Equity Gain Growing in Nearly Every State

Rising home prices have been in the news a lot lately, and much of the focus is on whether they’re accelerating too quickly and how sustainable the growth in prices really is. One of the often-overlooked benefits of rising prices, however, is the impact they have on a homeowner’s equity position.

Home equity is defined as the difference between a home’s fair market value and the outstanding balance of all liens on the property. While homeowners pay down their mortgages, the amount of equity they have in their homes climbs each time the value increases.

Today, the number of homeowners that currently have significant equity in their homes is growing. According to the Census Bureau, 38% of all homes in the country are mortgage-free.  In a home equity study, ATTOM Data Solutions revealed that of the 54.5 million homes with a mortgage, 26.7% of them have at least 50% equity. That number has been increasing over the last eight years.

CoreLogic also notes:

“…the average homeowner gained approximately $5,300 in equity during the past year.”

The map below shows a breakdown of the increasing equity gain across the country, painting a clear picture that home equity is growing in nearly every state.

Bottom Line

This may be the year to take advantage of your home equity by applying it forward, either as you downsize or as you move up to a new home.

Homeowners' 5 Biggest Remodeling Regrets

Remodeling any aspect of a home can be a big job and a lot can go wrong when owners aren’t adequately prepared. Houzz, a home remodeling website, asked a panel of renovating experts the most common remodeling blunders they see. Here are a few of their responses.

Not budgeting properly.

Underestimating the costs of a project can be a dire mistake that could leave homeowners either with an unfinished property or having to incur a financial loss. Have a detailed budget so you don’t run out of money. Remodeling experts advise always including a 10% to 20% buffer in the budget for any unexpected costs when tackling a remodel.

Assuming DIY will save you money.

Remodeling experts call it the “DIY trap,” and rookie remodelers are especially prone to it. It’s not always cheaper to do a project yourself. It may not look right and could take triple the amount of time to complete than if you would have just hired a pro. “Limit your DIY tasks to things such as painting and simple landscaping jobs, and dedicate your time to project managing the renovation,” experts told Houzz.

Selecting the cheapest contractor.

Another common pitfall is to go with the cheapest quote from a contractor. You don’t want to have to redo poor work. Don’t just focus on the affordability of a contractor’s quote but evaluate fully what it specifies, experts recommend. Gather quotes from at least three contractors and compare them in detail. Also, evaluate the quality of their work through project photos and professional recommendations.

Failing to describe what you want accurately.

Know exactly what you want before you start and use the right words to describe it. Create idea books; search online for ideas online or in magazines; and have a specific list of layouts and finishes you desire. Become familiar with the proper terminology of those looks and finishes so you communicate them correctly to the pros, the experts recommend.

Not researching the material options.

In the same regard, choosing materials often requires some homework. Builders or contractors may fall back on the same materials they always use, but that doesn’t always mean those are right for the project. “Spend time researching the various materials options available—including looks, price, pros and cons, sustainability, durability, and which ones are best suited to your location, and take this information to your builder,” Houzz notes. “Armed with this knowledge, you can decide together the most suitable materials and finishes for your project.”

View more common remodeling mistakes at Houzz.com.

Source: “10 Biggest Remodeling Regrets and How to Avoid Them,” Houzz.com (March 10, 2020)

Making Your House a Home

Purchasing a house is very exciting for a lot of reasons but one of the biggest is the anticipation of making the house a home. Some of the things you get to look forward to:

1) Decorating: Choosing your own style of decor, furniture, glassware, cutlery, baking and cooking items and so much more! Some of the best decorating is done over the holidays! Along with the decorations is also the smell of home cooked meals and baked goodies.

2) Traditions: Whether you are keeping old ones or creating new ones, you’re making new memories in your home.

3) Family: Whether it is your immediate family gathering at your home for special occasions or building a family with pets, kids and your partner, these moments all help bring love, laughter and warmth to your home.

4) Making it Your Own: There are always ways to add on or take away (more adding on than taking away usually). Whether it is adding in a pool, bocce court, play ground, chicken coop, new patio/deck, gardens…everything adds something special to your home.

Above all it is all about making new memories! These are just a few.

What are some of your favorite ways of making your house a home?

Is Your House "Priced to Sell Immediately?"

In today’s real estate market, more houses are coming to market every day. Eager buyers are searching for their dream homes, so setting the right price for your house is one of the most important things you can do.

According to CoreLogic’s latest Home Price Index, home values have risen at over 6% a year over the past two years, but have started to slow to 3.6% over the last 12 months. By this time next year, CoreLogic predicts home values will be 5.4% higher.

With prices slowing from their previous pace, homeowners must realize that pricing their homes a little over market value to leave room for negotiation will actually dramatically decrease the number of buyers who will see their listing (see the chart below).

Instead of the seller trying to ‘win’ the negotiation with one buyer, they should price their house so demand for the home is maximized. By doing so, the seller will not be negotiating with a buyer over the price, but will instead have multiple buyers competing with each other over the house.

The secret is making sure your house is Priced To Sell Immediately (PTSI). That way, your home will be seen by the most potential buyers. It will sell at a great price before more competition comes to the market.

Bottom Line

If you’re debating listing your house for sale, reach out to a local real estate professional to discuss how to price your home appropriately and maximize your exposure.

Homeownership Equity Reaches All-Time-High in Q2

BY: JANN SWANSON

Total home equity, not surprisingly, increased again in the second quarter of the year.  CoreLogic's quarterly Homeowner Equity Insights report, which looks only at properties with one or more mortgages, puts the aggregate increase at $428 billion year-over-year, a 4.8 percent gain.   The company says that 63 percent of residential properties have a mortgage.

"Home values have continued to rise in most parts of the country this year and we are seeing the benefit in higher home equity levels. The western half of the U.S. has experienced particularly strong gains in home equity recently," according to CoreLogic CEO and President Frank Martell. In July 2019, South Dakota and Connecticut were the only two states to post annual home price declines. These losses mirror the states' home equity performances during the second quarter as both reported negative home equity gains per borrower."

The number of mortgage properties that were underwater, owning more on the mortgage or mortgages than the property is worth, totaled 2 million homes or 3.8 percent of all mortgaged properties. This is 151,000 fewer underwater properties (a 9 percent decrease) from the second quarter 2018 total.  At that time the negative equity rate was 4.3 percent.

Frank Nothaft, CoreLogic Chief Economist, said "Borrower equity rose to an all-time high in the first half of 2019 and has more than doubled since the housing recovery started. Combined with low mortgage rates, this rise in home equity supports spending on home improvements and may help improve balance sheets of households who could take out home equity loans to consolidate their debt."

Negative equity at the end of the second quarter of 2019 had an aggregate value of approximately $302.7 billion. This is down quarter over quarter by approximately $2.6 billion, from $305.3 billion in the first quarter of this year.

Negative equity peaked at 26 percent of mortgaged residential properties in the fourth quarter of 2009, based on the CoreLogic equity data analysis which began in the third quarter of 2009.

When broken down by household, the aggregate increase in equity averages a gain of $4,900 since the end of Q2 2018. Idaho had the highest year-over-year average increase at $22,100.

2018's Home Sales Slump Now Fully Erased

BY: JANN SWANSON

While the increase wasn't as strong as in July, last month's existing home sales posted a second straight month of gains and, as previously, the National Association of Realtors® (NAR) credited falling interest rates.  Sales of previously owned single-family houses, townhouses, condominiums, and cooperative apartments were up 1.3 percent compared to July when sales rose 2.5 percent.  The seasonally adjusted annual rate of 5.49 million units was 2.6 percent higher than the August 2018 pace of 5.35 million. The increase was felt in three of the four major regions while the West continues to demonstrate some weakness.

The month's results were better than predicted.  Analysts polled by Econoday had expected them to come in at an annual rate of 5.30 to 5.42 million with a consensus of 5.38 million.

Single-family home sales rose from 4.84 million in July to 4.90 million in August, a 1.2 percent gain and 2.9 percent above the August 2018 rate. Existing condo sales rose 1.7 percent from July to 590,000 annual units, largely unchanged from the previous August.

Lawrence Yun, NAR's chief economist, said, "As expected, buyers are finding it hard to resist the current rates. The desire to take advantage of these promising conditions is leading more buyers to the market."

The median existing home price for all housing types in August was $278,200, up 4.7 percent from the median a year earlier of $265,600.  It was the 90th straight month of year-over-year gains. The median existing single-family home price also rose 4.7 percent to $280,700.  Condo prices were up 5.2 percent to a median of $257,600 in August.

"Sales are up, but inventory numbers remain low and are thereby pushing up home prices," said Yun. "Homebuilders need to ramp up new housing, as the failure to increase construction will put home prices in danger of increasing at a faster pace than income."

Inventory fell in August, down from 1.90 million available homes to 1.86 million and 2.6 percent fewer homes than a year earlier. Unsold inventory is at a 4.1-month supply at the current sales pace, down from 4.2 months in July and from the 4.3-month figure recorded in August 2018. Properties typically remained on the market for 31 days in August, up from 29 days in both July and the prior August. Forty-nine percent of homes sold in August were on the market for less than a month.

Yun criticized the quarter point cut in the Fed Funds rate made by the Federal Reserve on Wednesday.  "[The Fed] should have been bolder and made a deeper rate cut, given current low inflation rates," he said. "The housing sector has been broadly underperforming but there is huge upward potential there that will help our overall economy grow."

First-time buyers were responsible for 31 percent of sales in August, the same as a year and investors and second home buyers accounted for 14 percent, up from 11 percent in July.  All-cash sales accounted for 19 percent of transactions in August, about equal to July and moderately below August 2018. Distressed sales remained negligible, representing 2 percent of August sales, a 1-point decline from a year earlier.

 "Rates continue to be historically low, which is extremely beneficial for everyone buying or selling a home," said NAR President John Smaby. "The new [FHA] condominium loan policies, as well as other reforms NAR is pursuing within our housing finance system, will allow even more families and individuals in this country to reach the American Dream of homeownership."

There were month-over-month increases in existing home sales in the Northeast, Midwest, and South and sales in all four regions bested their 2018 numbers. Sales in the Northeast increased 7.6 percent from July to an annual rate of 710,000 units, 1.4 percent higher than in August 2018. The median price fell 0.3 percent on an annual basis to $303,500.

Existing-home sales grew 3.1 percent in the Midwest to an annual rate of 1.31 million, topping sales from a year earlier by 2.3 percent.  The median price jumped 6.6 percent to $220,000.

In the South there was a gain of 0.9 percent in sales to a rate of 2.33 million and sales were 3.6 percent higher year-over-year. The median price of $240,300 was a 5.4 percent annual increase.

While sales remained 1.8 percent higher on an annual basis, the West was an outlier in August. Existing home sales declined 3.4 percent to 1.14 million. Prices, however, continued their strong appreciation, rising 5.7 percent to $415,900.

The Fed and Mortgage Rates

One of the greatest potential sources of confusion for prospective mortgage borrowers is the relationship between the Fed and mortgage rates.  While the Fed's policy changes absolutely have a big impact on all sorts of interest rates (including mortgages), a drop in the Fed's policy rate DOES NOT result in lower mortgage rates. 

The main reason for confusion is the fact that there's a huge difference from an investment standpoint between a rate that governs the shortest-term transactions (The Fed Funds Rate applies to loans that last for 1 day or less) and a rate that can remain in effect for up to 30 years in the case of mortgages.  Even if we use the average life span of a 30yr fixed mortgage, we're still talking about 5-10 years depending on the broader market landscape. You may have heard about the "inverted yield curve?"  That's a reference to vastly different behavior between longer and shorter term rates, and it stands as evidence of the different sets of concerns that apply to each side of the duration spectrum.  The differences are only more pronounced when we take the shorter end of the spectrum all the way down to the "overnight" level (Fed Funds Rate) and all the way up to the duration of the average mortgage loan.

Beyond the fact that a mortgage rate is very simply a different animal than the Fed Funds Rate, there's also the matter of frequency of movement.  The Fed only meets to potentially change rates 8 times a year.  Mortgage rates change every day--sometimes more than once.  And the bond markets that underlie mortgage rates change thousands of times per day.  That means the mortgage market can easily and quickly get into position for any expected move from the Fed.  In today's case, where the rate cut was seen as highly likely, any effect that the Fed Funds Rate could ever have on mortgage rates was already priced-in weeks ago.

But let's say the first two points don't quite convince you.  The third is irrefutable.  The Fed doesn't just take the stage, cut rates, and go home.  They release a ton of other info and hold a press conference to discuss their present and future policy decisions.  The rates market (for mortgages, Treasuries, and everything else) is tremendously interested in all that "other stuff."  Today, particularly, there was a set of updated forecasts for future rate movements.  These were a bit less market-friendly than the average investor expected.  In addition, market participants interpreted Powell's press conference as being a bit less friendly than expected.

Long story short: there are multiple reasons for mortgage rates to go their own way regardless of the Fed rate cut. 

BY: MATTHEW GRAHAM

What Buyers Need to Know About HOA's

When searching for a home, you may end up selecting a property in a community with a Homeowners Association (HOA). Before you buy, it’s important to know how an HOA works and what they mean for you.

According to a recent article on realtor.com,

“In a nutshell, an HOA helps ensure that your community looks its best and functions smoothly…The number of Americans living in homes with HOAs is on the rise, growing from a mere 1% in 1970 to 25% today, according to the Foundation for Community Association Research.”

An HOA is governed by a board nominated by those living in the neighborhood. It is designed to make sure the residents have a support structure to maintain the value of the community while abiding by a set of guidelines called Common Restrictive Covenants (CC&R),

“Simply put, CC&Rs are just the rules you’ll have to follow if you live in that community. Unlike zoning regulations, which are government-imposed requirements on how land can be used, restrictive covenants are established by HOAs to maintain the attractiveness and value of the property.”

It’s important for homeowners to understand that each HOA is a little different, and they usually have monthly or quarterly fees required for homeowners. These fees can vary based on property size, number of residents, amenities, and more. There may be additional fees charged to homeowners if the reserve fund for the HOA cannot cover a major or unexpected cost, like severe storm damage.

The fees, however, also help maintain common areas such as swimming pools, tennis courts, elevators (for high-rise buildings), and regular wear and tear. Although they are an added cost to the homeowner, an HOA can be a major benefit when it comes to maintaining the value of your neighborhood and your property.

The same article continues to say,

“After your offer to buy a home is accepted, you are legally entitled to receive and review the community’s CC&Rs over a certain number of days (typically between three and 10)…If you spot anything in the restrictive covenants you absolutely can’t live with, you can bring it up with the HOA board or just back out of your contract completely (and keep your deposit).”

Most lenders will factor your HOA fees into your loan package, ensuring the amount of the loan is appropriate for what you can truly afford.

There are some great benefits to having an HOA oversee your neighborhood, and it’s important to understand what fees, structures, and regulations will come into play if there is an HOA where you’d like to live.

Bottom Line

When you’re looking at a potential property to buy, be sure to work with a professional who can help you understand the neighborhood’s HOA structure and fees. This way, you’ll feel confident and fully informed when buying a home.

What is the Probability That Homes Values Sink?

With the current uncertainty about the economy triggered by a potential trade war, some people are waiting to purchase their first home or move-up to their dream house because they think or hope home prices will drop over the next few years. However, the experts disagree with this perspective.

Here is a table showing the predicted levels of appreciation from six major housing sources:

As we can see, every source believes home prices will continue to appreciate (albeit at lower levels than we have seen over the last several years). But, not one source is calling for residential real estate values to depreciate.

Additionally, ARCH Mortgage Insurance Company in their current Housing and Mortgage Market Review revealed their latest ARCH Risk Index, which estimates the probability of home prices being lower in two years. There was not one state that even had a moderate probability of home prices lowering. In fact, 34 of the 50 states had a minimal probability.

Bottom Line

Those waiting for prices to fall before purchasing a home should realize that the probability of that happening anytime soon is very low. With mortgage rates already at near historic lows, now may be the time to act.

Homeownership Will Always Be a Part of the American Dream

On Labor Day we celebrate the hard work that helps us achieve the American Dream.

Growing up, many of us thought about our future lives with great ambition. We drew pictures of what jobs we wanted to have and where we would live as a representation of a secure life for ourselves and our families. Today we celebrate the workers that make this country a place where those dreams can become a reality.

According to Wikipedia,

“Labor Day honors the American labor movement and the contributions that workers have made to the development, growth, endurance, strength, security, prosperity, productivity, laws, sustainability, persistence, structure, and well-being of the country.”

The hard work that happens every day across this country allows so many to achieve the American Dream. The 2019 Aspiring Home Buyers Profile by the National Association of Realtors (NAR) says,

“Approximately 75% of non-homeowners believe homeownership is part of their American Dream, while 9 in 10 current homeowners said the same.”

Looking at the number of non-owners, you may wonder, ‘If they believe in homeownership, why haven’t they bought a home yet?’. Well, increasing home prices and low inventory can be part of the reason why some haven’t jumped in, but that does not mean there is a lack of interest. The same report shows the increase in the desire to buy in the last year (as shown in the graph below):

As we can see, there are more and more people each quarter who want to buy a home. The good news is, as more inventory comes to the market, more non-homeowners will be able to fulfill their dreams. Finally, they’ll be able to move into that home they drew when they were little kids!

Bottom Line

If you’re a homeowner considering selling, this fall might be the right time, as there are buyers in the market ready to buy. Sit down with a local real estate professional to find out how you can benefit from this pent-up housing demand.