It seems you can’t find a headline with the term “housing affordability” without the word “crisis” attached to it. That’s because some only consider the fact that residential real estate prices have continued to appreciate. However, we must realize it’s not just the price of a home that matters, but the price relative to a purchaser’s buying power.

Homes, in most cases, are purchased with a mortgage. The current mortgage rate is a major component of the affordability equation. Mortgage rates have fallen by over a full percentage point since December 2018. Another major piece of the affordability equation is a buyer’s income. The median family income has risen by 3.5% over the last year.

Let’s look at three different reports issued recently that reveal how homes are very affordable in comparison to historic numbers, and how they have become even more affordable over the past several months.

1. National Association of Realtors’ (NAR) Housing Affordability Index:

Here is a graph showing the index going all the way back to 1990. The higher the column, the more affordable homes are:We can see that homes are less affordable today (the green bar) than they were during the housing crash (the red bars). This was when distressed properties like foreclosures and short sales saturated the market and sold for massive discounts. However, homes are more affordable today than at any time from 1990 to 2008.

NAR’s report on the index also shows that the percentage of a family’s income needed for a mortgage payment (16.5%) is dramatically lower than last year and is well below the historic norm of 21.2%.

2. Black Knight’s Mortgage Monitor:

This report reveals that as a result of falling interest rates and slowing home price appreciation, affordability is the best it has been in 18 months. Black Knight Data & Analytics President Ben Graboske explains:

“For much of the past year and a half, affordability pressures have put a damper on home price appreciation. Indeed, the rate of annual home price growth has declined for 15 consecutive months. More recently, declining 30-year fixed interest rates have helped to ease some of those pressures, improving the affordability outlook considerably…And despite the average home price rising by more than $12K since November, today’s lower fixed interest rates have worked out to a $108 lower monthly payment...Lower rates have also increased the buying power for prospective homebuyers looking to purchase the average-priced home by the equivalent of 15%.”

3. First American’s Real House Price Index:

While affordability has increased recently, Mark Fleming, First American’s Chief Economist explains:

“If the 30-year, fixed-rate mortgage declines just a fraction more, consumer house-buying power would reach its highest level in almost 20 years.”

Fleming goes on to say that the gains in affordability are about mortgage rates and the increase in family incomes:

“Average nominal household incomes are nearly 57 percent higher today than in January 2000. Record income levels combined with mortgage rates near historic lows mean consumer house-buying power is more than 150 percent greater today than it was in January 2000.”

Bottom Line

If you’ve put off the purchase of a first home or a move-up home because of affordability concerns, you should take another look at your ability to purchase in today’s market. You may be pleasantly surprised!

Every three years, the Federal Reserve conducts its Survey of Consumer Finances. Data is collected across all economic and social groups. The latest survey data covers 2013-2016.

The study revealed that the median net worth of a homeowner is $231,400 – a 15% increase since 2013. At the same time, the median net worth of renters decreased by 5% ($5,200 today compared to $5,500 in 2013).

These numbers reveal that the net worth of a homeowner is over 44 times greater than that of a renter.

Owning a home is a great way to build family wealth.

As we’ve said before, simply put, homeownership is a form of ‘forced savings.’ Every time you pay your mortgage, you are contributing to your net worth by increasing the equity in your home.

That is why Gallup reported Americans picked real estate as the best long-term investment for the sixth year in a row. According to this year’s results, 35% of Americans chose real estate. Stocks followed at 27%, then savings accounts and gold.

Bottom Line

If you want to find out how you can use your monthly housing cost to increase your family’s wealth, let’s get together to help you through the process.

Whether you’ve owned a home before, or you’re ready to jump into homeownership for the first time, there are always a lot of questions swirling around about what is truly required for a down payment, and how to best source down payment assistance. Let’s tackle these two today.

1. How much do you really need for a down payment?

There is a long-standing misconception about down payment requirements. A survey from Fannie Mae shows only 17% of consumers know the minimum options are actually between 1 - 5% of the purchase price and 40% don’t know how much they need at all.There are many mortgage loans available that require as little as 3% down for first-time buyers, and some ask for only 3.5% down from repeat buyers. There are even loans available for Veterans that provide 0% down payment options too.

We’ve mentioned recently that you don’t need to come up with a 20% down payment to buy, and we’ve also shared how quickly you can save for a 3% or 10% down payment, depending on where you live. If you’re planning to put down just 3%, the research shows it may be possible in most states to have enough saved for a down payment in less than a year. That puts homeownership in a much closer reach for many potential buyers, maybe even you!

2. How can I get help with my down payment?

Regardless of the loans available, many buyers still need assistance with a down payment. The great news is, there are a lot of ways to tap into down payment assistance options. Here are just a couple of them:

Assistance from Family Members

The National Association of Realtors (NAR) said, “a third of recent first-time buyers received down payment assistance from family members.” They also mentioned, “the average net worth of those aged 75 and over stands at $264,800...They just might offer the boost the next generation needs to become homeowners.”

That means one of the ways to find help with a down payment is to accept a gift from a family member. If this is an option for you, make sure you talk to your loan officer before you accept the money, to ensure you document the process the way it is required by your loan. This way, it will be received properly and you can still potentially qualify.

Down Payment Assistance Programs

The reality is, not everyone has a loved one or a family member who can provide help with a down payment. There are, however, more than 2,500 down payment assistance programs available (by local areas like city, county, or neighborhood), and some of them are even specifically for first-time buyers.

The gap, as mentioned in the same survey, is “only 23% of consumers are familiar with low down payment programs.”

That’s why it is so important to get familiar with these options by doing your homework before you plan to buy a home. Determine what is available in the area where you ultimately want to live, so you have all the details you need to take advantage of the down payment assistance option that is best for your family.

Bottom Line

If buying a home is one of your long-term goals, you may be able to get there sooner than you think by tapping into one of the many down payment assistance programs available.

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On his personal website, self-made millionaire David Bach makes a striking statement:

 “Not prioritizing homeownership is the single biggest mistake millennials are making.” 

He further stated, “Buying a home is an escalator to wealth.”

Bach explains:

“Young adults in particular aren’t hopping on this escalator, and it’s a costly mistake…If millennials don’t buy a home, their chances of actually having any wealth in this country are little to none.”

He then elaborates on the game of homeownership:

“Start by crunching the numbers…actually do the math...This way, you’re really clear on your goals and you won’t just say to yourself, ‘I’ll never afford this!'

A good rule of thumb is to make sure your total monthly housing payment doesn’t consume more than 30 percent of your take-home pay.”

Bach concludes by saying,

“Oftentimes, buying your first home means you’re not buying your dream home…You’re just getting into the market.”

Bottom Line

Whenever a well-respected millionaire gives investment advice, listeners usually clamor to hear it. This millionaire shares some simple and straightforward insights: “The fact is, you aren’t really in the game of building wealth until you own some real estate.”

Who is David Bach?

Bach is a self-made millionaire who has written nine consecutive New York Times bestsellers. His book, “The Automatic Millionaire,” spent 31 weeks on the New York Times bestseller list. He is one of the only business authors in history to have four books simultaneously on the New York Times, Wall Street Journal, BusinessWeek, and USA Today bestseller lists.

He has been a contributor to NBC’s Today Show, appearing more than 100 times, as well as a regular on ABC, CBS, Fox, CNBC, CNN, Yahoo, The View, and PBS. He has also been profiled in many major publications, including the New York Times, BusinessWeek, USA Today, People, Reader’s Digest, Time, Financial Times, Washington Post, Wall Street Journal, Working Woman, Glamour, Family Circle, Redbook, Huffington Post, Business Insider, Investors’ Business Daily, and Forbes.

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As a homeowner, it’s always tempting to dream about the next big project you’re going to tackle. The possibilities are endless. Should I renovate? Should I refinance? Should I stay? Should I move? The list goes on and on.

In today’s housing market, it’s actually a great time to shift your thoughts toward selling your house and moving up into the home of your dreams. Here’s why:

Inventory is on the rise, but there’s still an overall shortage of houses for sale (less than a 6-month supply found in a more normal market), so homes are going under contract quickly. In fact, the National Association of Realtors (NAR) Realtors® Confidence Index Survey reports that right now homes are only staying on the market for an average of 27 days. That’s less than one month, an even more accelerated pace from the 36-day trend we saw last spring.The same report also indicates there are more interested buyers than active sellers today, which is one of the big factors driving home prices higher.This power combination provides an ideal environment for sellers aiming to close a quick sale and earn a big return as we wrap up the summer season.

Bottom Line

There’s still time to make a move before the school year starts and the fall weather sets in. Maybe it’s time to make a change. Let’s get together to determine if selling now is the right decision for your family.

If you are interested in advice on selling your home, give the Freund Group a call 281-479-6683.

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Many of the questions currently surrounding the real estate industry focus on home prices and where they are heading. The most recent Home Price Expectation Survey (HPES) helps target these projected answers.

Here are the results from the Q2 2019 Survey:

• Home values will appreciate by 4.1% in 2019
• The average annual appreciation will be 3.2% over the next 5 years
• The cumulative appreciation will be 16.8% by 2023
• Even experts representing the most “bearish” quartile of the survey project a cumulative appreciation of over 6.7% by 2023

What does this mean for you?

A substantial portion of family wealth comes from home equity. As the value of a family’s home (an asset) increases, so does their equity.

Using the projections from the HPES, here is a look at the potential equity a family could earn over the next five years if they purchased a $250,000 home in January of 2019:Based on gains in home equity, their family wealth could increase by $42,000 over that five-year period.

Bottom Line

If you don’t yet own a home, now may be the time to purchase. Owning or moving up to your dream home could allow you to ride the increase in equity of a growing asset.

Home Price Expectation survey - Every quarter, Pulsenomics surveys a distinguished panel of over 100 economists, investment strategists, and housing market analysts regarding their 5-year expectations for future home prices in the United States.

If you are interested in advice on selling your home, give the Freund Group a call 281-479-6683.

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