As real estate market analysts debate whether U.S. home prices have finally found a bottom, which would signal a recovery is taking hold, some experts are arguing the difference between a home’s price and its value to a buyer. Economists note that homes have historically been poor investment vehicles when considering the alternatives, and that buyers should focus on a home’s value as measured by the quality of life and utility that it delivers to buyers. Deciding this often comes down to a comparison with the costs of renting, and websites like Trulia.com offer rent-to-buy indexes to help buyers weigh the costs and the benefits. For more on this continue reading the following article from TheStreet.
Economists are furiously debating whether home prices are "bouncing along the bottom," ready to rebound, or poised for another dip. Millions of prospective homeowners are eagerly awaiting the conclusion. After all, no one wants to invest in a money loser.
But maybe those buyers are focused on the wrong question. Price is not as important as value, two measures that sound the same but aren't.
That's among the conclusions in a SmartMoney piece by Jack Hough, who uses home price data back to the 19th Century to show that, once inflation is figured in, home prices don't go up at all over the long term. There are spikes, like the one in the last decade, often followed by price collapses. But on average, home prices rise at the inflation rate. In contrast, some other investments, including stocks, rise considerably faster than inflation to produce real profits.
Experts have known for a long time that homes are not especially profitable investments, though it's hard to convince homeowners.
This does not mean, however, that a home is a bad buy. Instead, the home should be viewed as a purchase for consumption, just like shoes, cars and food -- necessities that produce no investment return. The home's value, as opposed to its price, is determined by how well it serves the owner's need for shelter.
And that largely depends on the cost of the alternative: rent.
Right now, home prices in many parts of the country are low relative to rent, making buying the better option. This is seen in the "rent yield," figured by dividing annual rent by the sales prices of comparable properties. If you paid $12,000 a year to rent a home worth $120,000, the rent yield would be 10%. Hough points out that even if you adjust for things like taxes and maintenance on the home, the yield in many markets exceeds 5%, not bad then considering bank savings are paying next to nothing.
Trulia.com has a rent-vs-buy index that shows markets where buying makes the most sense. This price-to-rent ratio divides home prices by rents, the inverse of the rent yield index, so the lower the number the better. (Convert it to rent yield by dividing 1 by the price-to-rent ratio.)
Trulia's most recent survey found it is cheaper to buy than to rent in 98 of the 100 largest markets.
Why has the balance shifted toward renting in so many places? It's a combination of the drop in home prices and the rise in rents due to greater demand from people who cannot buy or don't want to buy.
Buying does not make sense unless you plan to stay in the home for at least five years -- the longer the better. That will provide time for appreciation to cover buying and selling costs like the real estate agent's commission.
Finally, if the home is a consumption item and not an investment, it makes sense to buy the cheapest home that serves your needs. Buying a McMansion packed with rooms you rarely use is like buying a dozen eggs and letting half of them spoil.
by Jeff Brown, MainStreet, Nuwire Investor May 8, 20112
Is It Better To Buy A Home Or Rent?
Showing posts with label rental market. Show all posts
Showing posts with label rental market. Show all posts
Thursday, May 10, 2012
Thursday, April 19, 2012
U.S. housing market boosted by jobs, higher rents
WASHINGTON - It's been a long time since the market for new homes has looked this good.
Rising rents and a healthier job market are inspiring more Americans to consider buying.
Builders are responding to the demand by laying plans for more homes this year than at any other point in past 3 1 / 2years.
And banks are helping both by approving more loans.
All that points to a better year for the housing market, though a full recovery could take several years.
"We're doing so much more business than we have in years," said Ed Kopal, who runs a construction company in East Texas and has seen his business more than double this year compared with 2011.
Others, too, foresee more enthusiasm among buyers after four sluggish years.
Builders requested a seasonally adjusted annual rate of 747,000 permits to build homes in March, the Commerce Department said Tuesday. The pace hasn't been that high since September 2008.
Of those requested, 462,000 permits were to build single-family homes. That's 12 percent more than just six months ago. Still, the figure remains far below the 800,000 permits a year that signify a stable new-home market.
Builders are seeing more demand for apartments, too. Over the past six months, permits to build apartments have surged 68 percent, to 285,000 permits. A healthy number is closer to 400,000 a year.
Rents are rising, which has spurred construction for both kinds of homes.
In Philadelphia, rents have increased nearly 15 percent over the past year through February, while home values have dropped 5.4 percent, according to real estate website Zillow.
Minneapolis rents are up nearly 10 percent; home prices are down nearly 7 percent. Baltimore has seen rents rise 8.6 percent and home values drop 4 percent.
In Chicago, median rents in the past 12 months have risen 8.6 percent, or more than $100 a month. In the same period, the median home price has fallen 11 percent, to just $154,600.
So while apartment developers are chasing higher rents, renters are seeing more incentive to buy homes. A survey of homebuilders has shown an increasing amount of foot traffic at open houses across the country since September.
Kennon Reinard and her husband were among those who felt the time was right. The couple has rented a two-bedroom apartment in Chicago for the past six years. Over the past month, they looked at 14 houses before making an offer of nearly $260,000 on a four-bedroom home on the Northwest side of the city.
"We've always wanted a house, but we never thought we could afford one," said Kennon Reinard, 33. "But we started noticing friends buying houses last summer and, when we checked it out, we realized we could own a whole home with a backyard without paying that much more than what we're paying in rent."
The Reinards and other potential homebuyers have another reason to feel good about trading rent payments for a mortgage: The job market has strengthened since last summer.
The unemployment rate has fallen from 9.1 percent in August to 8.2 percent last month. Employers have added an average of 212,000 a month from January through March.
More jobs and a better outlook among buyers could also make 2012 the first year since the housing bubble began to burst in 2006 that construction adds to growth -- rather than detracts.
Record-low mortgage rates have helped persuade buyers. The average rate on a 30-year fixed-rate loan is just above the 3.87 percent level reached in February -- the lowest since long-term mortgages were first offered in the 1950s.
Banks are also seeing more qualified buyers apply for loans. Two of the nation's biggest banks -- JPMorgan Chase and Wells Fargo -- approved more mortgage applications in the first-quarter, based on their recent earnings reports.
"The ones buying now are older, they've saved up for a while, they have good jobs, they are not risky," said Karen Mayfield, senior vice president of Bank of the West, a national bank lender based in San Francisco.
Among the most basic requirements needed for homebuyers: good FICO credit scores typically above 700, substantial down payments, stable job histories and thorough documentation.
The Reinards had been socking away a portion of their paychecks for all the years they rented and both have solid credit histories. They are coming to their closing in May with a down payment of more than $25,000.
"We feel very safe in our jobs," Reinard said. "We've been pretty financially responsible so we got thumbs up after all the checks."
by Derek Kravitz - Apr. 17, 2012 01:55 PM AP Economics Writer
U.S. housing market boosted by jobs, higher rents
Rising rents and a healthier job market are inspiring more Americans to consider buying.
Builders are responding to the demand by laying plans for more homes this year than at any other point in past 3 1 / 2years.
And banks are helping both by approving more loans.
All that points to a better year for the housing market, though a full recovery could take several years.
"We're doing so much more business than we have in years," said Ed Kopal, who runs a construction company in East Texas and has seen his business more than double this year compared with 2011.
Others, too, foresee more enthusiasm among buyers after four sluggish years.
Builders requested a seasonally adjusted annual rate of 747,000 permits to build homes in March, the Commerce Department said Tuesday. The pace hasn't been that high since September 2008.
Of those requested, 462,000 permits were to build single-family homes. That's 12 percent more than just six months ago. Still, the figure remains far below the 800,000 permits a year that signify a stable new-home market.
Builders are seeing more demand for apartments, too. Over the past six months, permits to build apartments have surged 68 percent, to 285,000 permits. A healthy number is closer to 400,000 a year.
Rents are rising, which has spurred construction for both kinds of homes.
In Philadelphia, rents have increased nearly 15 percent over the past year through February, while home values have dropped 5.4 percent, according to real estate website Zillow.
Minneapolis rents are up nearly 10 percent; home prices are down nearly 7 percent. Baltimore has seen rents rise 8.6 percent and home values drop 4 percent.
In Chicago, median rents in the past 12 months have risen 8.6 percent, or more than $100 a month. In the same period, the median home price has fallen 11 percent, to just $154,600.
So while apartment developers are chasing higher rents, renters are seeing more incentive to buy homes. A survey of homebuilders has shown an increasing amount of foot traffic at open houses across the country since September.
Kennon Reinard and her husband were among those who felt the time was right. The couple has rented a two-bedroom apartment in Chicago for the past six years. Over the past month, they looked at 14 houses before making an offer of nearly $260,000 on a four-bedroom home on the Northwest side of the city.
"We've always wanted a house, but we never thought we could afford one," said Kennon Reinard, 33. "But we started noticing friends buying houses last summer and, when we checked it out, we realized we could own a whole home with a backyard without paying that much more than what we're paying in rent."
The Reinards and other potential homebuyers have another reason to feel good about trading rent payments for a mortgage: The job market has strengthened since last summer.
The unemployment rate has fallen from 9.1 percent in August to 8.2 percent last month. Employers have added an average of 212,000 a month from January through March.
More jobs and a better outlook among buyers could also make 2012 the first year since the housing bubble began to burst in 2006 that construction adds to growth -- rather than detracts.
Record-low mortgage rates have helped persuade buyers. The average rate on a 30-year fixed-rate loan is just above the 3.87 percent level reached in February -- the lowest since long-term mortgages were first offered in the 1950s.
Banks are also seeing more qualified buyers apply for loans. Two of the nation's biggest banks -- JPMorgan Chase and Wells Fargo -- approved more mortgage applications in the first-quarter, based on their recent earnings reports.
"The ones buying now are older, they've saved up for a while, they have good jobs, they are not risky," said Karen Mayfield, senior vice president of Bank of the West, a national bank lender based in San Francisco.
Among the most basic requirements needed for homebuyers: good FICO credit scores typically above 700, substantial down payments, stable job histories and thorough documentation.
The Reinards had been socking away a portion of their paychecks for all the years they rented and both have solid credit histories. They are coming to their closing in May with a down payment of more than $25,000.
"We feel very safe in our jobs," Reinard said. "We've been pretty financially responsible so we got thumbs up after all the checks."
by Derek Kravitz - Apr. 17, 2012 01:55 PM AP Economics Writer
U.S. housing market boosted by jobs, higher rents
Thursday, February 2, 2012
FHFA Takes First Step in Its REO Pilot Initiative | Mortgage News | Daily National and State Headlines
The REO Initiative was developed in conjunction with the U.S. Department of the Treasury, the U.S. Department of Housing & Urban Development (HUD), the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, Fannie Mae and Freddie Mac. The Initiative was formulated by meetings with stakeholders and a review of more than 4,000 responses to a Request for Information (RFI) seeking input on options for selling single-family REO properties held by the government-sponsored enterprises (GSEs)—Fannie Mae, Freddie Mac—and the Federal Housing Administration (FHA).
“This is an important step toward increasing private investment in foreclosed properties to maximize value and stabilize communities,” said FHFA Acting Director Edward J. DeMarco. “I am grateful for the collaborative effort by the many stakeholders including investors, non-profit organizations, and state and local government officials, who have worked together on this Initiative.”
During the pilot phase, Fannie Mae will offer pools of various types of assets, including rental properties, vacant properties and non-performing loans, for sale with a focus on the hardest-hit areas. The first transaction will be announced in the near-term.
The pre-qualification will require those interested in receiving information regarding specific pilot transactions to meet certain minimum criteria including, but not limited to, (a) financial wherewithal to acquire the assets; (b) sufficient experience and knowledge in financial and business matters to analyze and bear the risks of the investment opportunity; and (c) agreement to keep certain information about the REO and related matters confidential.
Interested investors can register at FHFA’s REO Initiative page to pre-qualify. FHFA is also looking at ways to improve REO sales to homeowners and small investors, enhancing the existing retail sales strategy at the GSEs. Both companies sell the majority of their REO properties to owner-occupants at close-to-market value. The purpose of the pilot phase will be to examine investor interest in various types of assets, including the location, size and composition of pools of assets; the ways in which investors maximize the participation of experienced local firms and organizations that can provide the types of services and support needed to ensure community stabilization; the types of structures and/or financing that improve returns to the sellers as well as home values in impacted markets; and the process by which investors are qualified to and ultimately participate in the sales transactions.
by nationalmortgageprofessional.com Feb 1, 2012
FHFA Takes First Step in Its REO Pilot Initiative | Mortgage News | Daily National and State Headlines
Sunday, November 6, 2011
Combs: Single-asset LLC will provide best protection
Question: I recently inherited a small amount of money from my grandmother. I decided that I would use most of this money to buy investment homes at foreclosure sales.
I bought my first investment home at a foreclosure sale. I then formed a limited liability company, and I transferred the title to this investment home into the LLC to avoid personal liability.
In the next month, I plan on purchasing three more investment homes. Should I then transfer the title to these three investment homes into the already established LLC or should I have a separate LLC for each investment home?
Answer: You should have a separate single-asset LLC for each investment home. The reason is that, if one of the investment homes turns into a rotten apple, the other investment homes will not be affected. For example, if there is mold in one of the investment homes and the tenant and the tenant's family are injured by this mold, many insurance companies will not cover, or will severely restrict, mold claims.
The cost of forming an LLC is minimal in comparison to the potential liability, and after formation of the LLC, unlike corporations, there is generally no government involvement.
by Christopher Combs Combs Law Group Nov. 4, 2011 05:24 PM
Combs: Single-asset LLC will provide best protection
I bought my first investment home at a foreclosure sale. I then formed a limited liability company, and I transferred the title to this investment home into the LLC to avoid personal liability.
In the next month, I plan on purchasing three more investment homes. Should I then transfer the title to these three investment homes into the already established LLC or should I have a separate LLC for each investment home?
Answer: You should have a separate single-asset LLC for each investment home. The reason is that, if one of the investment homes turns into a rotten apple, the other investment homes will not be affected. For example, if there is mold in one of the investment homes and the tenant and the tenant's family are injured by this mold, many insurance companies will not cover, or will severely restrict, mold claims.
The cost of forming an LLC is minimal in comparison to the potential liability, and after formation of the LLC, unlike corporations, there is generally no government involvement.
by Christopher Combs Combs Law Group Nov. 4, 2011 05:24 PM
Combs: Single-asset LLC will provide best protection
Subscribe to:
Posts (Atom)