The Cost of a Home Is Far More Important than the Price

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Housing inventory is at an all-time low. There are 39% fewer homes for sale today than at this time last year, and buyer demand continues to set

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records. Zillow recently reported:

“Newly pending sales are up 25.5% compared to the same week last year, the highest year-over-year increase in the weekly Zillow database.”

Whenever there is a shortage in the supply of an item that’s in high demand, the price of that item increases. That’s exactly what’s happening in the real estate market right now. CoreLogic’s latest Home Price Index reports that values have increased by 5.5% over the last year.

This is great news if you’re planning to sell your house; on the other hand, as either a first-time or repeat buyer, this may instead seem like troubling news. However, purchasers should realize that the price of a house is not as important as the cost.  Let’s break it down.

There are several factors that influence the cost of a home. The two major ones are the price of the home and the interest rate at which a buyer can borrow the funds necessary to purchase the home.

Last week, Freddie Mac announced that the average interest rate for a 30-year fixed-rate mortgage was 2.87%. At this time last year, the rate was 3.73%. Let’s use an example to see how that difference impacts the true cost of a home.

Assume you purchased a home last year and took out a $250,000 mortgage. As mentioned above, home values have increased by 5.5% over the last year. To buy that same home this year, you would need to take out a mortgage of $263,750.

How will your monthly mortgage payment change based on today’s lower mortgage rate?

This table calculates the difference in your monthly payment:

 

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That’s a savings of $61 monthly, which adds up to $732 annually and $21,960 over the life of the loan.

Bottom Line

Even though home values have appreciated, it’s a great time to buy a home because mortgage rates are at historic lows.

For a hassle-free mortgage consultation, contact Aaron Redberg with United Family Mortgage in Elk River at 763-568-0973.

#1 Answer to the Housing Shortage

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#1 Answer to the Housing Shortage: New Construction

The biggest challenge to today’s housing market is the shortage of housing inventory for sale. A normal market would see a six-month supply of homes for sale. Currently, that number is below four months. This is the major reason home prices have continued to appreciate at higher levels than historic averages.

The good news is that builders are now starting to build more homes in lower price ranges.

Builder Confidence is Up

The Housing Market Index from the National Association of Home Builders (NAHB) reveals that builder confidence increased last month. HousingWire quoted NAHB Chief Economist Robert Dietz about the reason for the increase in confidence amongst builders.

“The HMI measure of future sales conditions reached its highest level since June 2005, a sign of growing consumer confidence in the new home market. Especially as existing home inventory remains tight, we can expect increased demand for new construction moving forward.”

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Builders are not only jumping into the market – they are doing a better job of matching current demand. The Wall Street Journal recently reported:

“In a shift, new households are overwhelmingly choosing to buy rather than rent. Some 854,000 new-owner households were formed during the first three months of the year, more than double the 365,000 new-renter households formed during the period, according to Census Bureau data.”

The WSJ article went on to say:

“Home builders are beginning to shift their focus away from luxury homes and toward homes at lower price points to cater to this burgeoning millennial clientele.”

The graph below compares 2016 to 2017 new construction sales by price point. As we can see, builders are slowly beginning to shift to prices more favorable to the first-time and non-luxury buyer.

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Bottom Line

There is a drastic need for a larger supply of home inventory to meet the skyrocketing demand. Builders are finally doing their part to help rectify this situation.

For a Hassle-Free consultation with United Family Mortgage on: Home Refinancing, First-Time Home Buyer Mortgage, Zero-Down Mortgage, Home Construction Loan or VA Home Loan, contact DJ Riley today at 763-276-3960 or via email djriley@unitedfamilymortgage.com.

 

*Re-posted by: https://www.mykcm.com/2017/05/18/1-answer-to-the-housing-shortage-new-construction/

How Much House Can You Afford?

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A mortgage broker can help you quickly determine how much house you can afford.

To schedule a hassle-free phone consultation, contact DJ Riley, click here.

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6 Things NOT TO DO When Applying for a Mortgage

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Don’t make major purchases, like a new car. Consult with a mortgage broker.

To schedule a hassle-free phone consultation, contact DJ Riley, click here.

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Dispelling the Myth About Home Affordability

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Pull Back the Curtain on the Myth

We have all seen the headlines that report that buying a home is less affordable today than it was at any other time in the last ten years, and those headlines are accurate. But, have you ever wondered why the headlines don’t say the last 25 years, the last 20 years, or even the last 11 years?

The reason is that homes were less affordable 25, 20, or even 11 years ago than they are today.

Obviously, buying a home is more expensive now than during the ten years immediately following one of the worst housing crashes in American history.

Over the past decade, the market was flooded with distressed properties (foreclosures and short sales) that were selling at 10-50% discounts. There were so many distressed properties that the prices of non-distressed properties in the same neighborhoods were lowered and mortgage rates were kept low to help the economy.

Low Prices + Low Mortgage Rates = High Affordability

Prices have since recovered and mortgage rates have increased as the economy has gained strength. This has and will continue to impact housing affordability moving forward.

However, let’s give affordability some historical context. The National Association of Realtors (NAR) issues their Affordability Index each month. According to NAR:

“The Monthly Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent monthly price and income data.”

NAR’s current index stands at 138.8. The index had been higher each of the last ten years, peaking at 197 in 2012 (the higher the index the more affordable houses are).

But, the average index between 1990 and 2007 was just 123 and there were no years with an index above 133. That means that homes are more affordable today than at any time during the eighteen years between 1990 and 2007.

Bottom Line

With home prices continuing to appreciate and mortgage rates increasing, home affordability will likely continue to slide. However, this does not mean that buying a house is not an attainable goal in most markets as it is less expensive today than during the eighteen-year stretch immediately preceding the housing bubble and crash.

To schedule a hassle-free mortgage consultation, contact DJ Riley today at 763-276-3960, or via email @ djriley@unitedfamilymortgage.com.  Mortgage Broker Monticello | Mortgage Broker Ramsey | Mortgage Broker Elk River | Mortgage Broker Otsego | Mortgage Broker Rogers | Mortgage Broker Big Lake | Mortgage Broker Zimmerman | Mortgage Broker Albertville | Mortgage Broker St. Michael

The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Keeping Current Matters, Inc. does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Keeping Current Matters, Inc. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.

75% of Renters Have Been Misinformed

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Recently, multiple headlines have been written asserting that homeownership is less affordable today than at any other time in the last decade. Though the headlines are accurate, they lack context and lead too many Americans to believe that they can’t partake in a major part of the American Dream – owning a home.

In 2008, the housing market crashed and home values fell by as much as 60% in certain markets. This was the major trigger to the Great Recession we experienced from 2008 to 2010. To come back from that recession, mortgage interest rates were pushed down to levels that were never seen before.

For the last ten years, you could purchase a home at a dramatically discounted price and attain a mortgage at a historically low mortgage rate.

Affordability skyrocketed.

Now that home values have returned to where they should be, and mortgage rates are beginning to increase, it is less affordable to own a home than it was over the last ten years.

However, what is not being reported is that it is MORE AFFORDABLE to own a home today than at any other time since 1985 (when data was first collected on this point).

If you take out the years after the crash, affordability today is greater than it has been at almost any time in American history.

This has not been adequately reported which has led to many Americans believing that they cannot currently afford a home.

As an example, the latest edition of Freddie Mac’s Research: Profile of Today’s Renter reveals that 75% of renters now believe it is more affordable to rent than to own their own homes. This percentage is the highest ever recorded. The challenge is that this belief is incorrect. Study after study has proven that in today’s market, it is less expensive to own a home than it is to rent a home in the United States.

Thankfully, some are starting to see this situation and accurately report on it. The National Association of Realtors, in their 2019 Housing Forecast, mentions this concern:

“While the U.S. is experiencing historically normal levels of affordability, potential buyers may be staying out of the market because of perceived problems with affordability.”

Bottom Line

If you are one of the many renters who would like to own their own homes, let’s get together to find out if homeownership is affordable for you right now.

To schedule a hassle-free mortgage consultation, contact DJ Riley today at 763-276-3960, or via email @ djriley@unitedfamilymortgage.com.  Mortgage Broker Monticello | Mortgage Broker Ramsey | Mortgage Broker Elk River | Mortgage Broker Otsego | Mortgage Broker Rogers | Mortgage Broker Big Lake | Mortgage Broker Zimmerman | Mortgage Broker Albertville | Mortgage Broker St. Michael

The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Keeping Current Matters, Inc. does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Keeping Current Matters, Inc. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.