By Marilou Ubungen
The debate about whether it makes more financial sense to rent or buy has been raging for decades. Advocates of buying say: When you rent, you’re essentially paying someone else’s mortgage. Buying, on the other hand, is an investment—one that can significantly increase in value every year you continue living in the home.
Fans of renting say: The extra costs associated with owning a home (interest payments on the loan, property taxes, homeowner dues, improvement/repair costs, etc.) add up. And there’s no guarantee that those expenses will be recouped when the house is sold. Instead of investing in a home, you may be better off investing your savings in stocks, bonds, and other financial securities.
According to Jed Kolko, one of the country’s most respected real estate economists, “Mortgage rates are still near long-term lows. Because prices fell so much after the housing bubble burst, and remain low relative to rents even after recent price increases, buying is still much cheaper than renting.”
But that’s a blanket statement. The right option for you depends on your personal circumstances, and your answers to the following questions:
What’s the real estate situation in your city?
Industry groups put out reports every quarter stating the average national sales price for a home, and the average monthly payment for a U.S. rental. But what really matters is what the numbers show when you dig into them on a local level.
The reports are almost always based on average for all the cities in the country. Delve into the details, and you’ll see there are some cities that fall well below that average, and some that rise far above it. The learning: When comparing housing costs, be sure to base your evaluation on what’s happening in your city and neighborhood, not the nationwide averages.
How long do you expect to live there?
If five years is the longest you can envision yourself living in one place right now, renting is probably your best bet financially. But if you think you’re ready to put down roots for as long as 10 years, chances are very good that any home you purchase will appreciate during that time even if the economy runs into some bumps along the way.
What’s the mortgage rate?
One of the other key factors to consider is the cost of your loan (the interest you’ll pay the lender). Fortunately, you now have access to some of the lowest mortgage interest rates in history, even if they increase a bit over the coming year, as many expect. According to a recent article in Forbes, “Compared to decades past, today’s rates are unprecedentedly—and artificially—low. They’re the direct result of a Federal Reserve-funded fiscal stimulus plan, better known as the third round of quantitative easing of QE3, aimed at hastening the recovery in housing and the economy as a whole.”
Can you pay a bit more?
If you can afford to pay a little extra towards your mortgage bill each month, it makes even more sense to buy. Paying $300 more per month (on a 30-year, $300,000 loan) will knock eight years off the life of the loan and reduce your final bill by more than $63,000 (that’s savings you would never see if you rented).
Will you need to make repairs or improvements?
Buying a fixer-upper may seem like a great way to get a deal on a house, but if the money you spend on the repairs is too great, your profit could be slashed when it comes time to sell. The same is true for remodeling and improvement projects. If you can only afford a home that demands major improvements, and you don’t have the skills to do much of the work yourself, it’s probably better to rent.
Do you have other ways to invest?
Many see a home purchase as an easy way to invest—a place where they can generate savings through home equity. But others say you can make more money renting an apartment and investing your savings in stocks, bonds, and other financial securities.
According to two professors studying the issue, it is possible to make more money investing in securities, however, you need to invest ALL the money you would have put towards the house (something most people can’t/won’t/don’t do). Plus, do you have the knowledge, resources and liquid cash necessary?
“We find that if people don’t invest the money, actually about 90% of the time, you’re better off buying,” says professor Eli Beracha, a co-author of the study.
Can you rent part of the house?
Here’s a twist: If you buy a house that includes a rental (space bedroom, mother-in-law unit, etc.), you could BE the landlord instead of paying the landlord. With that rental income, you could pay off the mortgage faster and contribute more to your savings. But, of course, you need to be willing to share your home with a tenant and take on the responsibilities of being a landlord.
Making your decision
To make your decision about whether to rent or buy easier, input the key financial facts regarding your situation into this Realtor.com Rent vs. Buy Calculator: https://www.realtor.com/mortgage/tools/rent-or-buy-calculator.
This blog was reposted with the permission of Windermere Real Estate.
– Reposted with permission from Long & Foster
Advice to downsize a life’s worth of possessions
As baby boomers begin to enjoy their empty nests and embrace the next phase of their lives, many are opting for a new walkable lifestyle close to the cultural and culinary amenities they love. Developers have caught onto the trend and are designing upscale condos in and the near our major cities to attract these new residents. While these properties may officially qualify as downsizing for their buyers, they offer luxuriously appointed spaces with upwards of 2,500 to 5,000 square feet.
But if you’ve lived in a large home for many years, moving into a new property with half the space often requires purging many of the belongings you’ve accumulated over the years. Sorting through your possessions, especially decades of paperwork and photos, can be physically and emotionally wearing, yet ultimately rewarding.
If you’re dreaming of living in that luxury condo with all the upscale amenities, here are some downsizing tips to get you started.
Give yourself plenty of time before moving. As soon as you start to think about moving, begin the process of purging, so you can have a sense of how much space you’ll want (and need) in your new home.
Take an inventory of your belongings. Regardless of where you are moving, knowing what you have and determining what to do with your possessions is one of the best first steps. It’s often easier to start with your storage spaces to see if you really need to keep things like your kid’s old report cards.
Hire a professional organizer or ask a friend to help. As you declutter, identify items to throw away, sell or donate. Hire a professional or ask a friend to help who will have less of an emotional attachment.
Take photos of special items. One way to maintain your memories while reducing your possessions is to take photos of the things you love that may not fit your new lifestyle, possibly even your art.
Next week, we’ll share with you a few additional tips for downsizing into the lap of luxury.
Price appreciation and low inventory dominated real estate news in 2016. Looking ahead, housing market experts foresee a moderating yet healthy real estate market in 2017. The two largest population groups—millennials and baby boomers—are anticipated to have the biggest impact on real estate, along with rising mortgage rates and increased access to credit.
Here are some of the top trends to watch this year.
Rising prices and rising net worth: While rising prices challenge first-time buyers, homeowners benefit from increased home equity and a higher net worth. According to CoreLogic, home values were up 7.1 percent year-over-year in November 2016, and home equity wealth accumulated by Americans has nearly doubled in the past five years as a result. Values have been rising for a few years and CoreLogic says the average homeowner gained $11,000 in home equity in the past year. A total of $1 trillion could be added this year if home prices continue to rise by the company’s projected 5.2 percent. Even if the gains come in lower—Moody’s predicts a 3.5 percent rise and Realtor.com, a 3.9 percent—the outcome is still positive for the year.
Higher mortgage rates: Mortgage rates jumped to just over 4 percent after the Presidential election in November. They are anticipated to stay between 4-5 percent in 2017, which is higher than recent rates but still comparatively low historically. Older borrowers may remember rates of 18 percent in the 1980s, so even 5 percent seems like a bargain to that. Homeowners who want to refinance and prospective buyers should consider locking in a loan as soon as possible since mortgage rates are not expected to drop this year.
Loosening of mortgage restrictions: According to the Mortgage Bankers Association’s Mortgage Credit Availability Index, mortgage approvals are easier to get, with the pendulum slowly swinging back from overly restrictive guidelines. In addition, low down payment loans are more readily available than in recent years. Jumbo loans also are easier to qualify for and have competitive interest rates with conforming loans. Higher mortgage rates mean lenders will get more competitive for purchase loans as their refinance business fades. Lenders also anticipate looser regulations from the new administration.
Inventory remains tight: The lack of homes for sale has been driving prices up for the past several years and frustrating buyers, and the issue shows no sign of easing this year. The National Association of Realtors says nationwide inventory was down 9.3 percent year-over-year in November and has continually fallen for the past 18 months. At the end of 2016, there was a four-month supply of homes for sale, far below the six months of supply that is considered a healthy market. In the Philadelphia metro area, for example, inventory was down 23 percent year-over-year in November, according to Long & Foster’s Market Conditions. Similarly, inventory was down in the Washington, D.C., area by 23 percent and in Richmond, Virginia, by 19 percent.
Repurposing of buildings for residential use: With urban areas and close-in suburbs lacking space for residential development, 2017 will bring more commercial properties being revamped into residential developments. Washington, D.C., has already seen a few office buildings converting into mixed-use developments with both office space and residential space. The Adele, a new residence in downtown D.C., is a great example of this type of transition. Churches in Baltimore and D.C. whose congregations have shrunk or moved to the suburbs are also being sold for redevelopment into unique condos.
Millennials in the market: The number of first-time buyers, most of whom are millennials, increased to 35 percent of all buyers, according to the National Association of Realtor’s 2016 Profile of Home Buyers and Sellers, up from 32 percent in 2015. While that doesn’t quite reach the norm of 40 percent of the market, housing experts anticipate that more millennials and first-time buyers will purchase homes this year. Not only is job security increasing for this demographic group, but also more millennials are beginning to form households, marry and have children, all of which trigger a home purchase.
Baby boomers on the move: The second-largest demographic group—the baby boomers are reaching retirement age in record numbers, with 10,000 turning 65 each day. As their home equity increases, more of these boomers are anticipated to move, sometimes to new markets. Among the popular destinations for retirees, North Carolina and South Carolina offers numerous communities that appeal to residents of the Mid-Atlantic and Northeast who are looking for warmer weather and, most importantly, tax advantages. North Carolina residents, for example, are exempt from paying state income taxes on federal and military retirement benefits thanks to a tax settlement known as the Bailey exclusion.
A return to the suburbs: Census data released in 2016 showed that more people moved to the suburbs than into cities in 2015, with urban counties growing by 0.8 percent to about 77 million people and suburban counties growing by nearly 1 percent to about 159 million residents. That trend is expected to continue in 2017, particularly as first-time buyers and downsizing baby boomers look for affordable homes. But the suburbs are changing, with the development of more mixed-use, walkable neighborhoods with urban-style amenities. The John Burns Consulting Group says 80 percent of new homes are being built in what they term “surban” areas, which offer the safety and good schools of suburbia along with the walkability and excitement of the city.
Overall, a strong market is expected in 2017, and professional Realtors at Long & Foster | Christie’s International are here to help you, whether you’re planning to buy your first home or retire to a new location. Contact us today at LongandFoster.com.
Across the Mid-Atlantic and Northeast, homes are selling faster and for higher prices than they were the same time last year. Meanwhile, inventory remains tight. The National Association of Realtors reported there was 6.6 percent less inventory at the end of March than the year prior. With these conditions, homebuyers face stiff competition when making an offer on a property this spring.
But there are ways to get ahead. Here are tips from agents and leaders at Long & Foster | Christie’s to make your offer stand out in a competitive market.
Make sure you’ve done your financial homework. A preliminary approval from a lender carries more weight than a pre-qualification. That’s because your lender verifies all your financial information. It’s a more thorough process that positions you as a stronger, less risky buyer. “Money, timing and risk are what matters to the sellers, and whatever you can do that minimizes risk to the seller makes you more appealing,” said Kate Ryan, a Realtor in Long & Foster’s McLean, Virginia, office.
Ask your loan officer to call the seller’s agent as well, advises Cindy Ariosa, senior vice president and regional manager of Long & Foster in Baltimore, Western Maryland and the Eastern Shore. That phone call further assures the sellers that you have the financial resources to close.
Accommodate the sellers’ preferred closing date. The easier you can make the process for the sellers, the better your offer will appear. Rae Nunnally, a real estate agent in Long & Foster’s Bellgrade office in Midlothian, Virginia, received an offer for a home she’s selling that allowed the sellers to choose the closing date and gave them the option to rent the property back after closing. “Those conditions made their offer stand out,” Nunnally said.
Even offering the sellers just a few days after closing to rent back their home—often at no cost—can make a buyers’ offer more attractive, Ryan added.
Get creative with the home inspection requirements. You might not want to waive the home inspection, but you could limit the amount of repairs the seller would need to cover. In Nunnally’s recent sale, the prospective buyers asked for up to $1,000 worth of repairs resulting from the home inspection. They also requested a home warranty to cover longer-term items.
Put down a little extra for your earnest money deposit. If $1,000 is the norm in your area for an earnest money deposit (also called a good faith deposit), consider bumping yours to $5,000. The added amount shows the sellers you’re serious about purchasing their home, says Bob Albanese, senior vice president and regional manager of Long & Foster in New Jersey.
Write a personal letter to the sellers. What do you love about the home? Why do you want to live in the neighborhood? Show the sellers who you are and why you want to make their home your home. In fact, when Ariosa’s son and daughter-in-law were shopping for homes last year, she encouraged them to write a letter to the sellers of the home they wanted. They won the home—even with an offer that wasn’t the highest.
While there are many tips to stand out in a competitive market, the most important is this: rely on your real estate agent throughout the process. They know the market, the conditions and exactly what it takes to find that place you can call home.
Many parts of the greater Richmond real estate market experienced an increase in the number of homes sold during the month of March, according to The Long & Foster Market Minute reports. The greater Richmond region includes Chesterfield, Henrico, Goochland and Hanover counties and Richmond City. The Long & Foster Market Minute reports are based on data provided by Central Virginia Regional multiple listing service and its member associations of Realtors and includes residential real estate transactions within specific geographic regions, not just Long & Foster sales.
The number of homes sold increased in much of the Richmond region in March compared to year-ago levels. Hanover County experienced a 35 percent increase, followed closely by Chesterfield County with a 34 percent increase. In Richmond City, the number of homes sold rose by 17 percent, and it increased by 16 percent in Henrico County. In Goochland County, the number of homes sold fell by 5 percent.
Median sale prices varied in the Richmond region in March when compared to the same month last year. In both Hanover and Henrico counties, the median sale price rose by 10 percent, followed by a 7 percent increase in Chesterfield County. In Richmond City, the median sale price decreased by 3 percent, while in Goochland County, it fell by 4 percent.
Active inventory decreased in the entire region last month, including by 24 percent in Richmond City and by 14 percent in Henrico County. In Chesterfield County, active inventory fell by 11 percent, and in both Goochland and Hanover counties, active inventory declined by 8 percent.
Houses sold at a steady pace in much of the Richmond area, with both Goochland and Henrico counties seeing a days on market (DOM) average of 39 days in March. The DOM average in Richmond City was 40 days, followed by Chesterfield County with a DOM average of 46 days. In Hanover County the DOM average was 63 days.
“March was a great month at Long & Foster and we saw numerous positive indicators of growth in the real estate market, including in the Richmond region where home sales increased in many areas,” said Jeffrey S. Detwiler, chief operating officer of The Long & Foster Companies. “With spring in full swing and mortgage rates remaining low, more people are looking to buy and sell homes. We anticipate the season will continue to bring robust activity to the housing market.”
The Long & Foster Market Minute is an overview of market statistics based on residential real estate transactions and presented at the county level. The easy-to-read and easy-to-share reports include information about each area’s units sold, active inventory, median sale prices, months of supply, new listings, new contracts, list to sold price ratio, and days on market. Featuring reports for more than 500 local areas and neighborhoods in addition to more than 100 counties in eight states, The Long & Foster Market Minute is offered to buyers and sellers as they aim to make well-informed real estate decisions.
The Long & Foster Market Minute reports are available at www.LongandFoster.com, and you can subscribe to free updates for the reports in which you’re interested. Information included in this report is based on data supplied by CVR, which is not responsible for its accuracy. The reports do not reflect all activity in the marketplace. Information contained in this report is deemed reliable but not guaranteed, should be independently verified, and does not constitute an opinion of CVR or Long & Foster Real Estate.