1st Time Buyers Finally Crashing the Real Estate Party

There has been much conversation regarding the lack of first time home buyers in today’s real estate market. However, three recent reports seem to suggest that they are now entering the market in increasing numbers.

The most recent Existing Home Sales Report from the National Association of Realtors (NAR) reported that:

“The percent share of first-time buyers rose to 32 percent in May, up from 30 percent in April and matching the highest share since September 2012. A year ago, first-time buyers represented 27 percent of all buyers.”

And, in a recent Washington Post article, Ken Harney revealed that:

“According to a June 19 Campbell/Inside Mortgage Finance tracking survey, which polls 2,000 real estate agents nationwide, first-time buyers accounted for nearly 39 percent of home purchases in May; that’s the highest level since August 2010.” 

Also, according to American Enterprise Institute's International Center on Housing Risk’s May First-Time Buyer Mortgage Risk Index (FBMRI), the share of first-time buyers stood at an estimated 52.2 percent.

Lawrence Yun, the Chief Economist at NAR explained:

"The return of first-time buyers in May is an encouraging sign and is the result of multiple factors, including strong job gains among young adults, less expensive mortgage insurance and lenders offering low down payment programs."

Bottom Line

It seems that the number of first time buyers is increasing for the first time in a long time. This further lends credence to the fact that the residential housing market is back.

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Debunking Some Myths about Mortgage Availability

There seems to be a growing chasm between what the public believes to be need and what is actually needed to qualify for a residential home loan.

A recent survey by Ipsos reported that:

• Two-thirds of those surveyed believe they need a very good credit score to buy a home, with 45 percent thinking a “good credit score” is over 780.
• Consumers overestimate the down payment funds needed to qualify for a home loan, with 36 percent thinking a 20 percent down payment is always required.

However, according to American Enterprise Institute's International Center on Housing Risk’s May First-Time Buyer Mortgage Risk Index (FBMRI), reality is far from perception. The report reveals:

• 70% of first-time buyer mortgages had a combined loan-to-value ratio of 95% or higher
• About 20% of first-time buyers taking out mortgages had a FICO score below 660
• 25% had total debt-to-income ratios above 43 percent
• The median first-time buyer with an agency mortgage made a down payment of only 3 percent, or $7200 in dollar terms.
• The median FICO score for first-time buyers with agency mortgages was 705
• For first-time buyers with FHA-insured loans, the median FICO score was only 672

These numbers contradict the frequent claims that first-time buyers face difficulties in obtaining mortgages.

Bottom Line

Stephen Oliner, co-director of AEI’s International Center on Housing Risk explained the reality of the situation.

“One hears all the time that first-time buyers have limited access to mortgage debt.  But this isn’t true. Many first-time buyers with low FICO scores and little money down are buying homes every month.”                                

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#1 Reason to Sell Your House Now!

If you are one of the many homeowners out there who are debating putting their house on the market this year, don’t miss out on the great opportunity you have right now!

The latest Existing Home Sales Report from The National Association of Realtors (NAR), reveals that the inventory of homes for sale has dropped to a 5.1-month supply.

Historically, a 6-month supply is necessary for a ‘normal’ market, explained below:

There are more buyers that are ready, willing and able to buy now, than there has been in years! The supply of homes for sale is not keeping up with the demand of these buyers.

Bottom Line

Home prices are appreciating in this seller’s market. Listing now will give you the most exposure to buyers who will be competing against each other to buy your house.

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Equity Report

Some Highlights:

• 85% of homes valued under $200,000 have equity
• 94% of homes valued over $200,000 have equity
• 10.2% of homes with a mortgage are currently underwater

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Sellers Dilemma: OTM, FSBO or List Again?

At the end of June, in every region of the country, hundreds of homeowners have a tough decision to make. The ‘listing for sale agreement’ on their house is about to expire and they now must decide to either take their house off the market (OTM), For Sale by Owner (FSBO) or list it again with the same agent or a different agent.

Let’s assume you or someone you know is in this situation and take a closer look at each possibility:

Taking Your Home off the Market

In all probability, after putting your house on the market and seeing it not sell, you’re going to be upset. You may be thinking that no one in the marketplace thought the house was worthy of the sales price.

Because you are upset, you may start to rationalize that selling wasn’t that important after all and say,

“Well, we didn’t really want to sell the house anyway. This idea of making a move right now probably doesn’t make sense.”

Don’t rationalize your dreams away. Instead, consider the reasons you decided to sell in the first place. Ask your family this simple question:

“What made us originally put our home up for sale?” 

If that reason made sense a few months ago when you originally listed the house, chances are it still makes sense now. Don’t give up on what your family hoped to accomplish or on goals your family hoped to attain.

Just because the house didn’t sell during the last listing contract doesn’t mean the house will never sell or that it shouldn’t be sold.

Re-Listing with your Existing Agent

For whatever reason, your house did not sell. Perhaps you now realize how difficult selling a house may be or that the listing price was too high, or perhaps you’re now acknowledging that you didn’t exactly listen to your agent’s advice.

If that is the case, you may want to give your existing agent a second chance. That’s a perfectly okay thing to do.

However, if your agent didn’t perform to the standard they promised when they listed your home you may want to either FSBO or try a different agent.

For Sale by Owner

You may now believe that listing your house with an agent is useless because your original agent didn’t accomplish the goal of selling the house. Trying to sell the house on your own this time may be alluring. You may think you will be in control and save on the commission.

But, is that true? Will you be able to negotiate each of the elements that make up a real estate transaction? Are you capable of putting together a comprehensive marketing plan? Do people who FSBO actually ‘net’ more money?

If you are thinking about FSBOing, take the time to first read: 5 Reasons You Shouldn’t For Sale by Owner.

List with a New Agent

After failing to sell your home, you may no longer trust your agent or what they say. However, don’t paint all real estate professionals with that same brush. Have you ever gotten a bad haircut before? Of course! Did you stop getting your hair cut or did you simply change hair stylists?

There is good and bad in every profession—good and bad hair stylists, agents, teachers, lawyers, doctors, police officers, etc. And just because there are good and bad in every line of work doesn’t mean you don’t call on others for the products and services you need. You still get your hair cut, see a doctor, talk to a lawyer, send your kids to school, etc.

Bottom Line

You initially believed that using an agent made sense. It probably still does. Let's get together and discuss the possibilities.

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Buy vs Rent: What Really Creates Family Wealth?

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, let's get together and discuss the benefits of signing a contract to purchase over renewing your lease!

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First-Time Homebuyers Lead the Way in May

The National Association of Realtors’ (NAR) latest Existing Home Sales Report revealed that first time homebuyers made up 32% of all sales in the month of May; marking the highest share since September 2012 and up from 27% the same time last year.

NAR’s Chief Economist, Lawrence Yun, cited “strong job gains among young adults, less expensive mortgage insurance and lenders offering low down payment programs,” as contributing factors to the increase in first-time buyers.

Existing-home sales rose 5.1% to a seasonally adjusted rate of 5.35 million. Total housing inventory for sale remains under the 6.0 months needed for a historically normal market at a 5.1 month supply.

Homes sold quickly in May, as 45% of homes sold in less than a month. May also marked the 39thconsecutive month of year-over-year price gains as the median existing home price rose 7.9% above May 2014 to $228,700.

Below is a chart showing the breakdown of price increases by region:

Yun went on to say,

"Solid sales gains were seen throughout the country in May as more homeowners listed their home for sale and therefore provided greater choices for buyers." 

“However, overall supply still remains tight, homes are selling fast and price growth in many markets continues to teeter at or near double-digit appreciation. Without solid gains in new home construction, prices will likely stay elevated — even with higher mortgage rates above 4 percent."

Bottom Line

“More first-time buyers are expected to enter the market in coming months, but the overall share climbing higher will depend on how fast rates and prices rise."

If you are a homeowner considering a move this year, meet with a local real estate agent who can show you the opportunities available right now! Don’t miss out on the influx of new buyers entering the market every day.

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4 Reasons to Buy NOW!

Summer is here! The temperature isn't the only thing heating up right now, so too is the housing market! Here are four great reasons to consider buying a home today instead of waiting.

1. Prices Will Continue to Rise

The Home Price Expectation Survey polls a distinguished panel of over 100 economists, investment strategists, and housing market analysts. Their most recent report projects appreciation in home values over the next five years to be between 11.8% (most pessimistic) and 26.7% (most optimistic).

The bottom in home prices has come and gone. Home values will continue to appreciate for years. Waiting no longer makes sense.

2. Mortgage Interest Rates Are Projected to Increase

Freddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year mortgage have started to inch up, most experts predict that they will begin to rise even more over the next 12 months. The Mortgage Bankers Association, Fannie Mae, Freddie Mac & the National Association of Realtors are in unison projecting that rates will be up approximately three quarters of a percentage point over the next 12 months.

An increase in rates will impact YOUR monthly mortgage payment. Your housing expense will be more a year from now if a mortgage is necessary to purchase your next home.

3. Either Way You are Paying a Mortgage

As a recent 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.”

4. It’s Time to Move On with Your Life

The ‘cost’ of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise.

But, what if they weren’t? Would you wait?

Look at the actual reason you are buying and decide whether it is worth waiting. Whether you want to have a great place for your children to grow up, you want your family to be safer or you just want to have control over renovations, maybe it is time to buy.

Bottom Line

If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could lead to substantial savings.

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