Better to Buy Than Rent, Index Shows

Owning a home is expected to produce greater wealth, on average, than renting, shows a national index produced by Florida Atlantic University and Florida International University.

“The U.S. as a whole is still in clear buy territory,” says real estate economist Ken Johnson, one of the index’s authors. “The cities of Cincinnati, Chicago, Cleveland, and New York City are deep into buy territory.”

The Beracha, Hardin & Johnson Buy vs. Rent Index reveals whether current market conditions favor buying or renting a home in terms of wealth creation over a fixed holding period relative to historical market conditions or alternative investment opportunities. It examines the housing market within 23 of the largest cities in the U.S.

The index found that two cities – Miami and Portland — that have been in more favorable renting territory are “pulling back” and are now “coming back toward a toss-up between buying and renting,” says Johnson. “That’s a good sign for home pricing in Miami and Portland as it suggests prices are going to level off in these metro areas.”

Meanwhile, Dallas, Denver, and Houston are showing signs of dipping slightly deeper into renter territory due to flat income growth, and, in Houston particular, also rapid property appreciation, according to the index.

Mortgage meltdown

Mortgage uncertainty


“I thought our mortgage loan was approved and ready to go, but at the last minute the originating bank balked at the purchase price of our home—they thought it was too high. This was in 2008 in Silicon Valley—we thought we were getting a bargain! The bank was based somewhere in the Midwest, though. They assigned an assessor to come check it out, but fortunately the assessment supported our purchase price. It was a suspenseful few days, though.”

Takeaway: Don’t count on your mortgage until it’s signed. And make sure you double-check your property assessment.

Count your costs

Keep track of your mounting costs

Keep track of your mounting costs

“I might have experienced short-term memory loss during my loan approval process. All the closing costs were a mystery to me, and my loan officer or Realtor had to explain each expense every single time I saw them in updated loan docs.”

Takeaway: Go over the closing costs with your real estate agent and take notes on what to expect. You’ll see these costs itemized again and again, so best to get familiar fast.

Budget time and money for repairs

Repairs will cost you time and money

Repairs will cost you time and money

“I was surprised and worried about the problems that the home inspector found. How serious are termites? How about mold? Can these things be fixed and will the house be safe? Or will we regret buying a house with possible structural and health-related issues?

“And how much money will it cost for us to do roof repairs ourselves when the seller is selling “as-is” and it’s a competitive market where we lost out on two previous houses we bid on? Related question: How long could we put off doing roof repairs, since we were raiding our savings to fund the down payment for the house?”

Takeaway: You can’t foresee problems that might arise during the inspection. You might be able to negotiate with the sellers, but you’ll want to have enough money left over after closing for any unexpected repairs. Be prepared to walk away from your dream home if needed.

Multiple visits are OK!

Don’t be shy about visiting and revisiting the house

couple visits home for sale

“When we were buying our first house, I didn’t know I could go back to look at the house again before we placed a bid. I was also shocked that I was able to meet the sellers, which ultimately put our bid over the edge and got us the house.

“We saw the house on a Saturday and bids were due on Monday. The open house was full of potential buyers and I felt like I hadn’t spent enough time really seeingthe entire house. Our agent arranged for us to go see the house one more time on Sunday afternoon. I assumed the house would be empty, but the sellers were home and welcomed us in to take another look around.

“They were so friendly and walked us through the house, explaining little nuances along the way. We submitted our bid the next day and found out the house was ours a few days later. Our agent told us there were seven bids and ours was the same price as another couple’s, but because the sellers met and remembered me, our bid won. I firmly believe it was meant to be, but I’m glad I went back for another peek.”

Takeaway: Look as many times as you need. This is the place you’ll call home, after all. Even in a competitive market, a second look could end up giving you the edge. (And while you certainly don’t want to harass the seller, don’t be afraid to personalize your offer with a letter describing any details about you, your family, and why you love their home. It could be enough to sway the seller in your favor.)

Learn (and love) thy neighbors

Neighbors can make or break your living situation

Neighbors can make or break your living situation

“Maybe this is a very urban issue, but I didn’t realize how neighbors can make—or break—a home. When my wife and I moved to our small co-op in Brooklyn, we knew we could get along with the three families living on the floors below us, but over the years they’ve become more than just neighbors. They’re good friends: We all had children together at about the same time, so our kids have grown up together, we babysit for one another, and we regularly get together for barbecues in our common space.

It’s what people always say about “community”—you really do want to be in a place that not only welcomes but embraces you, that you look forward to being a part of. Maybe I was just a cynical New Yorker before my wife and I bought this place, dismissive of the idea of community in a city where people cherish their anonymity, but once it happens, you realize how good it is. If I’m ever foolish enough to move away from here, I’ll definitely consider my potential neighbors on equal (or greater!) footing with the bathroom fixtures and the price per square foot.”

Takeaway: Your community is often as important as the home you’re living in. Take a good look at the neighborhood, and don’t be afraid to ask the neighbors questions. These people could become your babysitters, your carpool buddies, and your closest friends over the years.

It’s time to move on. You’ve decided to sell your home and embark on a new adventure.

Unfortunately, potential buyers don’t care about how long you obsessed over choosing the perfect bathroom tiles or the number of carpenters you interviewed to make the perfect built-in bookcase. To the buyer, those items may not matter to the value of the home, even if you think they should.

When it’s time to sell, you have to price your home right, using tangible factors. Here are six rules to remember:

1. Price is king

Your asking price determines how long the home will sit on the market. Pricing the home too high may reduce the number of interested buyers, which can cause your home to sit on the market too long. If your house is on the market too long, it may create the perception that there’s something wrong with it. It can also lead a buyer to think that you’re desperate for an offer. You want to avoid these outcomes and not overvalue your home.

On the flip side, pricing the home too low may create some skepticism and raise unwanted questions about the home’s true value. This will hit you in the bank account if multiple offers don’t drive the price up to its true market value.

2. Use comparable sales 

The simplest way to figure out the right price for your home is to compare similar homes that have sold in your neighborhood. Instead of skulking in the shadows and casing the neighbor’s house, use to check out nearby stats.

Compare your house with those with the same number of bedrooms, bathrooms, and square footage. If you find comparable homes with similar floor plans and outdoor space, all the better. See how many homes in your area have sold recently and what they went for. You can also work with a real estate agent to help you compare houses.

3. Compare fairly

Make sure your comparison is fair. If there are neighborhoods in your city that are more desirable, consider that in your comparison. Also consider your location and what buyers want. If a similarly sized new-construction townhouse sold for top dollar down the block, you may not get the same amount for your cute ’40s bungalow.

4. Check the market history

To get a more comprehensive picture of the real estate market in your neighborhood, check the listing history of a home. Compare the original asking price with the final sale price, and note the amount of time the house was on the market until it sold. A REALTOR® can help you with this step.

If you’re looking to speed up the process, you may want to price your house a bit lower. However, if profit is your motive, you may need to wait a few months for a sale on the high end of the spectrum.

5. Consider special improvements

Consider whether major improvements you’ve made warrant a higher asking price. If you’ve remodeled the kitchen and put down a new parquet floor, or if you really feel the special woodwork details will clinch the sale, make sure those enhancements are reflected in the price of the home. Be reasonable. Don’t be surprised if you don’t get as much money as you expected—improvements don’t always recoup their cost.

6. Don’t ignore supply and demand

In a buyer’s market, with many homes for sale and sellers competing for attention, you may want to ask a bit less for your home to make it more attractive to potential buyers. In a seller’s market, where there is little home supply and much buyer demand, you may want to ask a bit more and maximize your profit.

New Jersey looks pretty impressive here

The interest rate you pay on your home mortgage has a direct impact on your monthly payment. The higher the rate the greater the payment will be. That is why it is important to look at where rates are headed when deciding to buy now or wait until next year.

Below is a chart created using Freddie Mac’s July 2015 U.S. Economic & Housing Marketing Outlook. As you can see interest rates are projected to increase steadily over the course of the next 12 months.

30 Year Fixed Rate Prediction | Keeping Current Matters

How Will This Impact Your Mortgage Payment?

Depending on the amount of the loan that you secure, a half of a percent (.5%) increase in interest rate can increase your monthly mortgage payment significantly.

Dr. Frank Nothaft, the SVP & Chief Economist for CoreLogic, had this to say in their latest MarketPulse:

“If you are thinking of buying a home and have the financial means to do so, this could be a good time to take a look at the neighborhoods you are interested in. We expect home prices in our national index to be up about 4.3% in the next 12 months, and mortgage rates are also likely to increase over the next year.”

If both the predictions of home price and interest rate increases become reality, families would wind up paying considerably more for their next home.

Bottom Line

Even a small increase in interest rate can impact your family’s wealth. Meet with a local real estate professional to evaluate your ability to purchase your dream home.


Don’t Believe the Housing Bubble Rumors — Unless You’re in These 7 Markets — The Motley Fool

The term “housing bubble” is thrown around right and left lately, but are we really at risk? Not unless you’re in these seven markets, says a new study.

Housing Bubble Rumors

Across the nation, rising home prices suggest a definite recovery from the 2008 recession — and there’s no doubt you’ve come across more than a few articles speculating on an impending real estate bubble.

But are we really in store for a collapse of the housing market? Only in certain parts of the country, says a new study conducted by real estate experts Norm Miller, Hahn Chair of Real Estate Finance in the School of Business Administration’s Burnham-Moores Center for Real Estate at the University of San Diego (USD), Michael Sklarz, president of Collateral Analytics and Jim Follain, senior vice president for research and development at Collateral Analytics.

Pooling new research from almost 400,000 neighborhoods and 20,000 surrounding zip codes across the country, Miller and his co-authors detail their findings in a white paper called, “Is a New Home Price Bubble Forming?” In the study, they focus on defining the characteristics of a “bubble” and finding economically sound ways of evaluating the intrinsic value of homes so as to take a more accurate look at where we are in terms of market sustainability.

Their findings uncover strong correlations between an area’s industry and its real estate market’s volatility. “In markets where wealth is volatile, say for markets with a heavy concentration of recently successful tech start-ups, changes in the value of these companies could also be considered a volatile factor driving prices,” states the research paper. “Changes in incomes, on the other hand, rarely change rapidly and are less likely to trigger rapid price declines except in markets with little industrial diversification.”

What does this mean for specific markets?
Miller cautions against the abounding use of “bubble” when describing the U.S. real estate market as a whole. True real estate bubbles, he adds, are more rare than may be commonly believed:

[A] reason why we do not use the term ‘price bubble’ freely is that real ones are very infrequent. Examples of real bubbles include, stock prices in 1929, 1987, and NASDAQ stocks in 2000, gold and silver in 1980, Japanese land and real estate prices in 1989-90, and, of course, home prices in the U.S. in 2005- 2007. Based on these rare examples, it is reasonable to say that true bubbles only occur on average once in a generation.

Still, several specific markets may have reached levels of unsustainability. Factors that drive this volatility include neighborhoods with low equity and high loan to value ratios, median household income, the value of the U.S. dollar against foreign currency, demand for coastal housing with limited supply and dependence on low interest rates.

The study cites the following areas as at risk for near-bubble levels, in part due to reliance on tech capital and rapidly changing valuations of start-up industry:

  • Miami, FL
  • Denver, CO
  • Portland, OR
  • San Diego, CA
  • Oakland/Berkeley, CA
  • San Francisco, CA
  • San Rafael, CA

U.S. housing as a whole remains sustainable
Miller and his team focused specifically on the neighborhood level, he says, because when markets collapse, they tend not to do so evenly across metro areas. Rather, looking at localized areas is key to getting accurate housing data.

And while some specific areas are inflated (and this could be seen as more of a “tech bubble” than a “real estate” bubble, where declines will likely be driven by falling stock prices), the U.S. as a whole is not on the precipice of a burst real estate bubble, Miller says.

“Our analysis based on a number of approaches we have used over the years to identify home price bubbles is that we are far from bubble territory on a national or metropolitan level and that anyone claiming otherwise is looking to sensationalize an issue which does not exist.”

Before You Get Settle Into Your New Home, Make These Changes Immediately | Fox News

The moving frenzy never ends: Even after you close, the to-do lists drag on and on — endless pages of bullet points that keep you up at night when all you want is to begin your new life. Some of them are fun, like redecorating and buying new furniture.

Others, not so much.

“When you move into a new house, you’re more concerned with decorating and taking stuff out you don’t like,” says Kevin Minto, president of Signet Home Inspections in Grass Valley, CA. “But let’s not forget about the less romantic things that are mundane — but more important in the long run.”

Once you’ve got the keys, feel free to give yourself a break. You deserve it! But don’t rest on your laurels too long — and make sure to do these eight things right away.

1. Change the locks

Before moving even one tiny piece of furniture into your new home, change the locks — or at least have them rekeyed. It’s not that you don’t trust the sellers (who are, we’re sure, perfectly respectable and upstanding citizens). It’s that you shouldn’t trust everyone who’s had contact with those keys over the years, any of whom could have copied the keys for some unsavory purpose.

2. Change the alarm batteries

Making sure your fire and carbon monoxide detectors have fresh batteries may not seem like a pressing issue while you’re in the middle of a stressful move (and aren’t they all), but it’s the kind of thing that gets ignored and then forgotten. Better to deal with it now, when the home is empty and you can make a quick sweep of the house — without lugging a ladder around furniture.

3. Review your home inspector’s report

Can’t find your inspector’s report? Minto says reports are often filed with the escrow papers — but don’t wait until something goes wrong to pull them out. A good home inspector will outline the most important issues in their report, so use their expertise as a guide for your first few days of ownership. If they’ve marked anything as particularly pressing, make sure to handle it before moving in.

4. Find the circuit breaker

If you were there during inspection, you should know where your junction box is, but if you don’t, finding it “should be the first and foremost thing that should be attended to,” Minto says. During a move, when you’re plugging all sorts of electrical doodads into the wall, you don’t want to be lost in the dark hunting for that elusive metal box. (While you’re there, find the water shut-off, too.)

Then, get familiar: If it’s not already well-marked, have your spouse or another family member stand in different parts of the house while you flip different switches, and make a note of which ones handle different rooms.

5. Deal with any water problems

Looking at that inspector’s report? Deal with water-related issues immediately, says Minto. These tend to be troublesome because they’re so easily ignored — “out of sight, out of mind,” he says. A leaky toilet might seem minor, but the steady drip can damage internal structural components.

Check your roof, too: If the rubber vent boots on your roof are leaking, you might not know it for a while.

“By the time they see it in a ceiling, there’s been a fair amount of water,” Minto says.

6. Caulk everything

This one isn’t mandatory, but caulking is a whole lot easier if you do it when the house is empty, letting you see all the nooks and crannies that might need a little sealing — and don’t forget the exterior. Minto says he sees caulking issues on “every home,” and while they might seem minor, it doesn’t take long before cracking gives way to leaks and even more water issues.

7. Plan your emergency exits

Before you begin bringing in furniture, walk through every room and decide how you would escape in an emergency. This can help you spot problem areas or rooms that need some adjustments — say, removing bars or adding egress windows to a basement.

8. Clean your gutters

BO-RING. Right? You can put this off until Day 2 of your big move, but don’t let the dullness of the task push you to procrastination: If the previous homeowners didn’t clean the gutters, you need to do so ASAP.

“I see gutters that are filled with organic materials start to rot and start to rust through,” Minto says. Take 30 minutes to clear them out, and you’ll be rewarded come the rainy season.

Stop Paying Your Landlord's Mortgage | Keeping Current Matters

There are some people that have not purchased a home because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that, unless you are living with your parents rent free, you are paying a mortgage – either your mortgage or your landlord’s.

As The Joint Center for Housing Studies at Harvard University explains:

“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return.  

That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

Christina Boyle, a Senior Vice President, Head of Single-Family Sales & Relationship Management at Freddie Mac, explains another benefit of securing a mortgage vs. paying rent:

“With a 30-year fixed rate mortgage, you’ll have the certainty & stability of knowing what your mortgage payment will be for the next 30 years – unlike rents which will continue to rise over the next three decades.”

As an owner, your mortgage payment is a form of ‘forced savings’ which allows you to have equity in your home that you can tap into later in life. As a renter, you guarantee the landlord is the person with that equity.

The graph below shows the widening gap in net worth between a homeowner and a renter:

Increasing Gap in Family Wealth | Keeping Current Matters

Bottom Line

Whether you are looking for a primary residence for the first time or are considering a vacation home on the shore, owning might make more sense than renting since home values and interest rates are projected to climb.

First-time home buyers are back, baby—but a new wave of these (mostly) millennial prospectors is more likely than other buyers to face certain obstacles to nailing the deals, a new survey of our users shows.

According to the latest existing-home sales report by the National Association of Realtors®, first-time buyers in May represented 32% of all sales, up from 30% in April and 27% a year ago. On®, we’ve been seeing record traffic all year, and among serious house hunters, the share of 25- to 34-year-olds—the upper reaches of the millennial generation—has substantially increased.

“This is the beginning of millennials now seriously getting into the home-buying market,” said Jonathan Smoke, our chief economist, during a panel discussion on Wednesday at the National Association of Real Estate Editors conference in Miami. The topic was “Mortgage Availability for Millennials and Other First-Time Buyers.”

“This age range historically is the critical time frame in which most people buy their first home,” Smoke said after analyzing a survey of more than 12,000 site visitors  from Jan. 1 through June 15. “Even last year, when the first-time buyer segment was depressed, 25- to 34-year-olds still represented the largest single age demographic of buyers.”

In January this year, about 54% of these older millennials said they were planning to buy a home within three months. By mid-June, that figure was 65%. In addition, older millennials and first-time buyers are more optimistic than the average buyer, saying that they are “very likely to purchase within the next 12 months.”

But these buyers are more likely than typical buyers to struggle to find a good house within their budget, to gather funds for a down payment, and to improve their credit score.

Struggling to qualify for a mortgage

For example, only 3% of prospective buyers report that difficulty qualifying for a mortgage is an impediment, but 65% of them are under 45. Smoke did an in-depth analysis of these buyers with mortgage difficulties.

“It’s not just millennials, but also young Generation Xers,” he told the audience in Miami.

Would-be buyers who report that they’re having a hard time getting a mortgage are60% more likely to be first-timers. They have been trying to buy for quite some time—probably because they haven’t been able to qualify for a loan. In fact, 25% report that they started looking to buy more than a year ago, which is 50% higher than the typical buyer.

Here are the key impediments that they face:

  • 60% cite needing to improve their credit score, the No. 1 issue for this type of buyer; that rate is almost 7 times that of the typical buyer.
  • 52% cite lacking funds for a down payment.
  • 39% say they cannot find a good house in their budget.
  • 15% cite being on a lease, which is 2.5 times that of the typical buyer.

Despite the challenges, these would-be buyers clearly aren’t giving up—they are 85% more likely to say that they plan to buy even if it takes a year or more.


Millions of America’s young people are really struggling financially. Around 30 percent are living with their parents, and many others are coping with stagnant wages, underemployment, and sky-high rent.

And then there are those who are doing just great—owning a house, buying a car, and consistently putting money away for retirement.

These, however, are not your run-of-the-mill Millennials. Nope. These Millennials have something very special: rich parents.

These Millennials have help paying their tuition, meaning they graduate in much better financial shape than their peers who have to self-finance college through a mix of jobs, scholarships, and loans. And then, for the very luckiest, they’ll also get some help with a down payment, making homeownership possible, while it remains mostly unattainable for the vast majority of young adults.

To start with, most of those who continue their education after high school have families that are able to help financially. A recent report from the real-estate research company Zillow looked at Federal Reserve Board data on young adults aged 23-34 and found that of the 46 percent of Millennials who pursued post-secondary education (that’s everything from associates degrees to doctorates), about 61 percent received some financial help with their educational expenses from their parents.

And yet, even with this help, the average student at a four-year college graduates with about $26,000 in student-loan debt. Millennials who are lucky enough to have some, or all, of a college tuition’s burden reduced by their parents have a leg up on peers who are saddled with student debt, and they’ll be able to more quickly move out on their own, and maybe even buy their own house.

And that matters a lot in the long run: While many remain skeptical about the real-estate market, homeownership is still the primary way that Americans build wealth. But first-time buyers—a group generally made up of younger adults—have been scarce since the recession. And research indicates it’s not because many of them want to remain renters, but because they just simply can’t save up enough for a down payment, especially not the down payments needed in the expensive urban markets where so many Millennials prefer to live. According to Svenja Gudell, the senior director of economic research at Zillow, “There’s a ton of people out there who want to buy. In our most recent survey in the beginning of the year, we had 5.3 million renters interested in buying over the next year.”

But, because of their student-debt loads, they cannot. “When it comes to taking out a mortgage, they aren’t able to carry that mortgage payment because they have very chunky payments to make to the lenders of their student loans. So that’s certainly holding Millennials back along the way,” Gudell says.

A recent study by the real-estate company Trulia laid it out this way: Imagine an individual who earns $50,000 and is shopping for a $200,000 home (the median U.S. income and house price). This person would like to put 20 percent down. If he or she follows the popular financial advice to save 10 percent of his or her annual pay, it’ll take him or her about eight years to have that down payment ready to go. If that same person has $26,000, of student debt, which means monthly payments of $280 based on a 10-year repayment plan, it’ll take this person closer to nine years.

But even these numbers are optimistic, with many Millennials owing monthly payments much more than $280 per month, and making much less than $50,000 a year. And in many markets, good luck finding a $200,000 house. In some of the priciest areas, such as San Francisco, it would take those with a college degree and student loans nearly 30 years to save up enough for a 20 percent down payment. For those without the wage boost that a degree brings, it probably won’t be possible at all.

According to Zillow, 43 percent of Millennials who got help from their parents in paying for school were also able to become homeowners. According to Census data the homeownership rate for all young adults was about 36 percent in 2014.

Then there is the group that the Zillow study dubs “double lucky.” These are the select few whose families had enough money to not only help them with college, but to then also assist them with a down payment on a home. This group accounts for more than half of the Millennial homeowners in the Zillow’s data, though they account for only 3 percent of the total Millennial population. Only about 9 percent of Millennials whose parents were able to contribute to their post-high school education were also able to help them purchase a home—and the group that had such significant help is an incredibly low percentage of the total Millennial population.

The study calls this a “funnel of privilege”: Young adults with rich parents soon become rich themselves.

“Haves are turning their riches or their wealth into bigger wealth because they are investing in the housing market by simply living in a house,” says Gudell. This advantage is one that these Millennials will carry forward as they earn more than their degree-less peers, and save more than those who were forced to throw away tens of thousands of dollars on rent due to their inability to buy. In the future, they’ll have wealth to pass down to their own kids, continuing the cycle.


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