Real Estate Builds Family Wealth
Recently, David Greene, co-host of the BiggerPockets podcast and a nationally renowned author and speaker, wrote an article in Forbes explaining how investing in real estate could help build wealth. Many of the points he made also apply to a family owning their own home. Here are a few:
1. Appreciation
“The rising of home prices over time, is how the majority of wealth is built in real estate. This is the ‘home run’ you hear of when people make a large windfall of money. While prices fluctuate, over the long run real estate values have always gone up, always, and there is no reason to think that is going to change.
One thing to consider when it comes to real estate appreciation affecting your ROI is the fact that appreciation combined with leverage offers huge returns. If you buy a property for $200,000 and it appreciates to $220,000, your property had made you a 10% return. However, you likely didn’t pay cash for the property and instead used the bank’s money. If you consider that you may have put 10% down ($20,000), you actually have doubled your investment, a 100% return.”
2. Leverage
“By nature, real estate is one of the easiest assets to leverage I have ever come across—maybe the easiest. Not only is it easy to leverage the financing of it, but the terms are incredible compared to any other kind of loan. Interest rates are currently below 5%, down payments can be 20% or less, and loans are routinely amortized over 30-year periods.”
3. Paying Off the Debt
“One of the best parts of investing in real estate is the fact that … you’re slowly paying down your loan balance with each payment to the bank… After enough time passes, a good chunk of every payment comes off the loan balance, and wealth is created.”
4. Forced Equity
“Forced equity is a term used to refer to the wealth that is created when an investor does work to a property to make it worth more…
Example of this would be adding a third or fourth bedroom to a property with only two, adding a second bathroom to a property with only one, or adding more square footage to a property with less than the surrounding houses.”
Though Green was talking about investors, the same could be said about a family upgrading their own home.
Bottom Line
Green put it best by saying:
“There are many ways to build wealth in America, but real estate might be the safest, steadiest and simplest way to do so.”
To read the full article, click here.
Read MoreHousing Slowdown? Softening?
Whatever You Call It, It’s Real and It’s Here
By Clare Trapasso | Realtor.com
Ever since the whiplash-inducing, bust-and-boom cycle of the U.S. housing market kicked into high gear with last decade’s devastating crash and this decade’s ever-escalating home prices, bidding wars, and inventory shortages, one question has been top of mind for buyers and sellers alike: Is this “party” ending anytime soon? Lately, those who read economic tea leaves have been hinting that we may be heading toward a significant correction in the go-go-go American housing market. Surely national home price increases have to slow down eventually, right?
It turns out they may be on to something.
“The signs are pointing to a market that’s shifting toward buyers,” says Danielle Hale, chief economist of realtor.com®. “But in most places, we’re still a long way from a full reversal.”
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ake no mistake: Prices are not exactly tumbling down—at least, not on the national level. And there’s no evidence on the horizon of a looming housing bubble about to pop and drag the world economy down with it. Median home list prices are still up 7% year over year this August, according to an analysis of realtor.com data.
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But hold on—those numbers are a drop-off from the past couple of years. In 2015 things were really rolling: Prices were soaring, multiple offers were the norm in many markets, and the number of homes available was falling fast. Last year, home list prices jumped 10% over the year before. The year before that, it was 9%. So while a 7% rise still sounds like a lot—especially compared with annual inflation of just 2.9%—it’s actually a very real sign that the market may finally be coming back down to earth.
And the national figures tell only part of the story. A deep dive into regional housing metrics by the realtor.com data team indicates that some of the nation’s highest-profile, bellwether housing markets are starting to slow.
Housing slowdown? | Tony Frenzel
So what does it all mean? Sellers shooting for the stars may not be able to get quite as much as they’d like. And, in a boon to buyers, the number of homes on the market is finally starting to rise. In August, 18 of the 45 largest housing markets, including such heavyweights as San Francisco, New York City, Los Angeles, Boston, and Dallas, saw more properties go up for sale than the previous year. That means folks not only have a better shot at closing on the home of their dreams, but they’ll also face less competition. And that controls runaway price inflation.
“We’ve hit that tipping point in a lot of these cities where what sellers think they can get is just not possible for many buyers,” says Daren Blomquist, senior vice president at real estate information provider ATTOM Data Solutions. “Now the pendulum is swinging away from sellers and back toward buyers.”
Now housing experts are divided on how much prices will keep going up or whether they’ll even—gasp—go flat. So what does the future hold?
Why is the real estate market beginning to slow?
One of the main reasons the housing market is beginning to turn is rising mortgage interest rates.
Do the math: The more expensive it becomes to secure a loan, the less money buyers have left to spend on a property. Rates were up 0.82% year over year to reach 4.65% on 30-year, fixed-rate mortgages as of Sept. 20, according to Freddie Mac. And each percentage point uptick adds about $143 to the monthly payments—and nearly $51,500 over the life of a loan—on a median-priced home of $300,000. (That’s assuming a 20% down payment.)
That’s no small chunk of change—and, as Blomquist points out, even a small increase can be enough to push enough buyers out of the game.
President Donald Trump‘s tax plan could also be limiting just how high prices can go, particularly in the priciest parts of the country. That’s because buyers can now deduct the mortgage interest they pay on loans up to only $750,000. Previously, they could deduct it for loans up to $1 million.
And while this sounds like a problem reserved for the 1-percenters, in some expensive markets, even starter homes go for around $1 million. Combine that with a $10,000 cap on a combination of property and either sales or income taxes, and it spells trouble for homeowners and buyers in California, New York, and New Jersey. Those states tend to have high property taxes that folks can no longer get a federal break on.
Homeowners certainly aren’t oblivious to these factors—many of them are rushing to put their homes on the market to get as much as they can before prices begin to come down, say housing experts and real estate agents. The resulting higher inventory gives buyers a bit more power.
Could California be slowing its roll?
California price reductions | Tony Frenzel
The one state in the country where the cost of housing is hurtling ever more out of reach for the 99-percenters has been California, particularly its coastal cities. The Golden State’s median home price is $542,500—well above the national median of nearly $295,000.
But now, after years as one of America’s hottest housing markets, California is showing some chinks in its armor. Many overzealous sellers who listed their homes at unrealistically high prices are now being forced to reduce them. The state experienced the nation’s biggest increase in the number of homes seeing list price reductions. But just because some sellers overshot doesn’t mean that the state’s housing is suddenly going through a clearance sale. Overall, median home prices were up 5%, and inventory increased 14% year over year.
“We are bumping up against peak prices,” says Patrick Carlisle, chief market analyst for the San Francisco Bay Area at the real estate company Compass. “Whether it will just be a slowdown or a plateau or a small adjustment in home values, and how big that adjustment is, that I don’t know.”
Santa Clara County, the heart of Silicon Valley, saw the biggest jump in the number of homes on realtor.com seeing price reductions. There, the number of homes where prices were lowered zoomed up 171% in August, even as the number of listings surged 77%. The likely culprit: rampant overpricing. It turns out home costs can’t go up forever, even in the shadow of Google and Apple headquarters.
Santa Clara–based real estate broker Rick Smith is seeing the most price reductions for higher-end properties in the $3 million-and-up range. But prices on homes located farther away from the bigger companies are also falling as folks are looking for shorter commutes to work. And buyers are more hesitant to take the plunge.
“People are concerned if we hit peak and I buy now, what happens?” says Smith, of Windermere Real Estate. So they’re waiting to see what happens.
Can Seattle’s double-digit price growth go on forever?
Now don’t get too excited: Median prices in Seattle, the birthplace of tech behemoth Amazon, aren’t coming down. (They’re about $552,600 for the metro area and $692,875 within the city limits.)
Prices are still sky high in Seattle | Mike Kane
But that doesn’t mean sellers these days can slap whatever price tag they want on their residences—and add some extra zeros. Many may have gotten overzealous in what they wanted to fetch—the number of listings on realtor.com with price reductions was up a whopping 76% in August year over year. That’s the second-biggest jump among the 100 largest metropolitan areas in the country. And it may be a blinking red light signaling that the market may be about to cool.
“A lot of people think that the market is peaking and are looking to potentially cash out” while they can still fetch the most money, says Windermere Real Estate’s chief economist, Matthew Gardner. “We’ve been on double-digit price growth for years, and that is clearly unsustainable.”
Overall prices are still soaring—at least for now. They rose 14% year over year, to reach $552,550 in August. They were up 13% the year before that and 7% in the one prior.
But prices are expected to increase more slowly in the near future, as there are more homes going up for sale, giving buyers a bit more choice—and negotiating power. Andres Carbacho-Burgos, a senior economist focused on housing at Moody’s Analytics, predicts that home price growth will slow to just 2% to 3% annually over the next few years.
The boomtowns: Austin, TX, and Nashville, TN
Austin boom | Tony Frenzel
Then there are the smaller cities, like Austin, TX, and Nashville, TN, that burst onto the national scene just a few years ago—poster children for the supercharged housing recovery. Home prices rose to meteoric heights as builders raced to put up new abodes and transplants from even higher-priced metros flooded the cities. At the same time, their populations shot up 18.5% and 10.6% respectively from April 1, 2010, to July 1, 2017, according to U.S. Census data.
And then, despite all the hype, list prices did the unthinkable—they began to fall. Austin is a particular eye-opener: List prices dipped about 3%, to a median of $362,000 in August compared with the previous year, according to our realtor.com analysis. The year before that they dipped 2%. And while median sales prices (what these abodes actually fetched) actually rose 4.2% for the year, according to CoreLogic, it’s the slowest rate of growth since 2010.
“Home prices have just gone up too fast,” ATTOM’s Blomquist says of Austin. “It doesn’t mean that all of a sudden it’s a market that’s going to crash. But it does mean there are limits to what people can afford.”
Luxury homes in Austin | realtor.com
Four years ago, real estate agent Jason Bernknopf was seeing move-in ready homes in desirable central Austin fetch six to 10 offers. Two years ago, similar homes were getting two to six offers. Lately, multiple offers are more rare.
“Now things don’t go in the first day necessarily. You have to wait three to four days,” says Bernknopf, of AustinRealEstate.com. “Sellers are having to reduce some of their prices.”
Carbacho-Burgos, of Moody’s Analytics, expects prices to fall about 3% in Austin over the next few years, and level off in Nashville in the coming year or two.
A similar pattern is emerging in Nashville: The median list price on realtor.com in the country music hot spot was about $356,000 in August, representing a 1% dip from the previous year. But the median sale price climbed 7.9% year over year, to $286,000 in June, according to the latest CoreLogic data—a slower price increase than the 11.3% rise of the previous year.
Nashville real estate broker Brian Copeland, of Doorbell Real Estate, attributes the change to the finite number of buyers.
“There was a blitz of buyers in the marketplace, and now they’ve found their homes,” he says.
But he balks at labeling the city a seller’s or a buyer’s market. Instead, it’s moving toward “an equilibrium market,” where buyers aren’t whipped into a frenzy bidding on homes that went on the market hours ago and sellers can still get nearly all of their asking prices.
Nashville affiliate broker Lisa Peebles-Chagnon, of Nashville Luxury Estates, is beginning to see some pushback from buyers. Sellers, particularly those in the $500,000-and-up range, are waking up to the fact that, if they want to fetch top dollar, they need to clean and stage their abodes. In addition, they’ll need to have it pre-inspected, with any maintenance problems corrected.
A three-bedroom home in Nashville listed at $775K. | realtor.com
Freakout alert: Is another housing bubble about to pop?
It’s time to address the T. rex in the room: Could lower price appreciation, an increase in inventory, and more price cuts on individual homes spell imminent disaster for the U.S. real estate market? Could we actually be primed for another housing bubble?
Most housing experts aren’t worried. That’s because the reasons behind the crazy-high home prices are different now than they were when the market crashed in 2008. And there are more checks in place to make sure history doesn’t repeat itself.
For starters, it’s become much harder to get a mortgage since the housing bust a decade ago. Ask anyone who’s experienced it. Folks can’t come in off the street claiming they’re making big bucks and score a lucrative mortgage anymore—without documentation or good credit scores. Those who do get a mortgage are often more thoroughly vetted and are therefore less likely to default and go into foreclosure.
And despite more “For Sale” signs going up, there is still a very real housing shortage at a time when there is strong demand for homes. So it’s not as if a ton of folks are purchasing scores of homes that they can’t afford, as there simply aren’t a ton of available properties on the market. And builders aren’t putting up enough abodes to alleviate that problem due to a variety of reasons, including a lack of available land, construction labor, and regulatory burdens.
“It’s hard to see this as the bubble popping in any way close to what we saw 10 years ago,” says ATTOM’s Blomquist. “I see it more as a deflating, letting some air out of the balloon … [so there isn’t] a bigger pop down the road.”
Data Analysis by Lance Lambert.
Courtesy of NAR: https://www.realtor.com/news/trends/housing-market-finally-becoming-buyers-market/
Read MoreiBuyers: Is The Convenience Worth The Cost?
Forbes | Post written by Chase Marsh, Forbes Business Council
There has been a lot of hype around a newer real estate technology trend referred to as “iBuying.” In early April, Zillow announced that it was expanding its foray into the iBuyer space it originally launched in May 2017. Other companies like Opendoor, Knock, OfferPad and even Redfin are either engaged in the space or are testing services, but what does this mean for you as a homeowner thinking about selling?
As the co-founder of an NYC-based real estate platform, my inclination when evaluating real estate technology trends is simple: What does this mean for the consumer?
First, what exactly is an iBuyer? An iBuyer is a company that will make you an offer on your home within minutes (or days), sight unseen, based on a proprietary valuation model. If you choose to accept the price, you can close in as little as a couple of days. The iBuyers tout the selling experience as quick and easy, but when would you consider selling your home this way? A few examples are if you need to move to relocate for a job, you are a distressed seller or you have found your next home and want to act quickly.
This sounds awesome, but what’s the catch? When selling to an iBuyer, the other side of the transaction is a company or an investor. Investors like to make money, and the quick and easy experience for sellers doesn’t come cheap. The iBuyer will typically charge a full commission, plus build in a discount to fair value to compensate for the risk they take by providing you with “instant” liquidity. Those who work in finance would call that a “liquidity premium” because the buyer has to use their own money to buy an asset. The iBuyer runs the risk of being unable to resell the property quickly enough, having costs add up, or being unable to sell the property for a profitable price. While there isn’t a lot of data available yet, some (paywall) estimate that these costs can add up to more than 10% of the fair market value of a home compared to 5-6% in commissions with a traditional agent.
So what does this really mean for the homeowner’s bottom line? Most homeowners purchase their home with a mortgage. If you purchased your home for $400,000 with 20% down, you showed up to closing with $80,000 of your own money, which is also your equity. If the value of your home remains the same and an iBuyer offers you $380,000 for your home — a 5% discount to fair value — you will lose $20,000 on the value of your home, plus pay a 5% commission (an additional $19,000). This is a higher transaction cost compared to selling on the open market for $400,000. More importantly, compare that combined $39,000 to your original down payment of $80,000 — you will be giving up close to 50% of the equity you put into your home partly for the convenience of a quicker sale. Does the added cost make sense for the consumer?
While iBuyers provide the convenience of selling quickly, matching expert investors against consumers isn’t always the best thing for the consumer. Zillow recently explained that 90% of sellers (paywall) who engaged its Instant Offers platform decided against the iBuyer offer and chose a traditional agent instead. If 9 out of 10 consumers pass, the pricing can’t be that compelling. Choice is good, but a home is generally your largest asset, so you may want to consult an expert before “iSelling.”
https://www.forbes.com/sites/forbesnycouncil/2018/06/05/ibuyers-is-the-convenience-worth-the-cost/#74c0446c57dc
Read MoreTime to Build?
Livingston County has an abundance of excellent local and regional builders. With the continued increase in growth of business and population, the demand for housing and new homes has never been greater. The local experts at the Gerardi Group are familiar with the process of new construction and have an abundance of relationships with the builders.
Buying a new home can and should be a dream come true. Part of that process is understanding value in the current market conditions as well as with intelligent choice in options and upgrades. Nothing can be more disappointing than going it alone only to find that your new home closed upside down due to over-paying for the property or spending more than the market will bare on over-personalization. An experienced agent can help you understand home value and comps, as well as the features that should enhance and maintain value with out over doing it. Thinking new construction? Make your first call to the local professionals at the Gerardi Group at 810-626-8839 or email SOLD@GerardiGroup.com.
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Read MoreHome Buyer Loan Prep!
The Ten Commandments of Buying a Home
- Thou shalt not change jobs, become self-employed or quit your job.
- Thou shalt not buy a car, truck or van (or you may be living in it!).
- Thou shalt not use credit cards excessively or let current accounts fall behind.
- Thou shalt not spend money you have set aside for closing.
- Thou shalt not omit debts or liabilities from your loan application.
- Thou shalt not buy furniture on credit.
- Thou shalt not originate any inquiries into your credit.
- Thou shalt not make large deposits without checking with your loan officer.
- Thou shalt not change bank accounts.
- Thou shalt not co-sign a loan for anyone.