INCREASE IN RENTS OVER THE LAST 60 YEARS - PURCHASING BETTER THAN RENTING?

 

Thinking about buying a home? While today’s mortgage rates might seem a bit intimidating, here are two solid reasons why, if you’re ready and able, it could still be a smart move to get your own place.

1. Home Values Typically Go Up Over Time

There’s been some confusion over the past year or so about which way home prices are headed. Make no mistake, nationally they’re still going up. In fact, over the long-term, home prices almost always go up (see graph above):

Using data from the Federal Reserve (the Fed), you can see the overall trend is home prices have climbed steadily for the past 60 years. There was an exception during the 2008 housing crash when prices didn’t follow the normal pattern, but generally, home values kept rising.

This is a big reason why buying a home can be better than renting. As prices go up and you pay down your mortgage, you build equity. Over time, this growing equity can really increase your net worth. The Urban Institute says:

“Homeownership is critical for wealth building and financial stability.”

2. Rent Keeps Rising in the Long Run

Here’s another reason you may want to think about buying a home instead of renting – rent just keeps going up over the years. Sure, it might be cheaper to rent right now in some areas, but every time you renew your lease or sign a new one, you’re likely to feel the squeeze of your rent getting higher. According to data from iProperty Management, rent has been going up pretty consistently for the last 60 years, too (see graphs above):

So how do you escape the cycle of rising rents? Buying a home with a fixed-rate mortgage helps you stabilize your housing costs and say goodbye to those annoying rent increases. That kind of stability is a big deal.

Your housing payments are like an investment, and you’ve got a decision to make. Do you want to invest in yourself or keep paying your landlord?

When you own your home, you’re investing in your own future. And even when renting is cheaper, that money you pay every month is gone for good.

As Dr. Jessica Lautz, Deputy Chief Economist and VP of Research at the National Association of Realtors (NAR), says:

“If a homebuyer is financially stable, able to manage monthly mortgage costs and can handle the associated household maintenance expenses, then it makes sense to purchase a home.”

Bottom Line

If you're tired of your rent going up and want to explore the many benefits of homeownership, talk to a local real estate agent to explore your options.

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Results that Move You!

PRICE APPRECIATION Over the Last 60 Years

 

Thinking about buying a home? While today’s mortgage rates might seem a bit intimidating, here are two solid reasons why, if you’re ready and able, it could still be a smart move to get your own place.

1. Home Values Typically Go Up Over Time

There’s been some confusion over the past year or so about which way home prices are headed. Make no mistake, nationally they’re still going up. In fact, over the long-term, home prices almost always go up (see graph above):

Using data from the Federal Reserve (the Fed), you can see the overall trend is home prices have climbed steadily for the past 60 years. There was an exception during the 2008 housing crash when prices didn’t follow the normal pattern, but generally, home values kept rising.

This is a big reason why buying a home can be better than renting. As prices go up and you pay down your mortgage, you build equity. Over time, this growing equity can really increase your net worth. The Urban Institute says:

“Homeownership is critical for wealth building and financial stability.”

2. Rent Keeps Rising in the Long Run

Here’s another reason you may want to think about buying a home instead of renting – rent just keeps going up over the years. Sure, it might be cheaper to rent right now in some areas, but every time you renew your lease or sign a new one, you’re likely to feel the squeeze of your rent getting higher. According to data from iProperty Management, rent has been going up pretty consistently for the last 60 years, too (see graph below):

So how do you escape the cycle of rising rents? Buying a home with a fixed-rate mortgage helps you stabilize your housing costs and say goodbye to those annoying rent increases. That kind of stability is a big deal.

Your housing payments are like an investment, and you’ve got a decision to make. Do you want to invest in yourself or keep paying your landlord?

When you own your home, you’re investing in your own future. And even when renting is cheaper, that money you pay every month is gone for good.

As Dr. Jessica Lautz, Deputy Chief Economist and VP of Research at the National Association of Realtors (NAR), says:

“If a homebuyer is financially stable, able to manage monthly mortgage costs and can handle the associated household maintenance expenses, then it makes sense to purchase a home.”

Bottom Line

If you're tired of your rent going up and want to explore the many benefits of homeownership, talk to a local real estate agent to explore your options.

PATTI LEE PROPERTIES
Results that Move You!

What is the prime rate — and how it impacts you

 

Key takeaways

• The prime rate helps financial institutions determine how much interest to charge their consumers.
• Every six weeks, the Federal Reserve evaluates the economy and determines if the rate should go up, down, or remain the same.
• A change in the prime rate can affect credit cards, home equity lines of credit, student loans, and savings accounts.

Unless you’re a banker or really interested in economics, it’s not likely that a discussion about the prime rate will come up at your dinner table or in texts back and forth with your bestie. But, it’s a common term that affects almost all of us in some way, as it has an impact on how much we pay in interest on the money we borrow and the return we get on money in our savings accounts.

So, what is the prime rate?

Within the Federal Reserve, The Federal Open Market Committee (FOMC) meets every six weeks to discuss and set the federal funds rate; sometimes it changes and sometimes it doesn’t. They look at the economy and other economic indicators to establish what they think will be a beneficial rate for banks to lend each other money. In slower economies, the FOMC tries to keep the federal funds rate low to encourage borrowing, which leads to spending and investing, but when the economy grows quickly, the FOMC might raise the rate to offset and balance the economy.

The prime rate, in turn, is based on the federal funds rate. Also known as The Wall Street Journal prime rate or the U.S. Prime Rate, it’s a benchmark set and used by financial institutions to determine how much interest to charge a bank’s customers on loans. Typically, it’s about 3% higher than the federal funds rate.

While the prime rate is likely the best rate available, it’s not a mandatory minimum for lenders to use. And just because the feds change the federal funds rate, financial institutions are not required to change their prime rate (although they often do).

The prime rate is then used as a reference point, known as an index, by financial institutions and set interest rates based on that index often adding a margin based on the borrower’s credit history and other financial details and what kind of risk that poses for the lender.

Impact of prime rate changes

Here’s a list of accounts that could be directly affected by changes to the prime rate:

• Home equity lines of credit: If your home equity line of credit (HELOC) has a variable rate, you could see a change in your monthly payments.
• Mortgages: If you currently have an adjustable-rate mortgage (ARM) that is tied to the prime rate, you’d see a change in your monthly payments as well. If your current ARM is tied to the SOFR (Secured Overnight Financing Rate) you’ll only be impacted by changes of the SOFR rate, not a prime rate change. Fixed rates are unaffected.
• Small business loans: While SBA loan interest rates are often a lender’s most competitive offerings for small businesses, they can be affected by changes in the prime rate. Check your small business loan or line as it may have changed based on prime rate fluctuation.
• Small business credit cards:  Most small business credit cards have variable interest rates that are tied to the prime rate. For example, a 0.25% increase in the prime rate could translate to an additional $2.50 for every $1,000 of debt you carry. If you tend to carry a balance on your credit card, a rate drop could be beneficial.

What’s not affected by changes in the prime rate?

Any loan or line with a fixed rate, rates set by the bank, or rates tied to SOFR won’t change. Some examples include:

• Student loans: Student loans  that are tied to changes in SOFR will also not be impacted.
• Mortgages: Fixed rate mortgages or mortgages tied to SOFR will not be impacted by a prime rate change.
• Savings accounts: While not directly tied to changes to the prime rate, savings accounts can shift when institutions adjust savings rates as the market moves, typically over long periods of time. This is also true of auto loans, some small business loans, and other rates offered by banks.

While some financial institutions will change their rates when the prime rate changes, others will keep their interest rates as is, so check in with your accounts to see how they’ll be impacted.

PATTI LEE PROPERTIES
Results that Move You!

The Perks of Buying over Renting

 

Thinking about buying a home? While today’s mortgage rates might seem a bit intimidating, here are two solid reasons why, if you’re ready and able, it could still be a smart move to get your own place.

1. Home Values Typically Go Up Over Time

There’s been some confusion over the past year or so about which way home prices are headed. Make no mistake, nationally they’re still going up. In fact, over the long-term, home prices almost always go up (see graph below):

Using data from the Federal Reserve (the Fed), you can see the overall trend is home prices have climbed steadily for the past 60 years. There was an exception during the 2008 housing crash when prices didn’t follow the normal pattern, but generally, home values kept rising.

This is a big reason why buying a home can be better than renting. As prices go up and you pay down your mortgage, you build equity. Over time, this growing equity can really increase your net worth. The Urban Institute says:

“Homeownership is critical for wealth building and financial stability.”

2. Rent Keeps Rising in the Long Run

Here’s another reason you may want to think about buying a home instead of renting – rent just keeps going up over the years. Sure, it might be cheaper to rent right now in some areas, but every time you renew your lease or sign a new one, you’re likely to feel the squeeze of your rent getting higher. According to data from iProperty Management, rent has been going up pretty consistently for the last 60 years, too (see graph below):

So how do you escape the cycle of rising rents? Buying a home with a fixed-rate mortgage helps you stabilize your housing costs and say goodbye to those annoying rent increases. That kind of stability is a big deal.

Your housing payments are like an investment, and you’ve got a decision to make. Do you want to invest in yourself or keep paying your landlord?

When you own your home, you’re investing in your own future. And even when renting is cheaper, that money you pay every month is gone for good.

As Dr. Jessica Lautz, Deputy Chief Economist and VP of Research at the National Association of Realtors (NAR), says:

“If a homebuyer is financially stable, able to manage monthly mortgage costs and can handle the associated household maintenance expenses, then it makes sense to purchase a home.”

Bottom Line

If you're tired of your rent going up and want to explore the many benefits of homeownership, talk to a local real estate agent to explore your options.

PATTI LEE PROPERTIES
Results that Move You!

Is the housing market going to crash? What the experts are saying - NO

 

Key takeaways

• Mortgage rates are high, but home prices keep rising — blame the lack of housing supply.
• Economists predict that any market correction will be modest and not on the scale of the Great Recession.
• Experts do not expect a housing market crash, due to low inventory, strict lending standards and other factors.

To the dismay of would-be homebuyers, property prices just keep rising. It seems nothing — not even some of the highest mortgage rates of the past two decades — can stop the continued climb of home prices.

Prices increased once again in March, according to the National Association of Realtors (NAR), which reports that median existing-home prices were up 4.8 percent over last year — the ninth month in a row of year-over-year jumps. In another reflection of ongoing increases, the S&P CoreLogic Case-Shiller home price index for February was up 6.4 percent from a year earlier.

So much for the now-quaint notion that the post-pandemic “housing recession” would reverse some of the outsized price gains in homes. The U.S. housing market had finally started slowing in late 2022, and home prices seemed poised for a correction. But a strange thing happened on the way to the housing market crash: Home values started rising again.

Prices will remain firm and will not decline on a national level.— LAWRENCE YUN, CHIEF ECONOMIST, NATIONAL ASSOCIATION OF REALTORS

NAR data shows that median sale prices of existing homes are near record highs. March 2024’s median of $393,500 is off the all-time-high of $413,800, but it’s the highest March median on record. (Seasonal fluctuations in home prices typically make late spring the highest-priced time of the year — the all-time-high was reached in June 2022.)

Home prices have also risen more quickly than wages, a reality that intensifies affordability challenges, says Lawrence Yun, NAR’s chief economist. “Any time home prices outpace people’s incomes, that is not good,” Yun told reporters recently. The result is a squeeze on first-time buyers — but repeat buyers can rely on gains from the housing market and their stock portfolios to finance purchases, he says.

Home values held steady even as mortgage rates soared to 8 percent in October 2023, reaching their highest levels in more than 23 years. (They have since dipped, falling briefly below 7 percent before averaging 7.39 percent in Bankrate’s weekly survey released May 1.) The main culprit is a lack of housing supply. Inventories remain frustratingly tight, with NAR’s March data showing only a 3.2-month supply.

“You’re not going to see house prices decline,” says Rick Arvielo, head of mortgage firm New American Funding. “There’s just not enough inventory.”

Skylar Olsen, chief economist at Zillow, agrees about the supply-and-demand imbalance. She predicts home prices will keep rising in 2024 — welcome news for sellers but not so great for first-time buyers struggling to become homeowners. “We’re not in that space where things are suddenly going to be more affordable,” Olsen says.

In fact, the trend is quite the opposite. According to Realtor.com’s April 2024 Housing Market Trends Report, high mortgage rates have increased the monthly cost of financing the typical home (after a 20 percent down payment) by 6.9 percent since last year. That equates to about $148 more in monthly payments than a buyer last April would have seen — a significant jump.

Taking all this into account, housing economists and analysts agree that any market correction is likely to be modest. No one expects price drops on the scale of the declines experienced during the Great Recession.

Is the housing market going to crash?

No. There are still far more buyers than sellers, and that means a meaningful price decline can’t happen: “There’s just generally not enough supply,” says Mark Fleming, chief economist at title insurer First American Financial Corporation. “There are more people than housing inventory. It’s Econ 101.”

Dave Liniger, the founder of a real estate brokerage, says the sharp rise in mortgage rates has skewed the market. Many would-be buyers have been waiting for rates to drop — but if mortgage rates do decline meaningfully, it could send new buyers flooding into the market, pushing up home prices.

“You’ve got an entire generation of pent-up demand,” Liniger says. “We’re in this fascinating position of tremendous demand and too little inventory. When interest rates do start to come down, it’ll be another boom-and-bust cycle.”

NAR’s Yun notes that some once-hot markets, like Austin, Texas, have seen small declines in prices. But he sees little chance of falling prices on a broader scale. “Prices will remain firm and will not decline on a national level,” he said.

Key housing market statistics

• According to Bankrate’s weekly national survey of large lenders, the average mortgage interest rate on a 30-year loan was 7.39 percent as of May 1.
• Existing-home sales fell 4.3 percent from February to March and were down 3.7 percent from March 2023 to March 2024 , the National Association of Realtors says.
• The nationwide median sale price in March was $393,500, NAR says. That’s an increase from both the previous month and the previous year, and a record high for the month.
• In March, the housing market had a 3.2-month supply of housing inventory, well below the 5 to 6 months needed for a healthy, balanced market — one that favors neither buyers nor sellers.
• A total of 96,349 U.S. homes had foreclosure filings — default notices, scheduled auctions or bank repossessions — in the first quarter of the year, according to the latest numbers from ATTOM Data Solutions. That’s up 2.6 percent from the previous quarter, but down 0.4 percent from Q1 2023. Delaware had the highest foreclosure rate of any state in the winter months, at one foreclosure filing for every 894 housing units.

Back in 2005 to 2007, the U.S. housing market looked downright frothy before home values crashed, with disastrous consequences. When the real estate bubble burst, the global economy plunged into the deepest downturn since the Great Depression. Now that the recent housing boom has been threatened by skyrocketing mortgage rates and a potential recession — Bankrate’s most recent expert survey puts the odds at 33 percent — buyers and homeowners are asking, when will the housing market crash?

However, housing economists agree that it will not crash: While prices could fall, the decline will not be as severe as the one experienced during the Great Recession. One obvious difference between now and then is that homeowners’ personal balance sheets are much stronger today than they were 15 years ago. The typical homeowner with a mortgage has stellar credit, a ton of home equity and a fixed-rate mortgage locked in at a low rate — in fact, a Realtor.com analysis from the end of 2023 found that two-thirds of all current mortgages had rates below the 4 percent mark.

What’s more, builders remember the Great Recession all too well, and they’ve been cautious about their pace of construction. The result is an ongoing shortage of homes for sale. “We simply don’t have enough inventory,” Yun says. “Will some markets see a price decline? Yes. [But] with the supply not being there, the repeat of a 30 percent price decline is highly, highly unlikely.”

Existing home prices

Economists have long predicted that the housing market would eventually cool as home values become a victim of their own success. After posting a year-over-year decrease in February 2023 for the first time in more than a decade, the median sale price of a single-family home has been on the rise again, with a 4.8 percent annual gain in March, according to NAR. That represents the ninth month in a row of year-over-year increases.

Overall, home prices have risen far more quickly than incomes. That affordability squeeze is exacerbated by the fact that mortgage rates have more than doubled since August 2021.

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