Attaining The American Dream: The 5 Financial Reasons to Buy | Simplifying The Market

Attaining the American Dream: The 5 Financial Reasons to Buy

We have reported many times that the American Dream of homeownership is alive and well. The personal reasons to own differ for each buyer, with many basic similarities.

Eric Belsky, the Managing Director of the Joint Center of Housing Studies at Harvard University expanded on the top 5 financial benefits of homeownership his paper – The Dream Lives On: the Future of Homeownership in America.

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Does Homeownership Make Sense Financially?

Does Homeownership Make Sense Financially? | Simplifying The Market

Everyone knows the social advantages of home ownership. However, some question the financial benefits of owning a home. Three recent studies shed some light on the issue.

RealtyTrac recently released a report comparing home price appreciation to wage growth over the last two years. The study revealed that home price appreciation has outpaced wage growth in 76% of U.S. housing markets during that time period. By how much? Here is a graph showing their findings:

Prices vs Wages | Simplifying The Market

And we all know the importance of home appreciation in determining the net wealth of most American families. Merrill Lynch just issued a report covering the issue. Their findings are shown here:

Home Equity | Simplifying The Market

It obviously makes financial sense to be a homeowner.

But, does it make sense to buy now?

The survey company Pulsenomics just issued their findings on the cost of owning versus the cost of renting. They compared historical averages to the cost you can expect to pay today.

Buy vs Rent | Simplifying The Market

The cost of buying is far below historical averages. Renting is another story.

3 Questions to Ask Yourself Before Buying A Home

3 Questions To Ask Yourself Before Buying A Home | Simplifying The Market

If you are debating purchasing a home right now, you are surely getting a lot of advice. Though your friends and family will have your best interest 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 3 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 100 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 4.4% in 2015.
  • The cumulative appreciation will be 19.3% by 2019.
  • Even the experts making up the most bearish quartile of the survey still are projecting a cumulative appreciation of over 11.7% by 2019.

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 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.

Is Getting a Mortgage Getting Easier?

Is Getting a Mortgage Getting Easier? | Simplifying The Market

There has been a lot of discussion about how difficult it is to get a home mortgage in this market. There is no doubt that the process is not as easy as it was eight to ten years ago and that’s probably good news. However, it does appear that availability to mortgage money is increasing with each passing day.

The Mortgage Bankers’ Association publishes the Mortgage Credit Availability Index (MCAI). According to their site the index is “a summary measure which indicates the availability of mortgage credit at a point in time”. As we can see from the graph below, mortgage availability has been increasing dramatically over the last six months.

Mortgage Availability | Simplifying The Market

Accompanying the latest index was this comment from Mike Fratantoni, MBA’s Chief Economist:

“A number of factors contributed to a loosening of credit in March: Freddie Mac’s introduction of their 97 LTV program (Fannie Mae’s was implemented in December) [and the] additional loosening of parameters on jumbo loan programs… Although credit remains tight by historical standards, this increase in availability, coupled with low rates and job market strength, should lead to stronger home purchase activity this spring.”

Bottom Line

If you have remained on the sidelines regarding homeownership because you were concerned about your ability to qualify for a mortgage, it may be time to get into the game.