October 23, 2014

Mortgage Rates Drop Below 4%

Last week, Freddie Mac reported an interest rate on a 30-year, fixed rate mortgage of 3.97%, representing the lowest level since June 20, 2013. This results from a number of factors. Interest rates typically move alongside the 10-year Treasury note, which reached a low of 1.86% last week. This is the first time that the yield has been below 2% since May 2013. Many investors prefer the safety of U.S. Treasury bonds given concerns about the economic weakness in Europe, Ebola, and geopolitical turmoil worldwide (such as the threat of the Islamic State militia group in the Middle East). This contrasts expectations of rising interest rates resulting from the Federal Reserve pulling back its economic stimulus of buying bonds and mortgage-backed securities.

Many homeowners have seized this opportunity to refinance. Bank of America reports that a .5% decrease in mortgage rates for a home worth $221,000 should result in savings of $50 per month. However, the Associated Press argues that mortgage rates should not solely dictate the decision to refinance, because doing so is costly. For example, it would cost approximately $2,500 in fees to refinance from a 5.5% to 4% mortgage rate on a $200,000 mortgage, taking roughly 14 months to break even.

October 20, 2014

Helpful Websites for Prospective Homeowners

The internet is one of your best resources when it comes to buying a home. Websites and mobile apps such as the ones listed below can help you find a realtor, browse homes for sale and rent, see how much you can afford, and check out the crime reports, walkability, and school districts of various communities:

Homes and Realtors

Realtor.com – Realtor.com is a great place to start you home search, and can be accessed from a computer or a mobile device. Realtor.com allows you to input your own search criteria including price, number of bedrooms/bathrooms, location, and type of home. Realtor.com also has a search function that generates a list of nearby open houses, which can be a great way to get a feel for the current housing market.


Zillow.comThis has similar features as Realtor.com, but it also allows you to view information (such as size, year built, and  estimated worth) on homes that are not for sale. This is helpful if you are curious about the value of other homes in the community you are considering moving into. You don’t want to have the least or most expensive home in the neighborhood, as neither is good for resale value. Zillow.com also allows you to shop for mortgage rates and gather home design ideas (which you can pin and share with other people). 

Affordability

Annualcreditreport.com - A good credit score impacts the interest rate you pay on your mortgage and how much you can borrow. A score of 692 is average, and the higher your score the better. Federal law allows you to get a free copy of your credit report once a year. Similarly, FreeCreditScore.com offers a free, 7-day trial membership during which you can access your current credit score.

MortgageCalculator.org Use MortgageCalculator.com to get a rough estimate of monthly payments, pay-off date, and total interest paid. You should also consult with a lender. As a rough rule of thumb, many lenders advise clients not to spend more than 28% of their monthly, pretax income on a mortgage. 

Location
Walkscore.com – This website is a great resource renters can use to find out how “walkable” homes are, from a score of 1 (not walkable) to 100 (highly walkable). Walkschore.com allows you to serach for rentals based on rent, number of bedrooms, commute time, distance to public transportation, and walkscore. It also lets you filter your search to include pet-friendly options. Walkscore tells you what amenities are in walking distance and how far they are from any given home. Amenities include restaurants, shops, schools, gyms, etc. The one downside of this website and mobile app is that it only shows rentals—not homes for sale. However, homeowners can select a rental nearby in order to look at the area around it. Buyers can also use GoogleMaps.com. GoogleMaps doesn’t provide a walk score, but still illustrates what homes are surrounded by and how close they are to city centers, schools, and so forth.

Crimereports.com – Enter an address or ZIP code to access statistics on crime. Remember, every community has some degree of crime. It’s a good idea to talk to current residents of a particular neighborhood to see how safe they feel.


GreatSchools.com – This website rates schools, which is important even for people without children. A good school district helps a home maintain its value other the years. When you eventually sell your home, the school district may be paramount to buyers even if it was secondary to you.





Your most trusted resource when searching for a home is a professional  real estate agent. Hire an experienced REALTOR who is a good communicator and knows the market well. If you or someone you know is thinking about buying a home in Central Ohio, visit my website and contact me to ask how I can help. 







October 16, 2014

Millennials Put Hold on American Dream

Millennials-those born after 1980 through the mid/late 1990s-are not buying homes at the rate previous generations have. To determine why, Bank of America Merrill Lynch conducted a survey of 1000 adults ages 20-34 across various U.S. cities. This is what the company found:

Millennials want to own their own home, but lack the financial resources to do so. 73% of survey respondents report that owning a home is either very important (56%) or important (17%) to them, indicating that Millennials maintain the strong desire to own their own homes consistent with the classic perception of the American Dream. However, Millennials have been negatively affected by cyclical economic factors including high unemployment, lack of wage growth, and lack of credit. 

The study suggests that Millennials may have a distorted image of interest rates as a result of growing up during a time when interest rates were artificially low, hovering around 3-5%. Looking back in time presents a different picture: since 1971, the median 30-year fixed mortgage rate has been 7.98%. Employment for those ages 25-34 is 75.6%, which is more than the low of 73.4 but still behind the pre-recession level of 83%.  Wage growth has been slow, with the real median income for those under 35 falling 16% from $42,000 in 2007 to $35,000 in 2013. Tight credit remains another issue. The average qualifying FICO score as of July 2014 (690 and 760 for an FHA mortgage and conventional mortgage, respectively), is nearly 13 points greater than the average score back to 2000. 




Student loan debt is also hindering first-time homebuyers. One quarter of survey respondents cite that student debt has prohibited them from purchasing a home to date. The median education debt for those under 35 was $17,200 in 2013. It is not a surprise, then, that the survey revealed that Millennials who have student loans are 55% more likely to currently rent than own a home.

Nineteen percent of Millennials are living with their parents. This consists of 31% for those ages 20-24, 16% ages 25-29, and 10% ages 30-34. Many Millennials are living in an apartment (38%) while others have their own home (31%). Not surprising, higher income earners are much more likely to be living in their own home. 12% of respondents making less than $25,000 own their own home, while 60% of those making $75,000-$100,000 own their own home. 


Millennials are delaying household formation, including getting married and having children. Annual household formations of married couples lave dropped 61% for those under 25, 41% for those 25-29, and 18% for those 30-34 since 1982. Mellennials are having fewer kids, and they are having them later in life. Birthrates for women ages 20-29 are decreasing while birthrates for women ages 30-39 are increasing.

As the economy continues to recover and Millennials increase their earnings, they are expected to enter the housing market in greater numbers. Half of those surveyed plan to buy a home within the next five years. The American Dream is not lost: it is merely on hold. 


October 13, 2014

Investors Withdraw From Housing Market

In August, many investors withdrew from the housing market, possibly resulting from the Federal Reserve's signal that interest rates will be rising. It is no surprise then, that the portion of all cash buyers has dropped. At only 23%, cash transactions represent the lowest share since December 2009.

 First-time home buyers, who account for 30% of transactions and often rely on mortgage financing, will benefit from reduced competition with all-cash offers, fewer bidding wars, and increased inventory.  Another side effect of investor withdraw is the 1.8% decline in existing home sales from a seasonally adjusted 5.14 million in July to 5.05 million in August. This marks the first dip following four months of consecutive gains.

For more information, click here.

October 6, 2014

Refinancing 101

Refinancing is the process of replacing your original mortgage with a new mortgage that has a more favorable interest rate and term. Many people choose to refinance when they have home equity (the difference between the amount owed to the mortgage company and the home's value). In other words, refinancing is paying off an existing loan with the proceeds from a new loan. Refinancing lenders typically require a percentage of the total loan amount, in the form of "points," as an upfront payment. One point equals 1 percent of the total loan amount. The more points, the better, because a larger payment upfront results in a lower interest rate.
Pros
Refinancing can reduce monthly payments and interest rates, and allow people to choose a different mortgage company or take cash out of their home preceding a large purchase. Homeowners can also cancel their private mortgage insurance (PMI) with a mortgage refinance loan, as the home's value increases and the balance on the home declines. Some people refinance to switch between an adjustable rate mortgage and a fixed one. For those with balloon programs such as ARMs, refinancing allows someone to switch to a new, fixed rate before the entire mortgage balance is due at the end of the term (usually five to seven years). One other reason for refinancing is to consolidate other debts into one loan.

Cons
However, there are risks involved. People may incur penalties that can amount to $1000+ for paying down their existing mortgage with home equity credit. Make sure you have an understanding of the fees involved before committing to refinancing. Fees can account for 3-6 percent of your outstanding principal and include the application fee, title insurance and title search, the lender's attorney review fees, homeowner's insurance, the appraisal fee, and points and fees incurred in loan origination. Your savings in interest must exceed refinancing fees in order for refinancing to be worthwhile.

Interested in refinancing? Experiment with the home refinance calculator. To learn more about refinancing a home, watch the short video below:



October 2, 2014

Columbus, OH One of Best Markets For Landlords

RealtyTrac studied 370 major U.S. counties in order to determine the most attractive markets for landlords. Its results are based on factors including unemployment rates, median home prices, average rents, and demographics. An article released by CNNMoney states that, regarding demographics, a presence of large millennial and baby boomer populations is ideal because both groups are undergoing major life changes that sometimes entail changes in housing. While a significant number of baby boomers move to Florida, millennials are more spread out across cities such as Philadelphia, Pennsyvania and Atlanta, Georgia.

The results list Columbus, OH as the eighth best market for landlords. The median sales price for a home in Columbus is $125,000, while the average rent for a 3-bedroom place is $1,039 per month. This translates to a gross rental yield of 10%

The single best market in which to be a landlord is Anderson, South Carolina. Here, the median home sales price is only $69,900, and the average rental rate (again for three bedrooms) is just under $900, resulting in a 15.3% gross rental yield. Other top ten markets include Gainesville, Florida, Pittsburgh, Pennsylvania, and Charleston, South Carolina.


September 29, 2014

The Baby Boomer Burden

The more Baby Boomers entering retirement, the greater the housing strain to accommodate them. FiveThirtyEight Economics reports that, at 14.5% in 2014 and a projected 20.9% in 2050, the U.S. has a high concentration of residents aged 65 and over. A report published by the Harvard Joint Center for Housing Studies and the AARP Foundation recently revealed that the number of adults 65 and over will more than double to 73 million by 2030.


Still, other countries have an even higher proportion: Japan tops the chart with 25.8% in 2014 and a projected 40.1% in 2050. Other countries with a high concentration of seniors include developed countries such as Germany, France, and Canada.


Unfortunately, retirees have less savings (partially attributed to the financial crisis) and carry more debt than previous generations: 70% of Boomers between 50 and 64 and 40% of Boomers 65+ still owed money on their home in 2010. Non-housing debt (such as credit card and auto loan debt) among boomers aged 65+ surged from $4,300 in 1992 to $7,200 in 2010. CNN Money brought attention to the fact that the number of senior households living on less than $15,000 (below the poverty line) is expected to increase by an astonishing 37% in 10 years. The fact that many will have to put over 30% of their income toward housing means they will have to cut back on other expenses such as medical care and transportation.

Federal rental assistance does exist; however, only one-third of eligible low income seniors received assistance in 2011. Opinions on how to remedy this precarious situation vary, from improved in-home senior programs, senior tax relief, and increased federal rental assistance.

What does this mean for the rest of the population? When Boomers retire they reduce production and consumer spending and increase dependence on others (such as their children and the government), resulting in overall slower economic growth.  Key indicators that speak to this trend include the labor force participation rate (the ratio between those working or actively looking for work and the overall population) and  the dependency ratio (the number of people outside of working age--under 18 or over 64--per 100 adults between those two limits).