home contributes to curb appeal and takes major home improvement worries off a potential buyer's list. Spruce up your home's exterior by repairing or replacing siding for an eye-catching, protective finish.


Attic bedroom: Converting an attic into useful living space is a smart way to add value and attract those shopping for multi-generational family homes. "Parents are moving in with their kids and vice versa.


Decks: Building a deck is one of the least-expensive ways to extend your living space. Composite decking is a great low-maintenance option, and even building a deck from pressure-treated wood can bring a return on investment of up to 80 percent at the time of sale.


Kitchen: The kitchen is a major selling point for a home, and its appearance and layout can often be a deal-breaker. Improving your kitchen doesn't have to be a huge investment, however: just replacing counter tops, key appliances or cabinet hardware can transform a kitchen's look and impact.


Windows: Installing replacement windows is a pre-sale home improvement that pays for everyone, with the seller earning valuable energy tax credits and the buyer enjoying lower home energy bills. Especially in older homes, buyers always seem to appreciate when new, better windows have been put in. People like the energy efficiency aspect now more than ever.

Basement: Make the most of this bonus space by finishing it for use as an apartment, office or entertainment zone ─ more great ways to appeal to multi-generational households.

Bathroom: Along with kitchens, bathrooms tend to age easily, so neutralize potential design objections by replacing the vanity, installing efficient fixtures and choosing hardware that facilitates easy access for all. 

Backup power generator: With the aging electrical grid becoming less reliable, access to backup power is essential for a home. Gone are the days of bulky, smelly, portable gas-powered generators: You can now have a neat, compact standby generator installed right next to your outdoor AC unit that can repower most of your home within seconds of losing electricity from the utility.

Additions: If done wisely and in a way that won't price your home out of the local market, additions are valuable home improvements. Add a second story, expand into a master suite, enlarge the garage or create an extra bathroom for a busy household.

A final thought, of course your home is your castle, and you want to be pleased with the way your home looks while you're in it, but you don't want to put in things that are extremely personal. For instance, choose colors that are neutral, it doesn't mean that everything has to be beige and bland, but you don't want to pick colors that the average person isn't going to like.

And remember when someone is out looking for their new home and thinking about the cost of investing in a new home, the last thing they want to add to that list is a "to-do list."

House Prices Projected to Increase In The Next Year!!

  

Experts have projected that U.S. home prices will 
appreciate by 5.4% in 2013.
If we assume that prices will rise about the same 5% over the next twelve months, here is the difference a buyer will pay if they wait a year.

_____________________________

 

 

 The Mortgage Bankers Association,
Fannie Mae and the  National Association of Realtors have all projected that the 30-year mortgage rate will be at least 
4% by the end of 2013.  If we assume that rates will still be at 4% in twelve months, 

here is the difference a buyer will 

pay if they wait.

_______________________________________________________

 

If we assume that prices go up by approximately 5% in 2013 and interest rates will rise at least 4% by the end of 2013 as projected, here is the monthly difference a buyer may pay if they wait a year.

_______________________________________________________________________________

We know that the market today is great for both buyers and sellers!  However, What tomorrow brings no one really knows?  Experts can project but we still don't really know?

Take advantage of today's market and you could possibly come out ahead!

What Questions Should You Be Asking a Realtor before Entering into a Business Relationship?

Picking the right real estate agent to list your home could make the difference between selling quickly at a good profit and settling for a low-ball offer. Here are some questions you should ask to ensure you get the right person working for you.


What are your professional qualifications for listing my home?
Look for someone who works as a full-time REALTOR® and a licensed real estate agent. REALTORS® are real estate professionals who belong to the National Association of Realtors. They subscribe to a strict code of ethics and are committed to ongoing education in the real estate industry. If your home has special features, look for an agent with experience in selling homes that are similar to yours.


What’s your track record for selling homes like mine?

• How many homes have you listed over the past six months? A good REALTOR® typically lists one or two homes a month.
• How many of the homes you’ve listed over the past six months have sold? It’s a good sign if a REALTOR® sells all or most of the homes he or she lists.
• What’s the average length of time the homes you’ve listed have been on the market? It’s reasonable to take 90 to 120 days to sell a home. Much longer than that, and the home was probably overpriced.
• What’s the average difference between the asking and the selling price of the homes you list? They should be close.
• How much of your business is repeat or referral business? Successful agents have satisfied past customers and are therefore more likely to satisfy you. 

Is this the area of the city or region where you normally work?
Look for an agent who knows your area well. He or she will have a good idea of the best price you can get for your home and should have a network of other agents who are searching for homes in your region.

Do you have suggestions on ways to increase my home’s value?
A good listing agent should be able to tell you how to “stage” your home so it’s more appealing to potential buyers. Repainting in neutral tones, placing fresh flowers in the living room and home-baked cookies on the kitchen counter can speed up the sale of your home and put thousands of extra dollars in your pocket.

How often will you keep in touch with me?
Your REALTOR® should keep you regularly informed about potential buyers or real estate agents who have visited your home or expressed an interest in it, feedback from people who have viewed your home and all marketing activities. It’s not unreasonable to expect a daily telephone call, fax or e-mail with an update. Some offices have software that automatically notifies you, via e-mail or fax, every time someone tours your home.

Will I be working with you alone, or a member of your team?
An agent with many listings may hire employees to handle some aspects of the business, such as administrative work. There’s nothing wrong with a team effort to help you sell your home. But make sure that your agent is the one who will show your home, negotiate the sale and handle every other detail of the transaction. If your agent is taking a vacation in the near future, make sure you meet and are happy with the agent who will be filling in while he or she is away.

How will you price my home?
You don’t want to screen out potential buyers with an inflated price, or sell your home for less that market value. Your agent should be able to recommend a listing price based on a recent market analysis of your area that includes the recent selling price of homes similar in size, condition and amenities to yours.

How will you market my home?
An agent should list your home with the local and national Multiple Listing Service (MLS), share details of the listing with other REALTORS®, and market it on the Web. In addition, he or she should arrange an open house for real estate agents, regular open houses on weekends for the public, plus individual open houses for prospective buyers by appointment. This includes creating a detailed property fact sheet that can be passed out containing specific information on your home’s features and any home improvements you have made.

What will be included in the listing agreement?
Most contracts specify that you can work with only one listing agent. They also spell out the beginning and ending dates, which should be negotiable. It’s reasonable to allow an agent three to six months to sell your home. Agents cannot, however, provide a written guarantee that they will sell your house within that period of time. The length of time it takes to sell a home depends on many factors (such as market forces) that are out of your agent’s control.
It’s in your best interest to also specify in the listing agreement that your agent can accept offers only from buyers who have been pre-approved for a loan.

How are you paid?
Most agents are paid entirely by commission -- usually four to six percent of the selling price. And in most areas of the country, the person who is selling the house pays that commission from the proceeds of the sale. Find out whether there are any other fees, such as administrative costs.

Can you provide me with references?
A good REALTOR® should be able to provide you with references from satisfied clients who have sold homes in a similar price range in the area where you live.

Why Should You Work With A Realtor?

You and your family need a skilled negotiator

In today’s market, hiring a talented negotiator could save you thousands, perhaps tens of thousands of dollars. Each step of the way – from the original offer, to the possible re-negotiation of that off after a home inspection, to the possible cancellation of the deal based on a troubled appraisal – you need someone who can keep the deal together until it closes.
Here is a list of some of the people with whom your agent will potentially negotiate on your behalf:

• The buyer
• The buyer’s agent
• The buyer’s attorney
• The home inspection company
• The termite company
• The buyer’s lender
• The appraiser
• The title company
• The town or municipality
• The buyer’s buyer
• Your bank (in the case of a short sale)

How do you know if an agent negotiates well?

Realize that when an agent is negotiating their commission with you, they are negotiating their own salary; the salary that keeps a roof over their family’s head; the salary that puts food on their family’s table. If they are quick to take less when negotiating for themselves and their families, what makes you think they will not act the same way when negotiating for you and your family? If they were Clark Kent when negotiating with you, they will not turn into Superman when negotiating with the buyer in your deal.

Bottom Line

You need a great negotiator. We believe that famous sayings become famous because they are true. You get what you pay for. Just like a good accountant or a good attorney, a good agent will save you money…not cost you money.

Just Like you would do with anyone else you are hiring for a job, you should always interview your real estate agent!  What questions should you ask him or her?  Stay tuned and find out.......