Real Estate Is Still Considered the Best Long-Term Investment
With all the headlines circulating about home prices and rising mortgage rates, you may wonder if it still makes sense to invest in homeownership right now. A recent poll from Gallup shows the answer is yes. In fact, real estate was voted the best long-term investment for the 11th consecutive year, consistently beating other investment types like gold, stocks, and bonds (see graph below):
If you’re thinking about purchasing a home, let this poll reassure you. Even with everything happening today, Americans recognize owning a home is a powerful financial decision.
Why Do Americans Still Feel So Positive About the Value of Investing in a Home?
Purchasing real estate has typically been a solid long-term strategy for building wealth in America. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), notes:
“. . . homeownership is a catalyst for building wealth for people from all walks of life. A monthly mortgage payment is often considered a forced savings account that helps homeowners build a net worth about 40 times higher than that of a renter.”
That’s because owning a home grows your net worth over time as your home appreciates in value and as you pay down your mortgage. And, since building that wealth takes time, it may make sense to start as soon as you can. If you wait to buy and keep renting, you’ll miss out on those monthly housing payments going toward your home equity.
Bottom Line
Buying a home is a powerful decision. So, it’s no wonder so many people view real estate as the best long-term investment. If you’re ready to start on your own journey toward homeownership, let’s connect today.
Keys to Success for First-Time Homebuyers
Buying your first home is an exciting decision and a major milestone that has the power to change your life for the better. As a first-time homebuyer, it’s a vision you can bring to life, but, as the National Association of Realtors (NAR) shares, you’ll have to overcome some factors that have made it more challenging in recent years:
“Since 2011, the share of first-time home buyers has been under the historical norm of 40% as buyers face tight inventory, rising home prices, rising rents and high student debt loads.”
That said, if you’re looking to purchase your first home, here are two things you can consider to help make your dreams a reality.
Save Money with First-Time Homebuyer Programs
Being able to pay for the initial costs and fees associated with homeownership can feel like a major hurdle. Whether that’s getting a loan, being able to put together a down payment, or having money for closing costs – there are a variety of expenses that can make buying your first home feel challenging.
Fortunately, there are a lot of public and private first-time homebuyer programs that can help you get a loan with little-to-no money upfront. CNET explains:
“A first-time homebuyer program can help make homeownership more affordable and accessible by offering lower mortgage rates, down payment assistance and tax incentives.”
In fact, as Bankrate says, many of these programs are offered by state and local governments:
“Many states and local governments have programs that offer down payment or closing cost assistance – either low-interest-rate loans, deferred loans or even forgivable loans (aka grants) – to people looking to buy their first house . . .”
To take advantage of these programs, contact the housing authority in your state and browse sites like Down Payment Resource.
The Supply of Homes for Sale Is Low, So Explore Every Possibility
It’s a sellers’ market, meaning there aren’t enough homes on the market to meet buyer demand. So, how can you be sure you’re doing everything you can to find a home that works for you? You can increase your options by considering condominiums (condos) and townhomes. U.S. News tells us these housing types are often less expensive than single-family homes:
“Condos are usually less expensive than standalone houses . . . They are also less expensive to insure.”
One reason why they may be more affordable is because they’re often smaller. But they still give you the chance to get your foot in the door and achieve your dream of owning and building equity. Beyond that, another major perk is they typically require less maintenance. As U.S. News says in the same article:
“The strongest reason for purchasing a condo is that all external maintenance is usually covered by the condo association, such as landscaping, pool maintenance, external painting, paving, plowing and more. This fee also covers some internal maintenance, such as gas, electric, plumbing, HVAC and other mechanical systems.”
Townhomes and condos are great ways to get into homeownership. Owning your home allows you to build equity, increase your net worth, and can fuel a future move.
The best way to make sure you’re set up for success, especially if you’re just starting out, is to work with a trusted real estate agent. They can educate you on the homebuying process, help you understand your local area to find options that are right for you, and coach you through making an offer in a competitive market.
Bottom Line
Today’s housing market provides some challenges for first-time homebuyers. But, there are still ways to achieve your goals, like utilizing first-time homebuyer programs and considering all of your housing options. Let’s connect so you have an expert on your side who can help you navigate the process.
What You Need To Know About Home Price News
The National Association of Realtors (NAR) will release its latest Existing Home Sales Report tomorrow. The information it contains on home prices may cause some confusion and could even generate some troubling headlines. This all stems from the fact that NAR will report the median sales price, while other home price indices report repeat sales prices. The vast majority of the repeat sales indices show prices are starting to appreciate again. But the median price reported on Thursday may tell a different story.
Here’s why using the median home price as a gauge of what’s happening with home values isn’t ideal right now. According to the Center for Real Estate Studies at Wichita State University:
“The median sale price measures the ‘middle’ price of homes that sold, meaning that half of the homes sold for a higher price and half sold for less. While this is a good measure of the typical sale price, it is not very useful for measuring home price appreciation because it is affected by the ‘composition’ of homes that have sold.
For example, if more lower-priced homes have sold recently, the median sale price would decline (because the “middle” home is now a lower-priced home), even if the value of each individual home is rising.”
People buy homes based on their monthly mortgage payment, not the price of the house. When mortgage rates go up, they have to buy a less expensive home to keep the monthly expense affordable. More ‘less-expensive’ houses are selling right now, and that’s causing the median price to decline. But that doesn’t mean any single house lost value.
Even NAR, an organization that reports on median prices, acknowledges there are limitations to what this type of data can show you. NAR explains:
“Changes in the composition of sales can distort median price data.”
For clarification, here’s a simple explanation of median value:
- You have three coins in your pocket. Line them up in ascending value (lowest to highest).
- If you have one nickel and two dimes, the median value of the coins (the middle one) in your pocket is ten cents.
- If you have two nickels and one dime, the median value of the coins in your pocket is now five cents.
- In both cases, a nickel is still worth five cents and a dime is still worth ten cents. The value of each coin didn’t change.
The same thing applies to today’s real estate market.
Bottom Line
Actual home values are going up in most markets. The median value reported tomorrow might tell a different story. For a more in-depth understanding of home price movements, let’s connect.
Ways To Overcome Affordability Challenges in Today’s Housing Market [INFOGRAPHIC]
Some Highlights
- With so few homes on the market right now, widening the scope of your search to include nearby areas could help you find more options in your budget.
- You can also work with a trusted lender to consider alternative financing options and search for down payment assistance.
- If you’ve been searching for a home but are concerned about rising costs, make sure you have a team of trusted real estate professionals for expert advice.
The Three Factors Affecting Home Affordability Today
There’s been a lot of focus on higher mortgage rates and how they’re creating affordability challenges for today’s homebuyers. It’s true that rates climbed dramatically since the record-low we saw during the pandemic. But home affordability is based on more than just mortgage rates – it’s determined by a combination of mortgage rates, home prices, and wages.
Considering how each one of these factors is changing gives you the full picture of home affordability today. Here’s the latest.
1. Mortgage Rates
While mortgage rates are higher than they were a year ago, they’ve hovered primarily between 6% and 7% for nearly eight months now (see graph below):
As the graph shows, mortgage rates have experienced some volatility during that time. And even a small change in mortgage rates impacts your purchasing power. That’s why it’s so important to lean on your team of real estate professionals for expert advice to stay up to date on what’s happening in the market. While it’s hard to project where mortgage rates will go from here, many experts agree they’ll likely continue to remain around 6%-7% in the immediate future.
2. Home Prices
Over the past few years, home prices appreciated rapidly as the record-low mortgage rates we saw during the pandemic led to a surge in buyer demand. The heightened buyer demand happened while the supply of homes for sale was at record lows, and that imbalance put upward pressure on home prices. However, today’s higher mortgage rates have slowed down price appreciation.
And, the truth is, home price appreciation varies by market. Some areas are seeing slight declines while others have prices that are climbing. As Selma Hepp, Chief Economist at CoreLogic, explains:
“The divergence in home price changes across the U.S. reflects a tale of two housing markets. Declines in the West are due to the tech industry slowdown and a severe lack of affordability after decades of undersupply. The consistent gains in the Southeast and South reflect strong job markets, in-migration patterns and relative affordability due to new home construction.”
To find out what’s happening with prices in your local market, reach out to a trusted real estate agent.
3. Wages
The most positive factor in affordability right now is rising income. The graph below uses data from the Bureau of Labor Statistics (BLS) to show how wages have grown over time:
Higher wages improve affordability because they reduce the percentage of your income it takes to pay your mortgage since you don’t have to put as much of your paycheck toward your monthly housing cost.
Home affordability comes down to a combination of rates, prices, and wages. If you have questions or want to learn more, reach out to a real estate professional who can explain what’s happening locally and how these factors work together.
Bottom Line
If you’re planning to buy a home, knowing the key factors that impact affordability is important so you can make an informed decision. To stay up to date on the latest on each, let’s connect today.