The REAL Reasons Americans Buy a Home

The REAL Reasons Americans Buy a Home | Simplifying The Market

Last week, we reported on the financial reasons that the New York Times felt that homeownership was important. The Joint Center for Housing Studies at Harvard University performs a study every year surveying participants for the reasons that American’s feel are most important in regards to homeownership.

There’s No Place Like Home

The top 4 reasons to own a home cited by respondents were not financial.

1. It means having a good place to raise children & provide them with a good education

From the best neighborhoods to the best school districts, even those without children at the time of purchasing their home, may have this in the back of their mind as a major reason for choosing the location of the home that they purchase.

2. You have a physical structure where you & your family feel safe

It is no surprise that having a place to call home with all that means in comfort and security is the #2 reason.

3. It allows you to have more space for your family

Whether your family is expanding, or an older family member is moving in, having a home that fits your needs is a close third on the list.

4. It gives you control over what you do with your living space, like renovations and updates

Looking to actually try one of those complicated wall treatments that you saw on Pinterest? Want to finally adopt that puppy or kitten you’ve seen online 100 times? Who’s to say that you can’t in your own home?

The 5th reason on the list, is the #1 financial reason to buy a home as seen by respondents:

5. Owning a home is a good way to build up wealth that can be passed along to my family

Either way you are paying a mortgage. Why not lock in your housing expense now with an investment that will build equity that you can borrow against in the future?

Bottom Line

Whether you are a first time homebuyer or a move-up buyer who wants to start a new chapter in their life, the holiday season is a great time to reflect on the intangible factors that make a house a home.

Do You Fit the Description of the Typical First Time Homebuyer?

Do You Fit the Description of the Typical First Time Homebuyer? | Simplifying The Market

There are many people sitting on the sidelines trying to decide if they should purchase a home or sign a rental lease. Some might wonder if it makes sense to purchase a house before they are married and have a family. Others may think they are too young. And still others might think their current income would never enable them to qualify for a mortgage.

We want to share what the typical first time homebuyer actually looks like based on the National Association of REALTORS most recent Profile of Home Buyers & Sellers. Here are some interesting revelations on the first time buyer:

First Time Homebuyers Profile | Simplifying The Market

Bottom Line

You may not be much different than many people who have already purchased their first home.

New York Times: Homeownership is Best Way To Build Wealth

New York Times: Homeownership is Best Way To Build Wealth | Simplifying The Market

The New York Times recently published an editorial entitled, Homeownership and Wealth Creation.” The housing market has made a strong recovery, not only in sales and prices, but also in the confidence of consumers and experts as an investment.

The article explains:

“Homeownership long has been central to Americans’ ability to amass wealth; even with the substantial decline in wealth after the housing bust, the net worth of homeowners over time has significantly outpaced that of renters, who tend as a group to accumulate little if any wealth.”

Many of the points that were made in the article are on track with the research that the Federal Reserve has also conducted in their Survey of Consumer Finances.

The study found that the average net worth of a homeowner ($194,500) is 36x greater than that of a renter ($5,400).

One reason for this large discrepancy in net worth is the concept of ‘forced savings’ created by having a mortgage payment and was explained by the Times:

“Homeownership requires potential buyers to save for a down payment, and forces them to continue to save by paying down a portion of the mortgage principal each month.”

“Even in instances where renters have excess cash, saving a substantial amount is difficult without a near-term goal, like a down payment. It is also difficult to systematically invest each month in stocks, bonds or other assets without being compelled to do so.”

Bottom Line

“As a means to building wealth, there is no practical substitute for homeownership.” If you are a renter who is considering making a purchase, sit with a local real estate professional who can explain the benefits of signing a contract to purchase over renewing your lease!

Home Prices Continue to Rise

Home Prices Continue to Rise | Simplifying The Market

“Broad-based Slowdown for Home Prices”

That is a headline you might have seen over the past weekend. And though it is true, we must understand the story behind the headline. Case Shiller reports on the year-over-year difference in home values. Their latest report revealed that the rate of appreciation has slowed – not that prices are falling!! Here is exactly what they said:

“The 20-City Composite gained 4.9% year-over-year, compared to 5.6% in August.”

Prices are still up this month over last year’s values (4.9%) just not as much as they were last month (5.6%).

Home Prices are NOT Falling.

As a matter of fact, the latest Home Price Expectation Survey by Pulsenomics (a survey of a nationwide panel of over one hundred economists, real estate experts and investment & market strategists) showed that home prices will continue to appreciate for the next several years.

Home Price Expectation Survey Projected Prices | Simplifying The Market

Bottom Line

Both first time buyers and families thinking of moving-up to their dream home can be assured that their investment in their new home makes sense.

Freddie Mac: Buy Sooner Rather than Later

Freddie Mac: Buy Sooner Rather than Later | Simplifying The Market

In a recent video update on the housing market, Frank Nothaft, Freddie Mac’s chief economist, stated that with both mortgage interest rates and home prices projected to increase in 2015 buying now makes sense.

“If you are planning to buy a home in the next year, it’s better to do it sooner rather than later.”

Here are the latest mortgage interest rate projections from four major housing entities: Fannie Mae, Freddie Mac, the Mortgage Bankers Association (MBA) and the National Association of Realtors (NAR):

Mortgage Rate Projections | Simplifying The Market

Thinking of Selling & Moving Up?

This advice isn’t limited to just the first time buyer. If you are considering moving up to the home your family has always wanted, waiting also makes no sense.

Buying a Home Remains 38% Less Expensive than Renting!

Buying a Home Remains 38% Less Expensive Than Renting! | Simplifying The Market

In Trulia’s latest Rent vs. Buy Report, they explained that homeownership remains cheaper than renting with a traditional 30-year fixed rate mortgage throughout the 100 largest metro areas in the United States.

The updated numbers actually show that the range is from an average of 17% in Honolulu, all the way to 63% in Detroit, and 38% Nationwide! This is up from an average of only 5% cheaper in Honolulu in April.

The other interesting findings in the report include:

  • Rents have continued to increase nationally even as home price increases are starting to slow. Current low mortgage rates have kept homeownership from becoming more expensive than renting.
  • Some markets might tip in favor of renting next year if home prices increase at a greater rate than rents and if – as most economists expect – mortgage rates rise, due to the strengthening economy.

Nationally, rates would have to rise to 10.6% for renting to be cheaper than buying – and rates haven’t been that high since 1989.

Bottom Line

Buying a home makes sense. Rental costs have historically increased at a higher rate of inflation. Lock in a mortgage payment now before home prices and mortgage rates rise as experts expect they will.

Either Way, You’re Still Paying a Mortgage

Either Way You're Paying a Mortgage | Simplifying The Market

There are some people that have not purchased a home because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that, unless you are living with your parents rent free, you are paying a mortgage – either your mortgage or your landlord’s.

As a paper from the Joint Center for Housing Studies at Harvard University explains: 

“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return. That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

Also, if you purchase with a 30-year fixed rate mortgage, your ‘housing expense’ is locked in over the thirty years for the most part. If you rent, the one guarantee you will have is that your rent will increase over that same thirty year time period.

As an owner, the mortgage payment is a ‘forced savings’ which will allow you to have equity in your home you can tap into later in your life. As a renter, you guarantee the landlord is the person with that equity.

Bottom Line

Whether you are looking for a primary residence for the first time or are considering a vacation home on the shore, owning might make more sense than renting since home values and interest rates are still at bargain prices.

Future Homeowners Share American Dream

Future Homeowners Share American Dream | Keeping Current Matters

Two recently released reports indicate that both young adults (Millennials) and teenagers (Generation Z) still see homeownership as an important piece of their future success.

A report by The Demand Institute, Millennials and Their Homes: Still Seeking the American Dream, revealed that the Millennial Generation is optimistic about their financial future and still believe in homeownership. The findings were based on a survey of millennial households (ages 18 to 29).

The report predicted that:

  • 8.3 million new Millennial (Gen Y) households will form in the next five years
  • $1.6 trillion will be spent on home purchases by Millennials and $600 billion on rent over the next five years

Millennials optimistic about their finances and homeownership

Of those surveyed:

  • 74% expect to move within the next five years
  • 79% expect their financial situation to improve
  • 75% believe homeownership is an important long-term goal
  • 73% believe homeownership is an excellent investment
  • 24% already own their home and
  • An additional 60% plan to buy a home in the future
  • 44% do think it would be difficult to qualify for a mortgage

What about the next generation (today’s teenagers)?

A recent survey by Better Homes and Gardens® revealed that Generation Z (teens ages 13-17) is very traditional in their views toward homeownership and is willing to sacrifice to attain the American Dream.

Findings from the survey show:

  • 82% of Gen Z teens indicate that homeownership is the most important factor in achieving the American Dream.
  • 89% said owning a home is part of their interpretation of the American Dream
  • 97% believe they will own a home
  • 77% percent chose owning a home over owning a business

Bottom Line

It seems that the belief that homeownership as a huge part of the American Dream still beats in the hearts of the young people of this country.