Harvard’s 5 Financial Reasons to Buy a Home

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. Last year, he released a 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 an assortment of social and family reasons. It also makes sense financially.

4 Reasons to Buy Before Winter

It's that time of year, the seasons are changing and with them bring thoughts of the upcoming holidays, family get togethers, and planning for a new year. Those who are on the fence about whether now is the right time to buy don't have to look much farther to find four great reasons to consider buying a home now, 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 released recently projects appreciation in home values over the next five years to be between 11.2% (most pessimistic) and 27.8% (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

Although Freddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year mortgage have softened recently, most experts predict that they will begin to rise later this year. The Mortgage Bankers Association, Fannie Mae, Freddie Mac and the National Association of Realtors are in unison projecting that rates will be up almost a full percentage point by the end of next year.

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.

Gallup Poll: Real Estate Best Long-Term Investment

The Gallup organization conducts an annual report entitled the Economy and Personal Finances Poll, which asks Americans to choose the best option for long-term investment.

It was no surprise that real estate returned to the top position over other investment categories (gold, stocks/mutual funds, savings accounts/CDs and bonds).

Back in 2011, gold was the most popular long-term investment among Americans. However, with the housing market improving across the U.S. and home prices rising, more Americans now consider real estate the best option for long-term investments.

The poll also revealed that real estate was considered to be the best long-term investment by all four subgroups by age and two out of three by income:

 

3 Questions to Ask Before Buying a Home

If you are thinking about purchasing a home right now, you are surely getting a lot of advice. Though your friends and family have your best interests at heart, they may not be fully aware of your needs and what is currently happening in real estate. Let’s look at whether or not now is actually a good time for you to buy a home.

There are three questions you should ask before purchasing in today’s market: 

1. Why am I buying a home in the first place?

This truly is the most important question to answer. Forget the finances for a minute. Why did you even begin to consider purchasing a home? For most, the reason has nothing to do with finances. A study by the Joint Center for Housing Studies at Harvard University reveals that the four major reasons people buy a home have nothing to do with money:

• A good place to raise children and for them to get a good education
• A place where you and your family feel safe
• More space for you and your family
• Control of the space

What non-financial benefits will you and your family derive from owning a home? The answer to that question should be the biggest reason you decide to purchase or not.

2. Where are home values headed?

When looking at future housing values, Home Price Expectation Survey provides a fair assessment. Every quarter, Pulsenomics surveys a nationwide panel of over one hundred economists, real estate experts and investment & market strategists about where prices are headed over the next five years. They then average the projections of all 100+ experts into a single number.

Here is what the experts projected in the latest survey:

• Home values will appreciate by 4% in 2015.
• The cumulative appreciation will be 19.5% by 2018.
• Even the experts making up the most bearish quartile of the survey still are projecting a cumulative appreciation of over 11.2% by 2018.

3. Where are mortgage interest rates headed?

A buyer must be concerned about more than just prices. The ‘long term cost’ of a home can be dramatically impacted by an increase in mortgage rates.

The Mortgage Bankers Association (MBA), the National Association of Realtors, Fannie Mae and Freddie Mac have all projected that mortgage interest rates will increase by approximately one full percentage over the next twelve months.

Bottom Line

Only you and your family can know for certain the right time to purchase a home. Answering these questions will help you make that decision.

Billionaire Says Real Estate is Best Investment Possible

Billionaire money manager John Paulson was interviewed at the Delivering Alpha Conferencepresented by CNBC and Institutional Investor. During his session he boldly stated:

"I still think, from an individual perspective, the best deal investment you can make is to buy a primary residence that you're the owner-occupier of.”

Who is John Paulson?

Paulson is the person who, back in 2005 & 2006, made a fortune betting that the subprime mortgage mess would cause the real estate market to collapse. He understands how the housing market works and knows when to buy and when to sell. What do others think of Paulson?

According to Forbes, John Paulson is:

“A multibillionaire hedge fund operator and the investment genius.”

According to the Wall Street Journal, Paulson is:

“A hedge fund tycoon who made his name, and a fortune, betting against subprime mortgages when no one else even knew what they were.”

Why does he believe homeownership is such a great investment?

Paulson breaks down the math of homeownership as an investment:

"Today financing costs are extraordinarily low. You can get a 30-year mortgage somewhere around 4.5 percent. And if you put down, let's say, 10 percent and the house is up 5 percent, which is the latest data, then you would be up 50 percent on your investment."

How many are seeing a 50% return on a cash investment right now?

Paulson goes on to compare the long term financial benefits of owning verses renting:

“And you’ve locked in the cost over the next 30 years. And today the cost of owning is somewhat less than the cost of renting. And if you rent, the rent goes up every year. But if you buy a 30-year mortgage, the cost is fixed.”

Bottom Line

Whenever a billionaire gives investment advice, people usually clamor to hear it. This billionaire gave simple advice – if you don’t yet live in your own home, go buy one.

Don’t Wait! Move Up to the Home You Always Wanted

Now that the housing market has stabilized, more and more homeowners are considering moving up to the home they have always dreamed of. Prices are still below those of a few years ago and interest rates are still below 5%.

However, sellers should realize that waiting to make the move while mortgage rates are increasing probably doesn’t make sense. As rates increase, the price of the house you can buy will decrease.

Here is a chart detailing this point:

Homeownership: A Few Stats and Quotes

2014 American Express Spending & Saving Tracker

“About two-thirds (65%) of homeowners say they are confident they would get the asking price for their home if they were to put it on the market today (up from 40% in 2010).”

Financial Security Index Survey

“Eighty nine percent of Americans feel that buying a home is an important part of achieving the American Dream.”

“How America Views Homeownership” Survey

“Sixty eight percent of Americans feel that now is a good time to buy a home.”

Housing Confidence Index

“A two-thirds majority of renter households said that owning a home someday is a specific goal that they are determined to reach, or something that they think about a lot."

Fannie Mae

“Homes have accounted for 23.5% of American’s wealth on average since 1959. That’s nearly double the proportion U.S. households and nonprofits have invested in stocks.”

Wall Street Journal

“A measure of owners' equity as a share of the value of real-estate holdings hit 53.6% in the second quarter, up from 53.2% in the first quarter and below 50% a year earlier. For most Americans, a home is their biggest asset, so the growing level of home equity suggests improvements in the economy are now reaching more Americans.”

Moving-Up? Do it NOW not Later

A recent study revealed that the number of existing home owners planning to buy a home this year is about to increase dramatically. Some are moving up, some are downsizing and others are making a lateral move. Another study shows that over 75% of these buyers will, in fact, be in that first category: a move-up buyer. We want to address this group of buyers in today’s blog post.

There is no way for us to predict the future but we can look at what happened over the last year. Let’s look at buyers that considered moving up last year but decided to wait instead.

Assume they had a home worth $300,000 and were looking at a home for $400,000 (putting 10% down they would get a mortgage of $360,000). By waiting, their house appreciated by 13.8% over the last year (national average based on the Case Shiller Pricing Index). Their home would now be worth $341,400. But, the $400,000 home would now be worth $455,200 (requiring a mortgage of $409,680).

Here is a table showing what additional monthly cost would be incurred by waiting:

Prices are projected to appreciate by over 4% and interest rates are also expected to rise by as much as another full percentage point. If your family plans to move-up to a nicer or bigger home this year, it may make sense to move now rather than later.

Hoarding Homeowners Present Challenges for Agents

We welcome back Nikki Buckelew as our guest contributor today.

Congratulations! You received a “come list me”call from one of your mailings and have just scheduled a new listing appointment!

The home is located in a highly sought after part of town where the property values have steadily increased and homes are selling quickly. The homeowner tells you that the home is free-and-clear and that she is moving to another state to live with her daughter. You are already thinking to yourself, “Why can’t they all be this easy?”

The CMA is complete, your listing package is updated with all the latest KCM materials, and there is a shiny new sign loaded in the trunk. You put on your lucky suit, plug the address in the GPS, and hit every light on green, arriving at the home with plenty of time to spare. It’s proving to be a most glorious day in real estate.

As you sit in the car and rehearse your listing scripts one last time, you observe the exterior, noting that while it’s an older home it’s got excellent curb appeal. There may be a few notable areas of deferred maintenance, but overall, it’s certainly a marketable property.

Time to meet the owner.

Briefcase in hand and game face on, you walk to the front door and ring the bell. An older woman greets you with a warm welcome and a reluctant smile. Before inviting you inside, she mentions that she hasn’t been feeling well lately and so the house is not as tidy as she would have liked. You assure her that this is “no problem” and that you are there only to discuss her home and not her housekeeping.

Upon entering the house, you quickly realize that the older woman’s idea of tidy and yours may differ slightly. Not only is the home untidy, but it is filled floor-to-ceiling and wall-to-wall with “stuff.” You look around and see stacks of newspapers, magazines, and old tissue boxes everywhere and the counters are covered with variety of both new and used items. Before you even realize it, you are following the homeowner down a narrow trail of worn carpet (worn through to the slab) making your way to the dining room. There are piles of clothes and miscellaneous items covering virtually every piece of furniture and the woman directs you to a chair that she has cleared especially for your visit. You swallow hard and reluctantly sit.

Once again the woman apologizes for the condition of the home and thanks you for coming.

If you have ever been on a listing appointment that resembles this description, you may actually be feeling some of the same strong emotions that this experience evoked in you that day right now. And if you haven’t encountered such a scenario, just wait — your time will come.

Statistically, as our aging population continues to increase, so will the number of listings you will likely encounter involving hoarding.

• Studies show that while the hoarding behaviors often begin in adolescence, they worsen with age. The highest prevalence of extreme hoarding exists primarily in the over 55 age group.
• The National Association of Realtors reported in 2013 that 1 in 4 home sellers was over the age of 65 and that 14% were over 75.

Below are some basic tips for when you encounter hoarding situations:

Get support.

If the client has supportive family members who are willing to assist, engage them in the process early. Get permission from your client to contact them — at the very least, they can provide insight into any other issues (or agencies) that may be involved.

Be patient.

This person did not become a hoarder over night — this has likely been a lifelong issue and their ability and willingness to make a move will not usually come easily. It is more likely that they are moving out of necessity rather than desire.

Provide resources.

Especially when a client doesn’t have a caregiver or family on whom to rely, you will want to connect them with local resources to assist them with the transition.

Sign a listing contract.

In many cases this can be a lengthy process and because you will likely be doing work beyond the scope of real estate, you will want to secure the listing to insure that you are compensated.

Refer to a specialist.

Some agents choose to refer hoarders to an agent specializing in seniors: Certified Senior Housing Professional (CSHP), Seniors Real Estate Specialist (SRES), or in Canada, Accredited Senior Agent (ASA). These agents have training specifically related to the issues facing older adult buyers and sellers and are typically equipped with local resources for helping them.

The local and national agencies listed below can also direct you to services available in your area:

Administration on Aging (AOA)

This link will direct you to a search for your local Area Agency on Aging (AAA).

National Center on Elder Abuse

Search this site for issues related to elder abuse or neglect and to locate the local listings for Adult Protective Services (APS).

National Association of Senior Move Managers

This organization can assist you in locating a Senior Move Manager® who is trained in assisting clients with the de-cluttering and downsizing process.

Real Estate Teams Jumping onto the Seniors Real Estate Bandwagon

Today we are happy to have Nikki Buckelew back as our guest blogger. Nikki is the Founder and CEO of the Seniors Real Estate Institute. 

Expanding into the seniors real estate niche: Good business sense for teams

More and more real estate teams – both small and large – are beginning to consider the idea of expanding into the seniors real estate market. Unlike most solo-agents, teams typically have administrative support, consistent marketing campaigns, established branding, and diversity within their team members. This foundational structure can potentially provide the basis for a highly successful seniors real estate division when approached correctly.

What exactly does “correctly” look like?

Naturally, what I am about to share is a matter of opinion and certainly open to scrutiny, however, as a seniors real estate professional, coach, broker, manager, and trainer, I have seen a lot of agents over the past 20 years attempt to master the mature market (75+ segment) and have observed certain key elements that have ultimately lead to either extreme successes or failures.

So, before you hastily rush to post comments to counter any of the points I share below, remember that there are exceptions to every rule and that everyone has a different definition of success. Mine is only one, and since this happens to be my blog post, here goes.

A definition of “success” as it relates to teams serving the seniors real estate market.

Successful seniors real estate teams are those who:

• Capture a significant percentage of sales involving downsizing seniors in their market.
• Receive a steady stream of mature home buyer and seller referrals from their sphere of influence, aging services providers, senior living communities, and online sources.
• Have achieved brand recognition in their market as the icon for seniors real estate (a.k.a. the go-to real estate agent and/or team for seniors real estate).
• Are featured regularly by local media sources as reputable real estate agents and community minded advocates for seniors in their city or town.
• Attract business opportunities from various influential organizations and leaders who want to better prepare for the Senior Tsunami.

It doesn’t happen by accident.

Teams who reach this level of success don’t do so without employing an intentional plan of action and a variety of long-term systematic strategies.

The top 10 strategies of successful teams:

1. Employ a key team member having undergone advanced training and who serves as the point of contact for downsizing senior adult clients.
2. Conduct ongoing team education concerning the issues facing the older segment, family members, and caregivers – including effective communication skills.
3. Make necessary modifications of typical real estate systems to address any special needs of older adult clients such as showing policies, paperless contracts and e-signing, home staging, and closing procedures.
4. Offer concierge services available to older adult clients beyond those included with traditional real estate services.
5. Collaborate with vetted subject-matter experts and contractors providing non-real estate related specialized services.
6. Achieve mastery of the local 55+ housing market and retirement community options — both for sale and for lease.
7. Are involved in networking and activities within the larger aging services community — adding value and volunteering for non-real estate related activities.
8. Provide community education related to the concerns facing today’s seniors and their families.
9. Create a consistent online presence by sharing relevant web and blog content related to aging and senior housing issues.
10. Gain media attention through regular news releases and/or advertising.

While these top ten strategies, when effectively employed, may lead to a certain level of success in seniors’ real estate, there is one additional key component necessary for those who seek to sustain lasting market share within this segment.

This final ingredient is one that can’t be taught in any training program, yet it is the most critical component required for long-term success working within the mature market segment.

It is what sets the average apart from the extraordinary and the short-lived from the life-long.

Motivation

Teams where the leader/rainmaker and the team members share a true passion and appreciation for older adults and their challenges — including the willingness to maintain the fiduciary role, placing the elder’s best interests above all else — will rise to the top of the market as agent icons in seniors real estate.

It is these teams (team members) who will change lives, make a positive difference in their communities, and ultimately leave lasting legacies affecting future generations.

And that, my friends, is the definition of true success.