Some Highlights:
With home prices expected to appreciate by over 5% this year, some are beginning to worry about a new housing bubble forming. Warren Buffet addressed this issue last week in an article by Fortune Magazine. He simply explained:
“I don’t see a nationwide bubble in real estate right now at all.”
Later, when questioned whether real estate and/or mortgaging could present the same challenges for the economy as they did in 2008, Buffet said:
I don’t think we will have a repeat of that.”
What factors are driving home prices up?
It is easily explained by the theory of supply and demand. There is a lack of housing inventory for sale while demand for that inventory is very strong. According to a recent survey of agentsby the National Association of Realtors (NAR), buyer traffic was seen as either “strong” or “very strong” in 44 of the 50 states (the exceptions being: Alaska, Wyoming, North Dakota, West Virginia, Connecticut and Delaware).
Also, in NAR’s latest Pending Home Sales Report, it was revealed that the index was the highest it has been in a year.
What does the future bring?
As prices rise, more families will have increased equity in their homes which will enable them to put their home on the market. As more listings come to market, price increases should slow to more normal levels.
Anand Nallathambi, President & CEO of CoreLogic, recently addressed the issue:
“Home price gains have clearly been a driving force in building positive equity for homeowners. Longer term, we anticipate a better balance of supply and demand in many markets which will help sustain healthy & affordable home values into the future.”
The Gallup organization recently released a survey in which Americans were asked to rank what they considered to be the “best long term investment.” Real estate ranked number one, with 35% of those surveyed saying it was a better long term investment than stocks & mutual funds, gold, savings accounts or bonds.
Here is the breakdown:
The survey revealed that real estate was the number one choice among each of the following groups:
Even stock investors ranked real estate number one. According to the report:
“With housing prices showing a steadier path upward in recent months, even stock investors are about as likely…to choose real estate (37%) as stocks (32%) as the best long-term investment.”
I will be posting an infographic showing additional findings revealed in the report.
The price of any item is determined by the supply of that item, and the market demand. The National Association of Realtors (NAR) recently released their latest Existing Home Sales Reportwhich gives insight into today’s market conditions.
Inventory Levels & Demand
Sales of existing homes rose 5.1% month-over-month in March and are 1.5% higher than this time last year. Sales rose in all four major regions in March.
Total unsold housing inventory is 1.5% lower than March 2015 at a 4.5-month supply and remains well below the six months that is needed for a historically normal market.
Consumer confidence is at the highest level in over a decade. Pair that with interest rates still below 4%, programs available for down payments as low as 3%, and you have an attractive market for buyers.
Homes sold in March were on the market for an average of 47 days and 42% of properties sold in less than a month.
Prices Rising
March marked the 49th consecutive month of year-over-year price gains as the median price of existing homes sold rose to $210,700 (up 5.7% from 2015).
So What Does This Mean?
The chart below shows the impact that inventory levels have on home prices.
NAR’s Chief Economist, Lawrence Yun gave some insight into the correlation:
"Buyer demand remains sturdy in most areas this spring and the mid-priced market is doing quite well. However, sales are softer both at the very low and very high ends of the market because of supply limitations and affordability pressures."
Bottom Line
If you are debating putting your home on the market in 2016, now may be the time. The number of buyers ready and willing to make a purchase is at the highest level in years. Let's meet up so we can get the process started.
Three years ago, John Paulson gave a keynote address at the CNBC/Institutional Investor Conference. In his speech, he told those in attendance that he believes housing will continue its strong recovery for the next 4 to 7 years, saying that:
"The housing market has bottomed. It's not too late to get involved. I still think buying a home is the best investment any individual can make. Affordability is still at an all-time high."
When asked how the average person could take advantage of the current real estate market at the time, Paulson said:
Buy a home and, if you can, buy a second home.”
Two years ago, Paulson reiterated his statement, saying:
"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 and why should you listen to him?
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.”
So… Is what he said still true?
The core reasons behind Paulson’s statements still ring true today, but why does he believe homeownership is such a great investment?
Paulson broke down the math of homeownership as an investment:
1. "Today financing costs are extraordinarily low.”
The latest numbers from Freddie Mac show us that you can still get a 30-year mortgage at historically low rates of under 4%.
2. “And if you put down, let's say, 10 percent and the house is up 5 percent,” as many experts predict, “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 versus renting:
3. “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.
A survey by Ipsos found that the American public is still somewhat confused about what is actually necessary to qualify for a home mortgage loan in today’s housing market. The study pointed out two major misconceptions that we want to address today.
1. Down Payment
The survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 36% think a 20% down payment is always required. In actuality, there are many loans written with a down payment of 3% or less.
Many renters may actually be able to enter the housing market sooner than they ever imagined with new programs that have emerged allowing less cash out of pocket.
2. FICO Scores
The survey also reported that two-thirds of the respondents believe they need a very good credit score to buy a home, with 45 percent thinking a “good credit score” is over 780. In actuality, the average FICO scores of approved conventional and FHA mortgages are much lower.
The average conventional loan closed in March had a credit score of 753, while FHA mortgages closed with a 685 score. The average across all loans closed in March was 722. The graph below shows how the average FICO Score required has come down over the last 12 months and has stayed around 722 for the last six months.
If you are a prospective buyer who is ‘ready’ and ‘willing’ to act now, but are not sure if you are ‘able’ to, sit down with a professional who can help you understand your true options.
The National Association of Realtors recently released their 2016 Investment and Vacation Home Buyers Survey. The survey revealed many characteristics of both vacation home purchasers and investors.
Read MoreStay tuned for great content starting in May 2016!
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