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Category: Housing Market (Page 1 of 33)

Owning vs. Renting | The Hard Facts

Imagine turning your monthly expenses into a growing investment, something that could multiply your net worth exponentially.

Not a lot of people know this, but the average homeowner’s net worth is 40 times that of a renter.

Owning a home offers numerous advantages over renting, making it a seriously smarter long-term financial decision for many.

Building Equity

Firstly, homeownership builds equity, whereas renting does not. Each mortgage payment contributes to ownership of the property, gradually increasing the homeowner’s stake in the home.

Over time, this equity can be leveraged for various purposes, such as home improvements, education expenses, or retirement funding.

In contrast, renting provides no return on investment, with monthly payments essentially going towards the landlord’s profit.

Stability and Security

Secondly, owning a home provides homeowners with fantastic stability and security.

Renters, on the other hand, are subject to the whims of landlords and rental market fluctuations, with the risk of rent increases, lease terminations, or changes in rental terms.

Homeownership offers predictability and control over housing costs, particularly with a fixed-rate mortgage where monthly payments remain constant over the loan term.

Furthermore, homeownership helps people to establish roots within a community and create a space that reflects their personal preferences and lifestyle.

Tax Benefits

Another serious advantage of owning a home is the potential for tax benefits.

Homeowners can deduct mortgage interest, property taxes, and certain home-related expenses from their taxable income, reducing their overall tax burden.

Renters do not enjoy these tax advantages, missing out on opportunities to reduce their tax liabilities through housing-related deductions.

Building Long-Term Wealth

Finally, homeownership provides a unique pathway to long-term wealth accumulation and financial security.  As mentioned earlier, the average homeowner’s net worth is 40 times that of a renter!

Real estate historically appreciates in value over time, building equity and wealth for homeowners. More on that here

For example, Case-Shiller recently reported that home prices rose 5.5% last year, with national home values 46% higher since 2019! And prices are forecasted to rise this year due to ongoing high demand and tight supply.

In contrast, renting does not offer the opportunity to build wealth through property appreciation, leaving renters without a tangible asset to show for their housing expenses.

In Conclusion

Switching from renter to homeowner is simpler than you might think. It’s a strategic move towards securing your financial future, as owning a home offers numerous advantages over renting!

Do reach out to me for more, as it would be my pleasure to help you put together a plan to become a homeowner as well as long-term wealth-building strategy.

Quick and Inexpensive Ways to Increase the Value of Your Home

Enhancing the value of your home doesn’t always require a hefty budget.

There are numerous cost-effective measures that can significantly improve your property’s appeal and worth. One of the simplest and most impactful changes is a fresh coat of paint.

Paint

A well-chosen color scheme, for example, can breathe new life into your home, making it look more modern and well-maintained.

Paint can change a formerly dingy room into something exciting.

Additionally, painting is a task that can often be tackled as a DIY project, further reducing costs.

Enhancing Curb Appeal

Curb appeal plays a big role in a home’s perceived value, and even some simple landscaping can go a long way.

Planting flowers, trimming bushes, and maintaining a neat lawn (or hard-scape in the desert) are relatively inexpensive ways to enhance the exterior look.

Even creating a welcoming entryway by adding a new doormat or adding potted plants can also make a positive first impression on potential buyers.

Kitchens and Bathrooms

Inexpensive kitchen and bathroom upgrades can also boost your home’s value.

Rather than a complete renovation, consider small changes like updating cabinet hardware, replacing older faucets, or installing a new backsplash. These changes can give these high-traffic areas a fresh and modern look without breaking the bank.

Additionally, upgrading lighting fixtures throughout the house is a cost-effective way to improve both functionality and aesthetics.

Organizing Your Home

De-cluttering and organizing your living spaces can make a big impact on the perceived value of your home.

Minimalism is key right now, and removing excess furniture and personal items can make rooms appear larger and more inviting. Additionally, consider inexpensive storage solutions, such as baskets or shelves, to keep spaces organized and clutter-free.

Energy-efficient upgrades not only enhance your home’s appeal but also contribute to long-term savings. Installing a programmable thermostat, for example, and sealing drafts can improve energy efficiency.

By the way, many utility companies offer incentives or rebates for energy-efficient upgrades, making these improvements even more cost-effective.

Fixture Upgrades

Finally, consider small-scale upgrades that add a touch of luxury to your home. Upgrading doorknobs, cabinet handles, or light switch plates to more modern or stylish options can make a noticeable difference.

Additionally, adding a mirror or two strategically placed in rooms can create the illusion of more space and reflect natural light, making your home feel brighter and more open.

In Conclusion

Improving the value of your home doesn’t have to be a costly endeavor.  With thoughtful planning and strategic choices, simple and inexpensive upgrades can enhance both the aesthetic appeal and functionality of your property.

By focusing on areas that make a significant impact, such as painting, landscaping, small kitchen and bathroom upgrades, organization, energy efficiency, and fixture upgrades, you can improve your home’s value without breaking the bank!

More Reasons for Optimism in the Housing Market

The real estate market has been historically slow since the Covid-era boom of 2020 and 2021. With that said, there’s good reason for optimism moving forward in 2024.

Existing home sales look to have hit the bottom, home builders are optimistic about the future, and single-family construction appears to be on the up-tick!

December’s Existing Home Sales Likely at “Bottom”

Home sales and construction slumped in December, but buyers and builders have reasons to be optimistic about the housing market this year.

Existing Home Sales fell 1% from November to December to a 3.78-million-unit annualized pace. That comes in below estimates of an unchanged reading per the National Association of REALTORS® (NAR). Sales were also 6.2% lower than they were in December 2022.

What’s the bottom line? This report measured closings on existing homes in December and likely reflects people shopping for homes in October and November, when rates peaked.

On that note, the National Association of Realtors Chief Economist, Lawrence Yun, said, “The latest month’s sales look to be the bottom before inevitably turning higher in the new year. Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months.”

More supply is certainly needed, as there were just 1 million homes available for sale at the end of December. This was down from 1.13 million at the end of November, and below healthy levels at just a 3.2 months’ supply of homes at the current sales pace.

Home Builders Optimistic About 2024

Confidence among home builders rose for the second straight month in January as falling mortgage rates have encouraged some buyers to resume their home search.

The National Association of Home Builders (NAHB) Housing Market Index climbed seven points to 44. While this is still in contraction territory below the key breakeven level of 50, the reversal marks a positive sign heading into the spring buying season.

All three index components moved higher this month. Current sales conditions rose seven points to 48, while future sales expectations surged twelve points to 57, moving into positive territory for the first time since August. Buyer traffic was also up five points to 29. 

What’s the bottom line? NAHB Chair Alicia Huey noted that, “Lower interest rates improved housing affordability conditions this past month, bringing some buyers back into the market.” Plus, 31% of builders surveyed reported that they’re still reducing prices to encourage sales, providing even more opportunities for buyers right now.

“Solid Showing” for Single-family Construction

Housing Starts fell for the first time in four months in December, down 4.3% from November.

While single-family Starts also saw a downtick from November, they still had a “solid showing” per the NAHB as they surpassed the million mark (1.027 million) for the second straight month. This reflects the number of single-family homes that would be built throughout the year if construction took place at the same rate in every month as it did in December.

Building Permits, which are an indication of future construction, were up 1.9% from November to December, with permits for single-family homes reaching their highest level in a year.

What’s the bottom line? “Mortgage rates steadily fell below 7% in December, and lower rates combined with a lack of existing inventory in most markets helped to keep single-family production above a one million-unit annual pace,” explained NAHB Chair Alicia Huey.

“And the fact that our latest surveys showed a big increase in builder confidence is an indicator that we can expect housing starts to improve in the coming months.”

A boost in supply will be welcome news for buyers around the country who have struggled with low inventory, though there is still a long way to go to meet the level of demand that exists among buyers.

white and brown concrete bungalow under clear blue sky

When we consider the pace of completed homes that will be coming to market (around 1.57 million homes annualized) and subtract roughly 100,000 homes that need to be replaced every year due to aging, we’re well below demand as measured by household formations that are trending at 1.9 million.

More demand than supply will continue to be supportive of home values, especially when we reach the busier spring homebuying season.

Do reach out to me for more information, as it would be my pleasure to help you in any way I can!

The Lending Coach 2024 Mortgage and Real Estate Forecast

My 2024 real estate and mortgage rate forecast centers specifically around supply and demand…of both real estate and mortgage backed securities. As we know, all prices are determined by supply and demand. 

Right now, housing supply is relatively low, and demand is growing – and that means home price appreciation.

On the mortgage side, will interest rates finally come back?

Well, inflation is the biggest driver of interest rates…and that seems to be finally coming down to manageable levels – and this should lead to lower rates moving forward!

Let’s take a look at the factors that will impact mortgage rates and real estate in 2024…

Inflation

The single biggest driver of bond yields AND mortgage rates is inflation.

roll of american dollar banknotes tightened with band

Mortgage rates are essentially driven by inflation, which erodes the buying power of the fixed return that a mortgage holder receives.  When inflation rises, lenders demand a higher interest rate to offset the more rapid erosion of that buying power.

When the Fed hikes rates, they are trying to slow the economy and curb inflation. If successful in cooling inflation, mortgage rates will decline. 

History proves this during rate hike cycles for the past 50 years, per the slide below.  Unfortunately, this isn’t an overnight fix.

Essentially, the Federal Reserve bungled their management of inflation in 2020 and 2021 and were forced to make severe changes to offset the damage.  This brings market instability and increased mortgage rates.

Fortunately, inflation does seem to be coming down (and that’s primarily why rates are better today than they were in October of 2023.  And the news on the horizon looks promising.

It looks like core inflation might be in the 2% range by the middle of this year, which bodes very well for lower mortgage rates:

The trend in inflation is working in the borrower’s favor, and it means the Fed’s going to have to look at cutting the Federal Funds rate in 2024.

You can find out more on inflation, The Federal Reserve, and mortgage rates here…

The Fed and Rate Cuts

The Fed said they’re going to start cutting before we get to 2% core inflation. I think there’s a good probability March 20th, we’ll get the first Fed rate cut, and certainly by May 1st.

Now, what does the market say on this?

Well, there’s odds-makers. Just like if you were to go take a look on DraftKings and see what the odds are on a football game, well, there’s odds-makers on what the Fed will do as well.

As you can see above, the chances are pretty much assured that by May we’ll get that first rate cut.

In fact, there’s pretty good odds that we’ll have multiple rate cuts by May and June.

Per the chart above, there’s a 56% chance of at least 50 basis points cumulatively and by June there’s a 53% chance, better than 50-50, that you will have three 25 basis point cuts by June 12th.

Now something that’s also very important to watch is the Fed’s balance sheet. The supply of mortgage-backed securities has been hurting rates through most of 2023 because the Fed reducing its balance sheet.

They had their balance sheet go up during the great financial crisis and it got up much higher during the COVID crisis to a point of $8.5 trillion. That was just too much buying on behalf of the Fed.

The chart above shows their outright holdings of treasuries and mortgage-backed securities and they’ve offloaded $1.4 trillion over the last 18 months or so. That’s been a big driver in mortgage rates…and rates started to rise because the market had to absorb all of these securities.

But recently interest rates have improved and that is because the expectation for lower rates is causing banks to be aggressively buying treasuries and locking the higher rates in anticipation that rates go lower.

So, let’s take a look at what the Fed might be comfortable with on their balance sheet.  That will be critical, because the Fed is going to slow down or eventually stop that runoff and stop that added supply of treasuries and mortgage-backed securities on the market.                

As we go through each month, you can see that as we get into March, right before the March 20th meeting from the Fed, it will most likely be below 25%. I believe that’s too high of a number for the Fed to be comfortable and they’d like it to be lower.

When you start to see what happens the second half of the year, you get to a level that the Fed is much more comfortable with and I believe that the Fed will stop their quantitative tightening and reverse course. 

The Fed’s balance sheet will be a critical component because less supply on the market means that interest rates should improve because the buyers will be bidding on fewer amount of paper or supply that’s available.

Mortgage Rate Forecast

So what’s the mortgage rate forecast for 2024?

Well, for 2024, I see 30-year fixed rate mortgages in the mid-fives (later in the year) to high-six range (early in the year).  Under 6% rate on mortgages should unlock move of buyers and create more activity.

The 10-year Treasury will fluctuate between 3% and 4.4%, as we are starting the year a little above 4%. I believe that the overall trend, while it might move up and down a little bit, will be to gravitate towards 3%, which is good news for mortgage rates.

And maybe we get a more normal return to the spreads between Treasuries and mortgage rates, which is around 2%, not 3%. So that should help mortgage rates reduce as well.

Real Estate Forecast

Let’s turn our attention to real estate.

The forecast for real estate centers again on supply and demand, and the supply is tight. Look at inventory over the last 10 years, how it continues to decline while our population goes up:

Demand is continuing to be very, very strong. The blue lines represent households being formed.

As you can see, there are far more households being formed than builders putting up homes. This is why the real estate market’s been so strong of late and why you we seeing prices increase due to a lack of inventory. It’s going to be a similar story for 2024.

We won’t see much more inventory, although we will see more activity.  But, we don’t see the amount of supply coming to market in order to meet that demand. So that’s why prices should stay firm.

I’m forecasting between 4.5% and 5% home appreciation nationwide.

But, perhaps even a greater importance while we have a very solid real estate valuation market, is that overall real estate transactions should rise by 15% to 20% in 2024. Good news for the economy in general, for sure.

In Conclusion

It’s looking like 2024 should be a much better year for real estate!  Do reach out to me to discuss how you might be able to move forward in 2024 to take advantage of this changing market!

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