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Homeownership Still a Great Investment
Four recent news articles confirmed that most Americans still see real estate as a great long term investment. The Gallup organization polled the American people and discovered that they believe that real estate is a better long term investment than stocks/mutual funds, gold, savings or bonds:
A second survey was done by Edelman Berland which showed that:
At the same time, Tim Rood, chairman of the business advisory firm The Collingwood Group, explained that real estate is:
“…one of the last legitimate wealth creation opportunities…The leveraged return if you put down 10 percent on a house, the trajectory of appreciation lately is you’re going to get your money back inside of a year and then after that 5 to 10 percent appreciation rates. It's phenomenal."
Bottom Line
Real estate continues to be a sensational long term investment. If you need help with any of your real estate needs, let’s get together and discuss the opportunities available in today’s market.Easy Chicken Little: Homeownership Rates Are NOT Crashing
The Census recently released their 2015 Q1 Homeownership Statistics, and many began to worry that Americans have taken a step back from the notion of homeownership.
The national homeownership rate (Americans who owned vs. rented their primary residence) increased significantly during the housing boom, reaching its peak of 69.2% in 2004. The Census Bureau just reported the first quarter of 2015 ended with a homeownership rate of 63.7%. Many reported on this and began to question Americans’ belief in the ideal of homeownership as a major part of the American Dream.
Everyone Calm Down…
It is true the homeownership rate has fallen over the last several years. However, if you look at the national rate over the last 30 years (1984-2014), you can see that the current homeownership rate has returned closer to historic norms. The 63.7% rate is less than a percentage point under the rate in 1985 and 1995.
What Will the Future Bring?
In a Housing Wire article this week, Ed Stansfield who manages the housing market research at Capital Economics said:“The homeownership rate fell further at the start of the year to a 22-year low of 63.7. However, with credit conditions now loosening and employment set to continue growing strongly, we suspect this long downward trend may not last for much longer.”In the same article referenced above, Jonathan Smoke, chief economist for realtor.com, explained why the homeownership rate will probably begin to increase:
“The homeownership rate is likely to bottom this year or next not far from where we are now. By historical patterns, the rate could indeed go up. The simple math behind what it costs to rent versus buy shows that if you can afford the down payment and qualify for a mortgage, it is cheaper to buy rather than rent in 80% of the counties in the US now.”
Bottom Line
With interest rates and prices still below where experts predict, perhaps we should get together and evaluate your ability to purchase a home.Homeowners: We Need to Sell Your House Twice
Every house on the market has to be sold twice; once to a prospective buyer and then to the bank (through the bank’s appraisal). In a housing market where supply is very low and demand is very high, home values increase rapidly. One major challenge in such a market is that bank appraisal. If prices are jumping, it is difficult for appraisers to fine adequate comparable sales (similar houses in the neighborhood that closed recently) to defend the price when doing the appraisal for the bank.
With escalating prices, the second sale might be even more difficult than the first. And now, there may be a second issue further complicating the appraisal issue.
The Mortgage News Daily (MND) recently published an article titled Conservative Appraisals Increasingly Mentioned in 2015; Did Something Change?
The article revealed that there was a “flurry” of comments on their website from members expressing concern about…
“…a sudden increase in appraisals reflecting market values well below what had been expected. In some cases the low appraisals had merely required the restructuring of the loan, in others they killed the deal.”The National Association of Realtors revealed this month that 8% of the contracts that fell through over the last three months were terminated because of appraisal issues. MND decided to survey their members and ask why this sudden increase in “short” appraisals could be taking place. Here is one result of that survey:
“Almost everyone we spoke to mentioned Fannie Mae's new Collateral Underwriter (CU).”Collateral Underwriter provides a risk score on individual appraisals which will lead to a ranking of appraisals by risk profile, allowing lenders to identify appraisals with heightened risk of quality issues, overvaluation, and compliance violations. It went on-line on January 26. Marianne Sullivan, senior vice president of single-family business capability with Fannie Mae believes that CU is not a problem for appraisers. She claimed:
“From an appraiser perspective, one of the lender's responsibilities has always been to review the quality of an appraiser, and they have been using various methods to do that forever. I don’t think appraisers will find this tool to be disruptive.”However, some think that CU has caused appraisers to become too cautious with their appraised values. One mortgage professional in the MND article explained it this way:
"My personal opinion is that appraisers are being overly conservative in choosing comps because of CU. If CU questions the comps, adjustments, etc., the appraiser would have to do a lot of extra work to justify them. I had anticipated that CU would cause delays because of this extra work, but it seems that appraisers are one step ahead and are being ultra conservative, thus avoiding the extra work in the first place. I haven't spoken to an appraiser about it; this is just my interpretation of what I am seeing."Ryan Lundquist, a Certified Residential Appraiser in the Sacramento area, agreed:
“One of the unintended consequences of CU may be more conservative appraisals.”