Do check it out, as I think you will gain a few insights and enjoy it!
The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions
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.
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 blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.
Home ownership can provide a valuable asset in the form of home equity, which represents the difference between a property’s market value and the outstanding mortgage balance.
Leveraging home equity to invest in real estate has become an attractive option for many seeking to build wealth and diversify their financial portfolio.
Let’s take a look at the benefits and risks associated with using home equity to purchase an investment property or a second home.
Advantages of Using Home Equity for Investment
One of the primary advantages of using home equity to buy an investment property is the potential for higher returns on investment compared to traditional savings or investment options.
Real estate properties, when well-selected, have the potential to appreciate over time, leading to substantial gains for the investor. Additionally, rental income from the investment property can provide a steady source of cash flow, which can be used to pay down the mortgage or fund other investments.
Moreover, utilizing home equity allows investors to take advantage of relatively lower interest rates, which can significantly reduce borrowing costs compared to other types of loans.
Building Wealth and Diversification
Investing in real estate with home equity can be an effective strategy for building long-term wealth and diversifying one’s investment portfolio.
Real estate has historically shown a strong track record of long-term appreciation, offering a hedge against inflation and economic downturns. By diversifying investments across various asset classes, individuals can reduce their overall risk exposure and increase the potential for steady returns.
Home equity, when deployed wisely into real estate, can help individuals achieve financial security and achieve their long-term financial goals.
Risks and Considerations
While using home equity to purchase an investment property can be financially rewarding, it does come with some inherent risks.
The most significant risk is the potential decline in property values, which could leave the investor with a property worth less than the outstanding mortgage balance. Although rare, unexpected changes in the local real estate market can impact property values. You can find out more about the historical appreciation of real estate here…
Moreover, if rental income from the investment property falls short of expectations, the investor may face difficulties meeting mortgage payments, leading to financial strain.
Therefore, it is crucial for investors to conduct thorough research and due diligence before proceeding with this strategy.
Responsible Borrowing and Financial Discipline
To minimize the risks associated with using home equity, responsible borrowing and financial discipline are essential.
Investors must carefully assess their ability to handle increased debt and maintain adequate reserves to cover unforeseen expenses or periods of vacancy. Furthermore, they should consider setting up separate accounts to manage rental income, property-related expenses, and mortgage payments to maintain financial transparency and accountability.
Moreover, keeping a strong credit score is crucial to ensure access to favorable financing terms and interest rates.
In Conclusion
Using home equity to purchase an investment property can be a prudent financial decision when approached with caution and foresight.
The potential for higher returns, coupled with the diversification benefits, can be appealing to investors seeking to grow their wealth. However, it is essential to be mindful of the inherent risks and practice responsible financial management.
Thorough research, careful planning, and ongoing monitoring are vital to the success of this investment strategy.
By making informed decisions and maintaining financial discipline, individuals can leverage their home equity to create a pathway towards financial prosperity and stability.
Please contact me to discuss your current situation and how you might be able to take advantage of your home equity to purchase another property. It would be my pleasure to help you!
Investing in real estate, specifically purchasing an investment property, can offer a multitude of advantages that go beyond traditional investment opportunities.
Buying an investment property provides individuals with a unique opportunity to grow their wealth, generate passive income, and gain long-term financial security.
Let’s take a look at five key benefits of investing in real estate…
Appreciation and Wealth Accumulation
One of the primary advantages of investing in an income-generating property is the potential for property value appreciation over time.
Real estate almost always increases in value year-over-year, making it a reliable long-term investment – and you can find more on that here. As the property value increases, so does your net worth!
Moreover, you can leverage this appreciation to build equity, enabling you to secure additional loans or invest in other properties, leading to further wealth accumulation.
Steady Cash Flow and Passive Income
Owning an investment property allows individuals to generate consistent cash flow in the form of rental income.
By renting out the property, you can earn a steady stream of passive income, even while you sleep. This reliable income can be used to cover mortgage payments, property maintenance expenses, and other financial commitments.
With careful management and regular tenant screening, you can maximize your rental income and achieve financial stability.
Tax Advantages and Deductions
Investment properties come with several tax advantages that can significantly benefit property owners.
These include deductible expenses such as mortgage interest, property taxes, insurance premiums, and maintenance costs. Additionally, real estate investors can take advantage of depreciation deductions, which allow them to offset their taxable rental income.
These tax benefits can help reduce your overall tax liability and increase your net income from the investment property. Please contact your tax accountant for the specifics!
Portfolio Diversification and Risk Mitigation
Investing in an income property provides an opportunity to diversify your investment portfolio.
Real estate typically has a lower correlation to other asset classes like stocks and bonds, which means it can act as a hedge against market volatility. By diversifying your investments, you can spread the risk and reduce the impact of a single investment’s poor performance.
Real estate’s stability and relatively consistent returns can provide a solid foundation for your overall investment strategy.
Long-Term Financial Security and Retirement Planning
Investing in an income property offers a long-term strategy for building financial security and planning for retirement.
By consistently collecting rental income and building equity, you can create a reliable income stream for your retirement years. Furthermore, as you pay off the mortgage on the property, your monthly cash flow will increase significantly.
Real estate investments can serve as a tangible asset that appreciates in value and provides financial stability for your future.
In Conclusion
Purchasing an investment property offers numerous benefits that are easy to understand and can be advantageous for individuals seeking financial growth and stability.
The potential for property value appreciation, steady cash flow, tax advantages, portfolio diversification, and long-term financial security are compelling reasons to consider investing in real estate.
While investing in property requires careful research and management, it can be a rewarding endeavor that provides both immediate and long-term benefits. Do reach out to me for more and how to finance the purchase of an investment property.
A brand-new investment property analysis tool is now available…and it would be my pleasure to help run some numbers with you.
Did you know that two-thirds of individual’s net worth comes from real estate? That’s according to Kiplinger – so owning property is a great way to build wealth.
But what about owning an investment property?
Based on data from Fannie Mae and Freddie Mac, about one in every six or seven purchases are for an investment property. So building wealth via investment property income and appreciation is a pretty popular strategy.
So how can you better evaluate the decision to enter the investment property market?
Whether you’re a realtor helping clients make this decision or a buyer interested in purchasing yourself, I have a new and unique tool that will calculate the return on an investment based on area-specific appreciation, rental rates, and costs to buy and sell.
This is a fantastic way to do some analysis on would-be properties.
Important metrics such as cash-on-cash return, as well as the compounded annual return over time, are easily illustrated to help you make better decisions on selecting the best opportunities in this market.
A Sample
Here’s a sample with the following assumptions – 3 unit property, purchase price $725K, monthly rents of $3,900, 30-year fixed mortgage at 6.99%, 25% down payment:
Assuming this buy-and-hold transaction over 9 years, here’s the cumulative cash return:
Here’s the annual return…
But what’s most relevant is the Annual Average Compounded Return, so you can measure this return versus other investments:
In Conclusion
As you can see, this is an extremely helpful tool to help analyze a particular income producing property to determine whether is a good investment or not!
Thomas Eugene Bonetto
Mortgage Loan Originator
NMLS: 1431961
About The Coach
Tom Bonetto has been helping his customers and players achieve their best for nearly 30 years. His goal is to provide both a superior customer experience and tremendous value for both his business associates and his players alike.
