Own or Rent; Either Way, You’re Paying a Mortgage

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There are some people that have not purchased a home because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that, unless you are living with your parents rent free, you are paying a mortgage – either your mortgage or your landlord’s.

As a paper from the Joint Center for Housing Studies at Harvard University explains:

“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return. That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

Also, if you purchase with a 30-year fixed rate mortgage, your ‘housing expense’ is locked in over the thirty years for the most part. If you rent, the one guarantee you will have is that your rent will increase over that same thirty year time period.

As an owner, the mortgage payment is a ‘forced savings’ which will allow you to have equity in your home you can tap into later in your life. As a renter, you guarantee the landlord is the person with that equity.

Bottom Line

Whether you are looking for a primary residence for the first time or are considering a vacation home on the shore, owning might make more sense than renting since home values and interest rates are still lower than projected.

 

– Keeping Current Matters; 12 February 2015

 


Toyota Gears Up for Groundbreaking in Plano

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Toyota North America will break ground Tuesday in Plano for their new U.S. headquarters.  Construction is expected to complete in late 2016 with 4,000 possible positions transferring from their current California facility. According to the article of NBCDFW.com, “A spokesperson for Toyota said the quality of life in North Texas is one of the  many reasons the company decided to make the move from California.”

You can see the rest of the article HERE.


DFW Area on Track for 2015

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DFW Area on Track for Increased Homebuilding in 2015

The Dallas-Fort Worth area should be the second busiest homebuilding market in the country in 2015, according to a new forecast.  MetroStudy Inc predicts that only Houston will have more single-family home starts next year in a comparison of the country’s top building markets.  D-FW home starts are forecast to top 28,000 units next year, compared with the Houston area’s more than 37,000 starts.

“Most of the other starts leaders in 2015 will be markets where builders can secure the raw material—labor, land, and materials—to start new projects,” MetroStudy reports. “Builders in Dallas are pushing their capacity as well, as they assemble more lots and struggle to find enough skilled workers to keep up with demand.”

  • Dallas Morning News, November 10, 2014

Texas the Best State for Future Job Growth, Forbes says

Texas is the top state for its current economic climate and future job growth in Forbes’ annual Best States for Business study released this week.  Texas has added 2.1 million jobs since 2000, more than twice as many as any other state, Forbes reports. Moody’s Analytics expects Texas to have an annual job growth rate of 2.7 percent over the next five years — the fastest in the nation — ranking it No. 1 on Forbes’ “Best States for Job Growth” list.  Naturally, Forbes cites Texas’ pro-business environment and the energy industry for its impressive job growth.  “Texas has done well primarily because it is an energy center. You really can’t get around that,” Edward Friedman, an economist who tracks Texas for Moody’s Analytics, told Forbes. “Every major energy and oil company has realized over the last 15 years that the only place to be is Houston.”   Outside of Houston, Forbes cites Toyota Motor Corp.’s (NYSE: TM) new campus in Plano, Charles Schwab Corp. (NYSE: SCHW) moving jobs to Austin and El Paso, and Apple Inc.’s (Nasdaq: AAPL) expansion in Austin as other examples of the massive business investments in Texas.  In addition to Texas’ impressive job growth, it also is expected to have the second-fastest economic growth rate over the next five years: 4.1 percent annually.  However, the education rate of Texas’ workforce hurts it in the overall ranking. It has the second-lowest percentage of adults with a high school degree: 82 percent.

  • Forbes, November 14, 2014

 


Future Homeowners Share American Dream

Future Homeowners Share American Dream

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Two recently released reports indicate that both young adults (Millennials) and teenagers (Generation Z) still see homeownership as an important piece of their future success. A report by The Demand Institute, Millennials and Their Homes: Still Seeking the American Dream, revealed that the Millennial Generation is optimistic about their financial future and still believe in homeownership. The findings were based on a survey of millennial households (ages 18 to 29). The report predicted that:

  • 8.3 million new Millennial (Gen Y) households will form in the next five years
  • $1.6 trillion will be spent on home purchases by Millennials and $600 billion on rent over the next five years

Millennials optimistic about their finances and homeownership

Of those surveyed:

  • 74% expect to move within the next five years
  • 79% expect their financial situation to improve
  • 75% believe homeownership is an important long-term goal
  • 73% believe homeownership is an excellent investment
  • 24% already own their home and
  • An additional 60% plan to buy a home in the future
  • 44% do think it would be difficult to qualify for a mortgage

What about the next generation (today’s teenagers)?

A recent survey by Better Homes and Gardens® revealed that Generation Z (teens ages 13-17) is very traditional in their views toward homeownership and is willing to sacrifice to attain the American Dream. Findings from the survey show:

  • 82% of Gen Z teens indicate that homeownership is the most important factor in achieving the American Dream.
  • 89% said owning a home is part of their interpretation of the American Dream
  • 97% believe they will own a home
  • 77% percent chose owning a home over owning a business

Bottom Line

It seems that the belief that homeownership as a huge part of the American Dream still beats in the hearts of the young people of this country.


5 Financial Reasons to Buy a Home

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Eric Belsky is Managing Director of the Joint Center of Housing Studies at Harvard University. He also currently serves on the editorial board of the Journal of Housing Research and Housing Policy Debate. This year he released a new paper on homeownership – The Dream Lives On: the Future of Homeownership in America. In his paper, Belsky reveals five financial reasons people should consider buying a home.

Here are the five reasons, each followed by an excerpt from the study:

1.) Housing is typically the one leveraged investment available. 

“Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, 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.”

2.) You’re paying for housing whether you own or rent. 

“Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.”

3.) Owning is usually a form of “forced savings”.

“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.”

4.) There are substantial tax benefits to owning. 

“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.”

5.) Owning is a hedge against inflation.

“Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.”

Bottom Line

We realize that homeownership makes sense for many Americans for many social and family reasons. It also makes sense financially.


Good News for the Economy = Bad News for Rates

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The economy is improving. As an example, the latest employment report showed that the unemployment rate hit a five-year low. We must realize that, as the economic news gets better, the government will consider whether or not to continue the programs they put in place to stimulate the economy. One such program is the Fed’s purchasing of assets which has led to historically low long-term mortgage rates.

Analysts at Capital Economics noted in a recent HousingWire article:

“The 203,000 increase in November’s non-farm payrolls, along with the drop in the unemployment rate to a five-year low of 7.0%, gives the Fed all the evidence it needs to begin tapering its asset purchases at the next FOMC meeting later this month.”

Whether such ‘tapering’ occurs this month or early next year is questionable. The fact that mortgage rates will spike when it does occur is more a guarantee.

Here are the thoughts of a few Fed presidents regarding whether it is in fact time to cut back on this stimulus program:

James Bullard, President of the Federal Reserve Bank of St. Louis

“To the extent that key labor market indicators continue to show cumulative improvement, the likelihood of tapering asset purchases will continue to rise. The Committee’s 2012 criterion of substantial improvement in labor markets gets easier and easier to satisfy on a cumulative basis as labor markets continue to heal…Based on labor market data alone, the probability of a reduction in the pace of asset purchases has increased.”

Richard Fisher, President of the Federal Reserve Bank of Dallas

“In my view, we at the Fed should begin tapering back our bond purchases at the earliest opportunity…I consider this strategy desirable on its own merit: I would feel more comfortable were we to remove ourselves as soon as possible from interfering with the normal price-setting functioning of financial markets.”

Jeffrey Lacker, President of the Federal Reserve Bank of Richmond

“I expect discussion about the possibility of reducing the pace of asset purchases. The key issue, in my view, is the extent to which the benefits of further monetary stimulus are likely to outweigh the costs.”

If you are thinking about purchasing a home, buying before the tapering will probably mean a lower mortgage interest rate than if you waited.


Ignoring Insurance Risks Can Be Costly

One of the first stages during the hunt for a new home is crunching the numbers to figure out your budget. And no matter how high or low that budget may be, prospective homebuyers should take into consideration the cost of insuring the home.

It’s easy to overlook insurance, especially since you may be more worried about the number of bedrooms, the school district, or the size of the backyard. But before you can close on the purchase, your lender will require you to line up homeowners insurance. You may be hit with some sticker shock if the home you are about to buy ends up being a high risk- and therefore high cost- home to insure.

Once you’ve got a few homes in your sight, you should get some preliminary home insurance quotes on each property. Just as you will compare asking price and property taxes- figure your insurance costs into the equation as well. Even homes of similar size and style can vary greatly in terms of cost to insure.

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Here are a few lesser known home features that affect insurance costs:

Location- The location of a home will have a huge impact on the insurance premiums due to the proximity to a fire station, the fire station ratings and the flood zone it’s located in.

  • When you shop for homeowners insurance you will be asked how close the home is to a fire hydrant and to a fire station. In the event of a fire, the quicker the fire department can respond to the home, the less damage will be incurred. The average claim for a residential fire exceeds $33,000, according to the Insurance Information Institute (III). Therefore insurers typically charge lower premiums for homes within a close proximity of each.
  • Fire stations in each community each have a specific fire protection class rating which also affects the home insurance premiums on a home.
  • Last but certainly not least, the specific type of flood plain that a home is located in may require you to carry a separate flood insurance policy in order to obtain a mortgage. Flood insurance is recommended for all properties, however, in certain high-risk flood plains a flood insurance policy is not only required- but the coverage could double your annual insurance spend.

Roofing- Ask your realtor about the home’s roof. You’ll want to know how old it is and the material it’s made of. Roofs that are 20 or more years old can be considered high risk and may be expensive to insure. Replacing a roof also can be costly so you’ll want to weigh the pros and cons. Newer roofs, built with impact-resistant material, are ideal. These roofs are made to withstand nature’s harshest elements, and they can also qualify homeowners for more preferred home insurance policies.

Swimming Pool- You might be looking specifically for a house with a pool but you should know swimming pools can drive up your insurance premiums. Accidents frequently happen in and around pools so insurance companies see them as a high-risk home feature. Remember, you can be held liable even if a trespasser has an accident at your pool. For this reason, homes with swimming pools located on the property should meet all local safety codes and carry high limits of liability coverage.

Age- The age of the home can also affect your premium. Typically older homes have outdated electrical wiring and plumbing systems, which can lead to fires or water damage. If you are considering an older home, ask your realtor the age of the plumbing, HVAC and electrical systems. If they have been updated in recent years, this is important to note with your insurance agent. If not, make sure you know what this may cost you in additional premiums and to upgrade in the future.

Security equipment- Security equipment is a plus for obvious reasons- items such as burglar alarms, deadbolt locks, and smoke alarms can make your home a safer environment. In addition, insurance providers offer discounts for homes featuring these items. In fact, you could save 10% or more on your premium. Take note of the types of safety devices in the homes you are comparing so you can get accurate discounts figured into your insurance rates.

You likely won’t make a decision on a house because of insurance factors alone. But it’s best to have an idea of where you stand as you consider your options. Start by checking out average home insurance rates in your state. Then work with an agent you can trust to compare quotes on various properties. An educated search can help you find the home of your dreams and home insurance premiums that won’t break the bank.

– Article from Carrie Van Brunto Wiley, homeinsurance.com