Studies now show that over 20% of the houses with mortgages in the country are underwater (where the loan amount exceeds the value of the property). Some bought their house at the top of the market and saw prices come tumbling down over the last few years. Losing this value has caused challenges for many in this category.
Other homeowners are underwater because they refinanced their homes at the height of the market and cashed out some of their equity. Some did this several times as values continued to rise and interest rates continued to fall. When prices dropped, they too found themselves in a negative equity situation. But not everyone in this category is in a worse position financially. Let’s break down this category.
Some Used Their House as an ATM
Some homeowners took cash out of their home to finance a lifestyle they desired. They bought a new car or a new boat. Some used the cash for fabulous vacations to locations they had always dreamed about. This group didn’t lose their equity. They spent it. Maybe these purchases were worth the price that these homeowners are now paying. Only the individual person can answer that question.
Some Used Their House to Finance an Education or Start a Business
It has long been a tradition in this country that people tap the equity in their home to finance their children’s college education or to gather together the start-up capital necessary to open their own business. These people didn’t lose their equity. They invested it in their children or their business. Was it worth it? For the couple who refinanced their home for their son or daughter’s eduction in 2007, a good time to ask may be next month as they are attending their children’s college graduation. For those who started a business with the money, whether it was a good idea was determined by their business plan not the housing market.
Some Used Their Home to Diversify Their Investment Portfolio
Some savvy homeowners, upon seeing their home values skyrocketing, decided to pull cash out and invest in other asset classes. At the height of the market (2006), some took $100,000 out of their home and invested in the stock market or in precious metals. Instead of sitting on their equity, they decided to put it to work for them. How did this group do? If they invested in the Dow, that $100,000 is now worth approximately $115,000. If they invested in gold, that $100,000 is now worth $290,000. (We never read about these people in the thousands of stories on the housing bubble. Good news just doesn’t seem to sell papers.)
Bottom Line
In every challenge there is an opportunity. Perhaps the opportunity in housing today is to use some of the equity in other assets we currently own to purchase real estate while it is low and mortgage money remains cheap. The Wall Street Journal and Forbes Magazine both suggested this exact strategy to their readers in the last three months.
Tuesday, April 26, 2011
Wednesday, April 13, 2011
Why the Wealthy Are Buying
We have taken the stance that real estate is currently a great investment. There have been MANY that have let us know that they think we are crazy. Today, let’s look at a few prominent people, media sources and one very important group that agree that now is the time to buy.
- Fortune Magazine and The Wall Street Journal
- John Paulson, billionaire investor.
- Donald Trump, no introduction necessary.
- Barbara Corcoran, real estate TV personality.
- Money is cheap. The 5% interest rate will not be available forever.
- The ability to lock in that interest rate for 30 years may soon disappear.
- Getting a mortgage may get much more expensive soon.
- They want to buy low and sell high. The price of real estate is low.
Bottom Line
We know many will disagree with us about now being the time to buy. But if the wealthiest people in the country are buying, shouldn’t we at least consider the possibility?
Why the Wealthy Are Buying
We have taken the stance that real estate is currently a great investment. There have been MANY that have let us know that they think we are crazy. Today, let’s look at a few prominent people, media sources and one very important group that agree that now is the time to buy.
- Fortune Magazine and The Wall Street Journal
- John Paulson, billionaire investor.
- Donald Trump, no introduction necessary.
- Barbara Corcoran, real estate TV personality.
- Money is cheap. The 5% interest rate will not be available forever.
- The ability to lock in that interest rate for 30 years may soon disappear.
- Getting a mortgage may get much more expensive soon.
- They want to buy low and sell high. The price of real estate is low.
Bottom Line
We know many will disagree with us about now being the time to buy. But if the wealthiest people in the country are buying, shouldn’t we at least consider the possibility?
Tuesday, April 12, 2011
4 Financial Reasons to Buy Now
As Dean Hartman said last week, the purchase of a home is a personal decision. However, we want to give everyone four great financial reasons why you should not wait before taking the plunge into homeownership.
Interest Rates Are Increasing
Interest rates have increased almost 3/4 of a point in the last six months. Most experts expect rates to continue to increase through the year. Interest rates along with price determine the overall cost of a home. Even with prices softening, if interest rates rise, it may be less expensive to buy now rather than wait.
The 30-Year Mortgage May Disappear
There has been much debate regarding government’s role in providing support for homeownership. There are several experts who believe If Fannie Mae and Freddie Mac’s roles are eliminated, or even limited, it may be the end to the 30-year mortgage. This concern is addressed in MSN Real Estate’s Is it curtains for the 30-year mortgage?
QRM Requirements Could Be Much More Stringent Here are proposed changes to the requirements for a ‘qualified residential mortgage’:
Rents Are Expected to Increase
The supply of available rentals is decreasing and the demand is increasing. That will lead to an increase in rental costs throughout the year. The Wall Street Journal this week quoted a report by Reis, Inc:
“Expect vacancies to continue declining, and rents rising through the rest of 2011 at an even faster pace.” Bottom Line
You may be waiting on the sidelines to see if prices will continue to depreciate before you purchase a home. The mortgage expense is a major piece in the overall financial picture of homeownership. Make sure you consider it when timing your decision.
Reprinted by permission from KCM Blog
Interest Rates Are Increasing
Interest rates have increased almost 3/4 of a point in the last six months. Most experts expect rates to continue to increase through the year. Interest rates along with price determine the overall cost of a home. Even with prices softening, if interest rates rise, it may be less expensive to buy now rather than wait.
The 30-Year Mortgage May Disappear
There has been much debate regarding government’s role in providing support for homeownership. There are several experts who believe If Fannie Mae and Freddie Mac’s roles are eliminated, or even limited, it may be the end to the 30-year mortgage. This concern is addressed in MSN Real Estate’s Is it curtains for the 30-year mortgage?
QRM Requirements Could Be Much More Stringent Here are proposed changes to the requirements for a ‘qualified residential mortgage’:
- Certain mortgage types would be eliminated
- You would need to put a minimum of 20% down
- You would need a minimum 690 FICO score
- The ratios of income to both the mortgage payment and overall debt would become much more conservative (28% and 36%)
Rents Are Expected to Increase
The supply of available rentals is decreasing and the demand is increasing. That will lead to an increase in rental costs throughout the year. The Wall Street Journal this week quoted a report by Reis, Inc:
“Expect vacancies to continue declining, and rents rising through the rest of 2011 at an even faster pace.” Bottom Line
You may be waiting on the sidelines to see if prices will continue to depreciate before you purchase a home. The mortgage expense is a major piece in the overall financial picture of homeownership. Make sure you consider it when timing your decision.
Reprinted by permission from KCM Blog
Monday, April 11, 2011
Thursday, April 7, 2011
Real Estate and Financing Are PERSONAL
Every day we are bombarded with statistics and data. Housing starts are up, housing starts are down; more job losses, unemployment is improving; foreclosures, short sales, housing inventory, interest rate movements and much more. It’s enough to make your head spin. There’s an old saying that claims: “All real estate is local”. It infers that national numbers are good reference points, but that individual communities (or even pockets within communities) can have strikingly different realities. When prices are falling nationally, there are some places where prices are holding steady or rising as an example.
I believe that even that old saying is too broad. Buying a home or structuring the financing of a home isn’t a local phenomenon….it is a personal one. It’s the same as the economy. Even though we have been suffering through a national downturn, many are having their best years ever. Unemployment, foreclosure, even homelessness are tragic statistics and things to be aware of. But, for those not in those situations, you need to make decisions that will best serve your PERSONAL goals.
To that end, it is a great time to buy a home, for the reasons touted in this space regularly:
Low interest rates make more house more affordable
Tremendous available inventory
Home prices are in line with income levels once again
It is also a terrific time to sell. I heard an agent say just last week that there is NO INVENTORY available. He further explained that properly priced homes are selling almost immediately and the only homes on the market more than 30 days are ones that won’t sell because of unreasonable seller expectations (and agents who aren’t strong enough to deliver the truth to those sellers).
A strong statement, yes- but one worth taking into consideration as you ponder your PERSONAL situation. And remember, sellers become buyers. They get the advantages buyers are enjoying as well. My advice is don’t be a sheep following media hype which analyzes data that reflects the past (and not the present or future) or looks at national numbers or assumes that your job, credit standing or savings are in jeopardy. YOU need to look at your individual life and decide for yourself.
I believe that even that old saying is too broad. Buying a home or structuring the financing of a home isn’t a local phenomenon….it is a personal one. It’s the same as the economy. Even though we have been suffering through a national downturn, many are having their best years ever. Unemployment, foreclosure, even homelessness are tragic statistics and things to be aware of. But, for those not in those situations, you need to make decisions that will best serve your PERSONAL goals.
To that end, it is a great time to buy a home, for the reasons touted in this space regularly:
Low interest rates make more house more affordable
Tremendous available inventory
Home prices are in line with income levels once again
It is also a terrific time to sell. I heard an agent say just last week that there is NO INVENTORY available. He further explained that properly priced homes are selling almost immediately and the only homes on the market more than 30 days are ones that won’t sell because of unreasonable seller expectations (and agents who aren’t strong enough to deliver the truth to those sellers).
A strong statement, yes- but one worth taking into consideration as you ponder your PERSONAL situation. And remember, sellers become buyers. They get the advantages buyers are enjoying as well. My advice is don’t be a sheep following media hype which analyzes data that reflects the past (and not the present or future) or looks at national numbers or assumes that your job, credit standing or savings are in jeopardy. YOU need to look at your individual life and decide for yourself.
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