The case of the 0% down loans that are the least risky. Can you say VA?

The myth and mystique of the 0% down home loans has a bad reputation because of the implication of living on the edge financially.  As in many areas of life many people use the same general terms without really considering the underlying circumstances of the label that does not require any thought.

Then fact is that 0% down VA loans have the lowest default rates among the four major categories of loans that exist to purchase residential homes.  Among the most common loans (Prime, Subprime, VA and FHA) when people think of the 0% down they conflate the so called no documentation, liar loans that were popular 11 and 12 years ago.

There are several reasons that VA loans have the lowest default rates even though the many are taken out with 0% down or may even have loan balances above the purchase price to cover closing costs.  Keep in mind that the VA borrower still must go through a full underwriting process that verifies income, debts and payment history (credit scores).  If the person is active military, they are guaranteed a paycheck so as long they keep their discretionary spending under control they should be able to maintain their payments.

Another characteristic of veterans, especially peacetime veterans, is that they are more likely than the general public to seek employment with a government agency or government contractor upon separation from the military.  In most of positions in the public-sector employment is consistent and provides stability which precludes the need for large personal funds or buffers during economic downturns. 

There are several benefits to the borrower for using VA financing including not needing to pay for mortgage insurance.  With the majority of home loans if you put less than 20% down payment on a home you have to pay mortgage insurance.  This benefit alone typically saves the Veteran a few hundred dollars each month.  Typically, these rates are different depending on the percentage of the purchase price that you put down.  The more you put down the less you pay in mortgage insurance within certain bands of 5%, 10% and 15% or 3.5% in the case of FHA loans.

The Bottom Line:

0% down VA loans are the safest for the taxpayer that guarantees them an unbelievably great deal for the borrowers.  Home sellers should have an open mind about accepting an offer from a person financing with a VA loan. 

Posted by John Paul Ledesma, GRI | DRE 01810644 | HomeSmart Evergreen Realty

First-Time Home Buyers Continue to Put Down Less Than 6%!

According to the Realtors Confidence Index from the National Association of Realtors, 61% of first-time homebuyers purchased their homes with down payments below 6% in 2017.

Many potential homebuyers believe that a 20% down payment is necessary to buy a home and have disqualified themselves without even trying, but in March, 71% of first-time buyers and 54% of all buyers put less than 20% down.

House-Buying Power at Near-Historic Levels

We keep hearing that home affordability is approaching crisis levels. While this may be true in a few metros across the country, housing affordability is not a challenge in the clear majority of the country. In their most recent Real House Price Index, First American reported that consumer “house-buying power” is at “near-historic levels.”

Their index is based on three components:

1. Median Household Income
2. Mortgage Interest Rates
3. Home Prices

The report explains:

“Changing incomes and interest rates either increase or decrease consumer house-buying power or affordability. When incomes rise and/or mortgage rates fall, consumer house-buying power increases.”

Combining these three crucial pieces of the home purchasing process, First American created an index delineating the actual home-buying power that consumers have had dating back to 1991.

Here is a graph comparing First American’s consumer house-buying power (blue area) to the actual median home price that year from the National Association of Realtors(yellow line).

Consumer house-buyer power has been greater than the actual price of a home since 1991. And, the spread is larger over the last decade.

Bottom Line

Even though home prices are increasing rapidly and are now close to the values last seen a decade ago, the actual affordability of a home is much better now. As Chief Economist Mark Fleming explains in the report:

“Though unadjusted house prices have risen to record highs, consumer house-buying power stands at near-historic levels, as well, signaling that real house prices are not even close to their historical peak.”

John Paul Ledesma, GRI | DRE 01810644 | HomeSmart Evergreen Realty

Millionaire to Millennials: Don’t Rent a Home… Buy!

In a CNBC article, self-made millionaire David Bach explained that: “The biggest mistake millennials are making is not buying their first home.” He goes on to

2 Ways to Get the Most Money from The Sale of Your Home

Every homeowner wants to make sure they maximize their financial reward when selling their home. But how do you guarantee that you receive the maximum value for your house?

Here are two keys to ensure that you get the highest price possible.

1. Price it a LITTLE LOW 

This may seem counterintuitive, but let’s look at this concept for a moment. Many homeowners think that pricing their homes a little OVER market value will leave them with room for negotiation. In actuality, this just dramatically lessens the demand for your house (see chart below).

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

Realtor.com gives this advice:

“Aim to price your property at or just slightly below the going rate. Today’s buyers are highly informed, so if they sense they’re getting a deal, they’re likely to bid up a property that’s slightly underpriced, especially in areas with low inventory.”

2. Use a Real Estate Professional

This, too, may seem counterintuitive. The seller may think they would make more money if they didn’t have to pay a real estate commission. With this being said, studies have shown that homes typically sell for more money when handled by a real estate professional.

A study by Collateral Analytics, reveals that FSBOs don’t actually save any money, and in some cases may be costing themselves more, by not listing with an agent.

In the study, they analyzed home sales in a variety of markets in 2016 and the first half of 2017. The data showed that:

“FSBOs tend to sell for lower prices than comparable home sales, and in many cases below the average differential represented by the prevailing commission rate.”

The results of the study showed that the differential in selling prices for FSBOs when compared to MLS sales of similar properties is about 5.5%. Sales in 2017 suggest the average price was near 6% lower for FSBO sales of similar properties.

Bottom Line

Price your house at or slightly below the current market value and hire a professional. This will guarantee that you maximize the price you get for your house.

 

Re-posted by John Paul Ledesma | DRE 01810644 | HomeSmart Evergreen Realty

Moving up Is MORE Affordable Now Than Almost Any Other Time in 40 Years!

If you are considering selling your current home, to either move up to a larger home or into a home in an area that better suits your current family needs, great news was just revealed.

Last week, Trulia posted a blog, Not Your Father’s Housing Market, which examined home affordability over the last 40+ years (1975-2016). Their research revealed that:

“Nationally, homes are just about the most affordable they’ve been in the last 40 years… the median household could afford a home 1.5 times more expensive than the median home price. In 1980, the median household could only afford about 3/4 of the median home price.

Despite relatively stagnant incomes, affordability has grown due to the sharp drop in mortgage rates over the last 30 years – from a high of over 16% in the 1980s to under 4% by 2016.

Of the nation’s 100 largest metros, only Miami became unaffordable between 1990 and 2016. Meanwhile, 22 metros have flipped from being unaffordable to becoming affordable in that same time frame.”

Here is a graph showing the Affordability Index compared to the 40-year average:

The graph shows that housing affordability is better now than at any other time in the last forty years, except during the housing crash last decade.

(Remember that during the crash you could purchase distressed properties – foreclosures and short sales – at 20-50% discounts.)

There is no doubt that with home prices and mortgage rates on the rise, the affordability index will continue to fall. That is why if you are thinking of moving up, you probably shouldn’t wait.

Bottom Line

If you have held off on moving up to your family’s dream home because you were hoping to time the market, that time has come.

 

Re-posted by John Paul Ledesma | DRE 01810644 | HomeSmart Evergreen Realty

A New Housing Bubble Forming…Not Before 2024!

A recent report by CoreLogic revealed that U.S. home values appreciated by more than 37% over the last five years. Some are concerned that this is evidence we may be on the verge of another housing “boom & bust” like the one we experienced from 2006-2008.

Recently, several housing experts weighed in on the subject to alleviate these fears.

Sean Becketti, Freddie Mac Chief Economist

 “The evidence indicates there currently is no house price bubble in the U.S., despite the rapid increase of house prices over the last five years.”

Edward Golding, a Senior Fellow at the Urban Institute’s Housing Finance Policy Center

 “There is not likely to be a national bubble in the way that we saw the first decade of the century.”

Christopher Thornberg, Partner at Beacon Economics

 “There is no direct or indirect sign of any kind of bubble.”

Bill McBride, Calculated Risk

 “I wouldn’t call house prices a bubble.”

David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices

 “Housing is not repeating the bubble period of 2000-2006.”

A recent article by Teo Nicolais, a real estate entrepreneur who teaches courses on real estate principles, markets, and finance at Harvard Extension School concluded that the next housing bubble may not occur until 2024.

The article, How to Use Real Estate Trends to Predict the Next Housing Bubble, looks at previous peaks in real estate values going all the way back to 1818. Nicolais uses the research of several economists. The article details the four phases of a real estate cycle and what defines each phase.

Nicolais concluded his article by saying:

“Those who study the financial crisis of 2008 will (we hope) always be weary of the next major crash. If George, Harrison, and Foldvary are right, however, that won’t happen until after the next peak around 2024. 

Between now and then, aside from the occasional slow down and inevitable market hiccups, the real estate industry is likely to enjoy a long period of expansion.”

Bottom Line

The reason for the price appreciation we are seeing is an imbalance between supply and demand for housing. This has created a natural increase in values, not a bubble in prices.

 

Re-posted by John Paul Ledesma | DRE 01810644 | HomeSmart Evergreen Realty

When Retiring, is Renovating Your Home Worth It in the Long Run?

Is it worth it to remodel or change floor plans?

Let’s look at this example.

Let’s say you have a 4-bedroom home in a great school district. The neighborhood is amazing, and you are very comfortable there, but your kids are all grown up and the original benefits of the home no longer apply.

You’ve always wanted a huge master suite and are considering merging 3 of the smaller bedrooms on the second floor to achieve this dream.

In the short term, you are over the moon excited about your newly renovated oasis.

In the long term, when you go to sell your home down the road, you’ve now taken a 4-bedroom home in a great school district and turned it into a 2-bedroom home. Your pool of potential buyers has shrunk significantly and so has the value of your home (unless you are able to find someone who has the exact needs you have today!).

Why not consider listing your 4-bedroom home now and moving into a gorgeous 2-bedroom with a master suite? Your house can become a home for the next family looking for that perfect neighborhood with a great school district to raise their kids in!

You may even be able to achieve your dream in the same area you love, without having to give up your favorite restaurants and grocery stores.

Bottom Line

If you are debating a major renovation that would change the layout of your home, before you pick up that sledgehammer, get together with a professional Real Estate Agent and discuss the available listings in your area that might meet your needs today!

 

RE-posted by John Paul Ledesma | DRE 01810644 | HomeSmart Evergreen Realty

Freddie Mac: Rising Mortgage Rates DO NOT Lead to Falling Home Prices – For Now

Recently, Freddie Mac published an Insight Report titled Nowhere to go but up? How increasing mortgage rates could affect housing. The report focused on the impact the projected rise in mortgage rates might have on the housing market this year.

Buyer Demand Still Outpacing the Supply of Homes for Sale

The price of any item is determined by the supply of that item, as well as market demand. The National Association of REALTORS (NAR) surveys “over 50,000 real estate practitioners about their expectations for home sales, prices and market conditions” for their monthly REALTORS Confidence Index.