The National Association of Realtors (NAR) released their Existing Home Sales Report earlier this week. The report revealed that “sales bounced back in September to their highest annual pace of the year”. As the chart below shows, after a very slow start at the beginning of the year, residential home sales have been increasing nicely.
Billionaire money manager John Paulson was interviewed at the Delivering Alpha Conference presented by CNBC and Institutional Investor. During his session he boldly stated:
“I still think, from an individual perspective, the best deal investment you can make is to buy a primary residence that you’re the owner-occupier of.”
Who is John Paulson?
Paulson is the person who, back in 2005 & 2006, made a fortune betting that the subprime mortgage mess would cause the real estate market to collapse. He understands how the housing market works and knows when to buy and when to sell. What do others think of Paulson?
According to Forbes, John Paulson is:
“A multibillionaire hedge fund operator and the investment genius.”
According to the Wall Street Journal, Paulson is:
“A hedge fund tycoon who made his name, and a fortune, betting against subprime mortgages when no one else even knew what they were.”
Why does he believe homeownership is such a great investment?
Paulson breaks down the math of homeownership as an investment:
“Today financing costs are extraordinarily low. You can get a 30-year mortgage somewhere around 4.5 percent. And if you put down, let’s say, 10 percent and the house is up 5 percent, which is the latest data, then you would be up 50 percent on your investment.”
How many are seeing a 50% return on a cash investment right now?
Paulson goes on to compare the long term financial benefits of owning verses renting:
“And you’ve locked in the cost over the next 30 years. And today the cost of owning is somewhat less than the cost of renting. And if you rent, the rent goes up every year. But if you buy a 30-year mortgage, the cost is fixed.”
Whenever a billionaire gives investment advice, people usually clamor to hear it. This billionaire gave simple advice – if you don’t yet live in your own home, go buy one.
The price of any item (including residential real estate) is determined by ‘supply and demand’. If the supply of an item is larger than the amount of people looking to purchase that item, the price will decrease.
According to the National Association of Realtors (NAR), historically there is a natural decline in buyers looking to purchase a home (also known as foot traffic) as the winter months approach. Shown in the graph below:
NAR goes a step further to say that there is a direct correlation between “foot traffic” and “pending contracts/closed sales one to two months later”.
The real estate market has done well to recover from the slow start we experienced due in part to the inclement weather at the beginning of 2014. But with those winter months right around the corner, now may be the best time to get the best price.
Are you thinking of selling your house? Are you dreading having to deal with strangers walking through the house? Are you concerned about getting the paperwork correct? Hiring a professional real estate agent can take away most of the challenges of selling. A great agent is always worth more than the commission they charge just like a great doctor or great accountant.
Do you really need an agent to sell your house in today’s market? Here’s what Fannie Mae suggests to sellers on the Know Your Options section of their website:
“Select how you’ll market and list the home (e.g., with a real estate agent or for sale by owner). There are pros and cons to each, but unless you are experienced at selling homes, it usually makes financial sense to get professional help—homes sold by agents typically sell at a higher price and spend less time on the market. An agent will also help you determine the best pricing for the house, they’ll market the home, and they’ll be your advocate throughout the process.”
Let’s go over the points they made:
- Homes sold by agents typically sell at a higher price
- Homes sold by agents typically spend less time on the market
- An agent will help you determine the best pricing for the house
- An agent will market the home
- An agent will be your advocate throughout the process
If Fannie Mae says using an agent probably makes sense, perhaps you should interview an agent before putting your house up for sale.
Discover Home Loans conducted an interesting survey that revealed how prepared homebuyers are for the actual mortgage process.
The survey reported that 94% of prospective buyers believe they are making a good investment decision if they buy a home. The survey also explained that 66% of buyers reach out to real estate agents to help determine whether buying a certain home would be a good investment.
However, there is less certainty regarding the mortgage process.
Most buyers overwhelmed
The majority of potential buyers are actually overwhelmed with the plethora of information available about the home financing process. Here are some interesting highlights from the report:
- Nearly 66% feel overwhelmed with the amount of information available
- 76% of those under the age of 30 feel overwhelmed
- 76% of first time buyers feel the same way
- 54% of those buyers who have previously owned also were overwhelmed
- 59% of buyers turn to mortgage bankers to help evaluate mortgage terms and comparing offers
- 49% of buyers turn to real estate agents to help evaluate mortgage terms and comparing offers
There is help available…use it!
Cameron Findlay, chief economist at Discover Home Loans, gives great advice:
“The industry is becoming more transparent in an effort to help homebuyers become informed about changes that may affect their process. The sheer amount of information can lead to confusion and stress. Those looking to purchase should work closely with their lender and realtor to make sure they are comfortable with mortgage terms and understand the impact a loan will have on their finances.”
Purchasing a home can put great pressure on a family. Reach out to the best mortgage and real estate professionals in your market for assistance throughout the process.