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Investing Options: Tapping into Your Home’s Equity

by Tim Hart

When the housing market is in a full swing recovery like it is today with interest rates still historically low and inventory changing daily, it is a good time to see how you, the ‘happy in your current home and not looking to move,’ can tap into the market through investing.

Usual Methods of Real Estate Investment: These include: financing a new purchase with a mortgage or selling some stocks and bonds, taking money out of your IRA or from your 401(k). These are hit and miss and sometimes turn out to be not-so-smart moves but they seem to be the methods by which most investors fund their second (or third, or fourth…) purchases.

An Unusual Proposal: Some investors have begun to start using the equity they have built up in their own home as the launch point for an investment property! Home equity, the difference between what a person owes on their mortgage versus their home’s market value, rises with the strengthening real estate market. The increasing value of your home’s equity can be monetized through a home equity loan (a call-out refinance) allows home owners to use their current home’s value to pay for a second home. This, like the methods above, does has pros and cons to it.

  • Pros: Lenders are more willing to lend on more favorable terms because the home owner has more skin in the game. The costs on borrowing will be lower as well since this form of loan does not involve paying for title searches or the transactional cost of a new mortgage.
  • Cons: Your monthly payments will increase and if you cannot pay, you may lose your primary home to foreclosure. In addition, this is an eggs all in one basket approach—you will be investing in one type of asset.

http://money.cnn.com/2013/08/16/pf/expert/home-equity/index.html

New Chapter In Housing Market Recovery

by Tim Hart
 

The nation experienced a 5.24% decline in housing inventory this July. At the same time, the national median listing price increased by 5.27%.

“The recovery is entering a new phase where inventory shortfalls are no longer the driving force behind changes inhousing prices in many markets. Larger inventories, especially in the hotter markets that experienced rapid price increases in the spring, are expanding buyers’ choices and helping to moderate price increases,” said Steve Berkowitz, CEO of Move, Inc. “This month’s report also underscores the uneven nature of the housing recovery and its dependence on the strength of the local economy.”  

This new trend boasts the following highlights:

  • No More Year-Over-Year Inventory Declines

  • Local Markets Inventory Declines Decrease Leading to Slower Price Growth

  • Mortgage Rates Rise/Plateau

 

Source: http://www.realtor.com/news/housing-inventory-declines-are-easing/

Back to School and the Real Estate Market

by Tim Hart

After the thralls of summer begin to fade into the dry grasslands that signal in fall, parents start thinking about the school season. In fact, a recent realtor.com survey found that school districts impact 60% of home buyers. This carries so much clout with some buyers that are willing to spend more in order to buy within a the district they want their children to belong in. This oftentimes takes a higher priority than parks, trails, and other amenities.

A majority of the home buyers surveyed said that school-district boundaries will have an impact on their buying decision:

  • 23.59 percent would pay 1-5 percent above budget
  • 20.70 percent would pay 6-10 percent above budget
  • 8.98 percent would pay 11-20 percent above budget
  • 40.33 percent would not go above budget

For home buyers who said that school-district boundaries will have an impact on their decision, the majority rated the boundaries as an “important” consideration:

  • 90.53 percent said school-district boundaries are  “important” or “somewhat important”
  • 2.04 percent were “neutral” about the importance of school-district boundaries
  • 7.43 percent said school-district boundaries are “unimportant” or “very unimportant”

 

Data Source: http://www.realtor.com/news/back-to-school-home-search-tips/

Selling Your Home in a Rising Rate Market

by Tim Hart

This past year has brought with it significant improvements to the wounded market we all lived through last year. With this healing process, the world of a seller became an ease as the constraints of limited inventory, low prices, and low mortgage rates all converged. Slowly listing prices began to rise and now, mortgage rates are following suit. “There’s no one in the business right now who doesn’t think the market hasn’t taken a step back. The evidence is all around us,” said Glenn Kelman, chief executive of real-estate brokerage Redfin. (SOURCE) A good rule to follow is that 1% increase in mortgage rates will equate to a 10% reduction in affordability or purchasing power a buyer has. The most recent leaps in rates have made homes just about 10% more expensive to buyers who need to finance their purchase.

So how do you sell your home in this market condition?

  • First, you must remember, even at 5%, rates are still low and homes are still affordable when you look at historical standards. With that being said, this is a stock to the buyer’s side of the market. Buyers oftentimes shop for a home based upon their monthly mortgage payment which does mean they will be looking at a slightly lower price range for their purchase—but at this point, the market feels they buyers are still actively looking so be sure if you are on the fence, you get your house on the market!
  • It is all about balance. The market that will take the biggest hit is most likely to be the high end of the market. Oh the other side of the spectrum, the market that will perhaps most benefit from this new market environment would be that of the real estate investors. Investors who have been taking advantage of the low rates and buying properties to rent will see the influx of renters come back to the market as they see their buying potential dwindle. Because of both these factors, home inventory will finally catch up to the demand and the market will stabilize so that both buyer and seller alike are entering a more stabilized marketplace.
  • The hit to home prices is still out there in the future and has not happened yet. It is more of a shockwave impact where the news hit, sellers and buyers have time adjust and react and then the market adjustments happen. Here in Montana we get an even bigger buffer zone because we are always a few months behind the national trends. If you are looking to buy or sell right now, the market is still in a very advantageous place for you. In fact, pending home sales are reaching new highs.

“The number of pending home sales seen through the end of May increased 6.7 percent from April and 12.1 percent on an annual basis, bringing the current level seen nationwide to its highest point since December 2006, just prior to the start of the housing meltdown beginning in earnest, according to the latest Pending Home Sales Index from the National Association of Realtors.” (SOURCE)

Healthy Real Estate: Bursting Bubble Fears on the Rise

by Tim Hart

“Prices are increasing quickly, though that may not always be the most healthy development for the economy. Also, banks may soon loosen overly strict requirements, but a choke point remains in new-home construction.(source)

“The median home price jumped 8% from the previous month to $208,000, according to NAR. While month-to-month price swings are not unusual, the year-over-year rise is now 15%, and prices are at levels last seen in the summer of 2008, just before the bursting of the housing bubble.” (source)

The housing recovery is in full swing. The surge in themarket caught many by surprise with how fast and how swiftly demand for new homes and the selling of homeshappened. There are still too many buyers seeking to buy in a market with too few homes for sale. For most, all this news is vibrant and wonderful.

There is always caution that must be mixed into the equation when it comes to the real estate market.

  • Although fast-rising home values are great for home owners, price increases that go beyond the growth of income create a weak point within the economy that will have to balance itself out eventually.
  • The potential loosening of underwriting restrictions will normalize the lending environment but this too will contribute to a faster price growth. Making it easier for buyers to buy will only put stress on the already limited inventory on the market.
  • New-home construction breached the 1 million mark for the first time in five years in March. Currently, 1.5 million new housing units are needed annually to keep pace with the price gains to keep the market stable and healthy.

All of these currently optimistic headlines the real estate world is seeing are all red flags in and of themselves as well. The market is amorphous unit and will adjust to re-balance itself in time. Too fast of a recover can potentially mean an equally fast decline when the market constricts. One eye on the present and one eye on the future. 

Want to be Happier & Healthier—Buy a Home

by Tim Hart

Canada Mortgage and Housing Corp. has done a recent study on Habitat for Humanity families evaluating the amount a family’s life changes when they move into a home. The results ultimately found that families who own a home are healthier, happier and more financially secure.

  • 89% said their lives improved since they moved into their homes.
  • 86% said they’re happier since owning a home.
  • Children’s school performance improved, they saw signs of increased confidence, improved behavior and enjoyment for studying and social activities.
  • 75% said their health had improved since becoming home owners.

"There is evidence from numerous studies that attest to the benefits [of home ownership] accruing to many segments of society,” according to Canadian researchers. “Home ownership boosts the educational performance of children, induces higher participation in civic and volunteering activity, improves health care outcomes, lowers crime rates and lessens welfare dependency."

 

http://www.realtor.org/sites/default/files/social-benefits-of-stable-housing-2012-04.pdf

http://realtormag.realtor.org/news-and-commentary/feature/article/2013/03/remaking-dream

http://realtormag.realtor.org/daily-news/2013/05/15/realtors-right-path-ready-for-action

Seller Disclosures: Protecting Yourself As You Sell

by Tim Hart

When a listing file gets turned into me here at the office I oftentimes do not have the seller’s disclosures tucked away neatly inside. In fact, the seller disclosures are the primary documentation I have to ask for from the sellers as soon as an offer comes in. Why do we give the seller so much extra time with these disclosures? Well, it is because the information disclosed within a seller’s disclosure is the primary way for a seller to communicate with a buyer about all the material information, home owner’s knowledge and details about the home that can only assist in the buyer’s decision to purchase.

The seller must sign many forms to officially initiate the process of a listing. On disclosures, the seller is attesting that all the information held within is accurate to the best of their knowledge. Disclose disclose disclose.

Lawsuits stemming from nondisclosure of a property's problems are becoming a bigger issue, according to respondents in the National Association of Realtors 2011 Legal Scan survey. Of the agents who responded, about 75% ranked this issue among their "top three current and future issues."

With every detail, a seller is protecting him/herself more and preventing future lawsuits that may be brought against them if a buyer retroactively finds defects in the home. That is why we give sellers weeks to hold onto their seller’s disclosures so have time to think of major and minor repairs alike, environmental hazards, defects etc. Being upfront about anything and everything is best. It provides a seller’s representing agent to have negotiation power and not be blindsided by something that comes up.

This is just one way to make the selling process more seamless for sellers. If you are interested in potentially selling in the Gallatin Valley, give me a call today (406) 570-5730 with any questions or inquires you may have.

http://www.realtor.com/blogs/2013/06/10/use-a-seller-disclosure-to-protect-yourself-as-you-sell/

http://realestate.msn.com/sellers-6-disclosures-you-must-make-or-it-could-cost-you

 

Bid Adieu to 3% Mortgage Rates

by Tim Hart

In this week alone, the average 30-year fixed-rate mortgage rose 10 percentage points to 3.91% and are up from 3.3% seen in early May. 15-year loans are up from their 2.56% to 3.03% as well. This trend does not look like it will change. “It’s unlikely that rates will ever be that low again.” said Doug Duncan, Fannie Mae's chief economist.

Here are some of the reasons why:

  • THE FED

The Fed has been stepping in and actively keeping rates at rock-bottom levels by buying up to $85 billion/month of Treasury bonds and mortgage-backed securities. This purposeful manipulation of the market has enabled lenders to sell mortgage loans at lower interest rates and recoup their money plus profits. Now with the market recovering, the Fed will stop purchasing the securities and private investors will have to pick up the slack.

  • THE ECONOMY

Economic conditions have improved severely compared to the recession of four years ago. With the economic health on the mend, it is creating a tailwind of interest rate increased. Low rates happen in a time of distress to stimulate. Higher rates happen when the market improves in order to stabilize.

  • 3.3% RATES ARE UNPRECEDENTED

 Even if the rates increase by a percentage or two, those new numbers will be comparatively low to the average. Historically, 30-year loans are above 5.5%. “For clues to the direction of mortgage rates, look at the daily movements in 10-year Treasury bond yields. Mortgage rates track Treasury yields with the difference between them holding fairly constant. Today, Treasury bonds have been on a jumpy uphill climb, with the 10-year hitting 2.21% on May 31, its highest closing since April 2012. On Thursday, the yield was about 2.10%. Since the interest rate on a 30-year is usually 1.7 to 2 percentage points higher, it indicates that mortgages should be at between 3.82% and 4.12% this week.” http://money.cnn.com/2013/06/06/real_estate/mortgage-rates/index.html

 

Mortgage Credits Adjusting to the Market Recovery

by Tim Hart

Mortgage standards that have kept many potential buyers out of the market are beginning to loosen. In addition, banks are speaking about increasing their mortgage business soon and shore up their residential mortgageassets within the next year.  All these prospective changes are being driven by a sharp rise in mortgage demand in conjunction with more home purchase applications being approved (60% compared to 55% of a year ago). This will combat but not fully eliminate the highly competitive home buying marketthat will still require standards such as 20% down.

“Fear Fannie Mae and Freddie Mac will force lenders to take back risky mortgages continues to be the primary condition constraining lending,” RealtyTrac reports. “Other conditions that have lenders holding tight to mortgage purse strings include obtaining insurance, slow economic growth, concerns about securitization, and processing capacity.”

Mortgage Squeeze Loosens, Somewhat,”

Data Shows Mortgage Credit Easing, Others Not so Sure

Here are the national averages for mortgage rates for the week ending May 16: 

  • 30-year fixed-rate mortgages averaged 3.51 percent, with an average 0.7 point, increasing from last week’s 3.42 percent average. A year ago at this time, 30-year rates averaged 3.79 percent. 
  • 15-year fixed-rate mortgages averaged 2.69 percent, with an average 0.7 point, rising from last week’s 2.61 percent average. Last year at this time, 15-year rates averaged 3.04 percent. 
  • 5-year adjustable-rate mortgages averaged 2.62 percent, with an average 0.5 point, rising from last week’s 2.58 percent average. Last year at this time, 5-year ARMs averaged 2.83 percent. 
  • 1-year ARMs averaged 2.55 percent, with an average 0.4 point, rising from last week’s 2.53 percent average. A year ago at this time, 1-year ARMs averaged 2.78 percent. 

 

Real Estate Milestone Achieved

by Tim Hart

Housing starts are at 1.04 million, up 7% from this February and up 47% from this time last year.

This number is achieved highly due to the recent surge in building apartments and condominiums. These multi-family units alone jumped 82% as compared to last year. Each unit within these types of complexes is counted in the statistics so they can be extremely volatile. When looking at a more stable number, single family units, the percentages have actually fallen by 6% since February.

But, there is a strong demand for the multi-family and rental type living environments that does not seem to be waning anytime soon. Young workers moving out of their parents’ houses, a little older workers who stuck around with their parents through the recession, and even seasoned workers who gravitated towards living together are all beginning to move out and find places of their own.  In addition to the workforce contributing to the demand, many home owners how lost their home to banks are wary of buying again and are choosing to downsize into a lower risk situation.

With the great benchmark of hitting the 1 million-point and beyond comes details everyone should keep their eyes on: the demand, as mentioned above, is very dependent on the trends of society, raw material costs are on the rise, and there is an increasing shortage of construction workers.

 

Displaying blog entries 1-10 of 85

406-570-5730 | Contact Tim Here | Bozman Brokers