June Market Perspective [Infographic]

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Jason R. Richardson Photo Jason R. Richardson
NMLS# 256859
Mid America Mortgage, Inc.
27413 Tourney Road Suite #150
Valencia, CA 91355
(866) 575-9993
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Economic Observer
This letter is for information purposes only and is not an advertisement to extend customer credit as defined by Section 12 CFR 1026.2 Regulation Z. Program rates, terms and conditions are subject to change at any time.

Zillow research reveals most homes can be rented out for a profit

couple in front of house for rent

The majority of U.S. homes could be purchased and rented out for a profit, according to the latest findings in a Zillow Research study.

According to a June 19 article on the Zillow Research site, small investors in 25 of the 35 biggest U.S. markets could most likely buy a home and rent it out for a profit, with the exception of a handful of high-priced metros along the West Coast and the Northeast.

Zillow did some number crunching to determine where rental revenue on investment property will exceed the monthly fixed costs of homeownership (mortgage payments, property taxes, insurance and HOA dues). According to their findings, the vast majority of homes in 25 of the 35 largest U.S. markets would be suitable for the math to work out in the investor’s favor.

“In each of these markets, at least 70 percent of homes can be purchased and rented out for more than their fixed monthly expenses, and in 17 of them, 9- percent of more of the homes meet that criteria,” writes Jamie Anderson, data scientist at Zillow Research. “But in nine particularly pricey markets (and almost in another), prices on the majority of properties are high enough that rental payments won’t cover the costs of ownership.”

Where Being a Landlord Doesn’t Pay

San Jose, California is the heart of Silicon Valley and one of the least affordable places to call home. Only five percent of homes here can be rented out for more than the monthly expenses involved in owning them, according to Anderson.

Moving a few miles north to San Francisco won’t help much. Here, only about 1 in 7 homes (14.3 percent) are likely to produce a positive net monthly cash flow.

Anderson goes on to point out that in another seven metro areas, between 23 and 49 percent of homes can be rented out for more than their mortgage. These areas include…

  • Los Angeles (26 percent)
  • San Diego (30 percent)
  • New York (40 percent)
  • Sacramento (40 percent)
  • Boston (45 percent)
  • Seattle (46 percent)
  • Portland (49 percent)

What may be somewhat surprising to many, more than half of homes in the nation’s capital of Washington, D.C. (54 percent) can be rented for more than the cost of ownership, but just barely.

So what makes these markets less profitable for investors? According to Anderson, these markets are within the top 10 most expensive major housing markets in the nation. Also, Anderson points out that while rents are high in these markets, home prices are also considerably higher.

“Nationwide, the full purchase price of the average home is equivalent to 11 years of the median U.S. rental payment,” writes Anderson. “In the most expensive markets, it would take almost double that length of time – more than 20 years of rental payments – to pay for the price of a home in full. If expected home and rent price appreciation were projected to be the same across all markets, we would expect all markets to have a similar price-to-rent ratio. But that’s not what happens: In more expensive markets, home values are a higher multiple of annual rental payments.”

Despite these markets being mostly unprofitable for small investors, the research did find that, within these markets are small, affordable “pockets where home prices are modest enough that rent payments should cover monthly ownership costs.”

In Seattle, for example, there are very few homes that can be rented for more than the costs of homeownership within the city proper or along the eastern shore of Lake Washington. However, travel north or south of Seattle’s city limits and you might find better deals in the middle-class suburbs of Lynnwood and Renton. Most homes in these areas can be rented out for a profit, according to the Zillow Research data.

Where Being a Landlord Does Pay

According to the data, Zillow Research found that 25 of the nation’s 35 biggest major metros were conducive to renting out for a profit. In 17 of the 25, more than 90 percent of homes were able to be rented out for a profit.

The five markets that have the highest share of homes that can be rented for a profit include…

  • Indianapolis (98.7 percent)
  • Kansas City (98.5 percent)
  • Cincinnati (98.4 percent)
  • Cleveland (98.2 percent)
  • San Antonio (97.9 percent)

Rounding out the top 10 are Atlanta (97.3%), Detroit (97.1%), Dallas (96.9%), Orlando (96.8%) and Houston (96.6%).

Thinking of Buying Rental Property?

Being a landlord is a big responsibility and it’s not for everyone. But for the right person, owning rental property can be a great way to diversify investments, supplement monthly cash flow and build overall wealth. If you’re considering being a landlord and purchasing an investment home, start by researching investment property financing and second home loans.

Investment Property Loan vs Second Home Loan

With an investment property loan, the borrower can use the anticipated rental income to qualify but the interest rate may be higher, along with the minimum down payment. This option is best suited for those interested in buying a home that will be rented out to long term tenants.

By contrast, a second home loan is essentially the same as a mortgage for a primary residence; however, the property must be occupied by the borrower a certain number of days out of each year. This option is better suited for those interested in buying a vacation rental or short term rental home.

Want to learn more about rental home financing? Let’s talk. Give us a call at 866-544-7013 or complete the form on this page and one of our mortgage professionals will contact you.

The post Zillow research reveals most homes can be rented out for a profit appeared first on Mid America Mortgage, Inc..

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The Supply & Demand Problem Plaguing New Construction

The Supply & Demand Problem Plaguing New Construction | Simplifying The Market

Many real estate economists have called on new home builders to ramp up production to help relieve the shortage of inventory of homes for sale throughout the United States. The added inventory would no doubt aid buyers in their search to secure their dream home, while also helping to ease price increases throughout the country.

Unfortunately for builders, there are many forces that are making it difficult for them to do just that!

Last week at the National Association of Real Estate Editors 51st Annual Conference, CoreLogic’s Chief Economist Frank Nothaft broke down the 4 ‘L’s of New Home Construction: Lots, Labor, Lumber, and Lending.

The concept of supply and demand is ripe in the new home construction industry. The four ‘L’s of new home construction are each suffering a supply problem, and with that comes added costs. Let’s break it down!

Lots – There is a shortage of land near metros at an affordable price, causing builders to move farther and farther away from cities to keep costs down. This isn’t always an attractive option for those who want to stay close to work.

Labor – The Great Recession forced many skilled construction and trade workers to find other sources of income once their jobs were lost at the time of the crash. Even though the overall housing market has recovered, these workers have not returned. Those who remain are starting to age out and retire, causing even more of a shortage and additional costs.

Lumber – The cost to build a new home is directly tied to the cost of the lot and the cost of the supplies needed to build the home. Lumber costs continue to escalate due to policies restricting the importation of Canadian lumber, making larger luxury homes an attractive option to recoup costs when selling, rather than building smaller single-family homes and making less profit.

Below is a graph showing the increase in cost of 1,000 board feet of framing lumber.

The Supply & Demand Problem Plaguing New Construction | Simplifying The Market

Year-over-year, lumber costs are up 13% after reaching a high of $433 in the second week of April.

Lending – During the Great Recession, many small community banks were forced to close their doors. These banks were a great source of capital and lending for builders looking to borrow money at a low interest rate in the community in which they were building. Tougher lending standards have made borrowing funds more expensive and more difficult for builders.

Bottom Line

Additional costs across all 4 ‘L’s have made building luxury properties more attractive to builders as they are able to make a larger margin with the higher sales price. The move to scale down to starter and trade up homes to help with supply will mean any additional costs are absorbed by the builders unless the supply of the 4 ‘L’s can increase!

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Do You Know How Much Equity You Have in Your Home?

Do You Know How Much Equity You Have in Your Home? | Simplifying The Market

CoreLogic’s latest Equity Report revealed that 91,000 properties regained equity in the first quarter of 2017. This is great news for the country, as 48.2 million of all mortgaged properties are now in a positive equity situation.

Price Appreciation = Good News for Homeowners

Frank Nothaft, CoreLogic’s Chief Economist, explains:

One million borrowers achieved positive equity over the last year, which means risk continues to steadily decline as a result of increasing home prices.”

Frank Martell, President and CEO of CoreLogic, believes this is a great sign for the market in 2017 as well, as he had this to say:

Homeowner equity increased by $766 billion over the last year, the largest increase since Q2 2014. The rising cushion of home equity is one of the main drivers of improved mortgage performance. Since home equity is the largest source of homeowner wealth, the increase in home equity also supports consumer balance sheets, spending and the broader economy.”

This is great news for homeowners! But, do they realize that their equity position has changed?

According to the Fannie Mae’s Home Purchase Sentiment Index (HPSI), more homeowners are beginning to realize that they may have more equity than they first thought.

This is only the second time in the survey’s history that the net share of those saying it’s a good time to sell surpassed the net share of those saying it’s a good time to buy.

78.8% of homeowners have significant equity (more than 20%) in their homes today!

This means that many Americans with a mortgage have an opportunity to take advantage of today’s seller’s market. With a sizeable equity position, many homeowners could easily move into a housing situation that better meets their current needs (moving to a larger home or downsizing).

Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae spoke out on this issue:

“High home prices have led many consumers to give us the first clear indication we’ve seen in the National Housing Survey’s seven-year history that they think it’s now a seller’s market. However, we continue to see a lack of housing supply as many potential sellers are unwilling or unable to put their homes on the market…” 

Bottom Line

If you are one of the many Americans who is unsure of how much equity you have built in your home, don’t let that be the reason you fail to move on to your dream home in 2017! Let’s get together to evaluate your situation!

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Buying Is Now 33.1% Cheaper Than Renting in the US

Buying Is Now 33.1% Cheaper Than Renting in the US | Simplifying The Market

The results of the latest Rent vs. Buy Report from Trulia show that homeownership remains cheaper than renting with a traditional 30-year fixed rate mortgage in the 100 largest metro areas in the United States.

The updated numbers actually show that the range is an average of 3.5% less expensive in San Jose (CA), all the way up to 50.1% less expensive in Baton Rouge (LA), and 33.1% nationwide!

Other interesting findings in the report include:

  • Interest rates have remained low and, even though home prices have appreciated around the country, they haven’t greatly outpaced rental appreciation.
  • With rents & home values moving in tandem, shifts in the ‘rent vs. buy’ decision are largely driven by changes in mortgage interest rates.
  • Nationally, rates would have to reach 9.1%, a 128% increase over today’s average of 4.0%, for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.

Bottom Line

Buying a home makes sense socially and financially. If you are one of the many renters out there who would like to evaluate your ability to buy this year, let’s get together to find your dream home.

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Top Home Renovations for Maximum ROI [INFOGRAPHIC]

Top Home Renovations for Maximum ROI [INFOGRAPHIC] | Simplifying The Market

Top Home Renovations for Maximum ROI [INFOGRAPHIC] | Simplifying The Market

Some Highlights:

  • Whether you are selling your home, just purchased your first home, or are a homeowner planning to stay put for a while, there is value in knowing which home improvement projects will net you the most Return On Investment (ROI).
  • While big projects like adding a bathroom or a complete kitchen remodel are popular ways to increase a home’s value, something as simple as updating landscaping and curb appeal can have a quick impact on a home’s value.
  • For more information about top renovation projects that net you the most ROI, you can check out the complete list here.

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Are Home Prices Approaching Bubble Territory?

Are Home Prices Approaching Bubble Territory? | Simplifying The Market

As home values continue to rise, some are questioning whether we are approaching another housing bubble. Zillow just reported that:

“National home values have surpassed the peak hit during the housing bubble and are at their highest value in more than a decade.”

Though that statement is correct, we must realize that just catching prices of a decade ago does not mean we are at bubble numbers. Here is a graph of median prices as reported by the National Association of Realtors (NAR).

Are Home Prices Approaching Bubble Territory? | Simplifying The Market

We can see that prices rose during the early 2000s, fell during the crash and have risen since 2013.

However, let’s assume there was no housing bubble and crash and that home prices appreciated at normal historic levels (3.6% annually) over the last ten years.

Here is a graph comparing actual price appreciation (tan bars) with what prices would have been with normal appreciation (blue bars).

Are Home Prices Approaching Bubble Territory? | Simplifying The Market

Bottom Line

As we can see, had there not been a boom and bust, home values would essentially be where they are right now.

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Disappointing Data and Fed Rate Hike

Economic Observer
Disappointing Data and Fed Rate Hike

Downside misses in major reports on inflation and retail sales were favorable for mortgage rates this week. The Fed meeting was viewed as slightly negative. The net effect was a small decline in mortgage rates, which ended at the best levels of the year.

As widely expected, the Federal Reserve raised the federal funds rate on Wednesday afternoon by 25 basis points, bumping it to a range of 1.0% to 1.25%. Investors mostly reacted to new information in the Fed’s statement about the plan to reduce the $4.5 trillion of mortgage-backed securities (MBS) and Treasuries on its balance sheet. If the economy performs in line with the Fed’s forecast, the plan calls for a gradual reduction in the holdings by no longer reinvesting all of the principal payments received. The reductions are expected to begin this year. The amount that will not be reinvested will begin at $10 billion per month (split between Treasuries and MBS roughly in proportion to the Fed’s holdings) and will increase every three months until the total monthly amount not reinvested reaches $50 billion. These figures may have been larger than anticipated by investors, and mortgage rates moved a little higher after the statement was released.

Two major economic reports released on Wednesday morning fell short of expectations, causing mortgage rates to improve. In May, the core Consumer Price Index (CPI), which excludes the volatile food and energy components, was 1.7% higher than a year ago, down from the 1.9% year-over-year rate of increase in April. After holding steady during the second half of 2016, core CPI inflation peaked in January at 2.3% and has declined every month since then. According to the statement, most Fed officials expect that inflation will remain below their 2.0% target in the near term but will stabilize near their target in the medium term.

Excluding the volatile auto component, retail sales in May fell 0.3% from April, which was well below the consensus for an increase of 0.2%. Retail sales are volatile month to month, however, and they still were 4.0% stronger during the first five months of 2017 than they were over the same time period last year.

Week Ahead

Looking ahead, the housing starts data will be released on Friday. The Existing Home Sales report will come out on June 21, followed by New Home Sales on June 23. In addition, Industrial Production, an important indicator of economic growth, will be released on Thursday.


Chart

Contact me to discuss how I can help your clients with their mortgage needs.

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Jason R. Richardson Photo Jason R. Richardson
NMLS# 256859
Mid America Mortgage, Inc.
27413 Tourney Road Suite #150
Valencia, CA 91355
(866) 575-9993
EMAIL ME
Visit my website

FacebookTwitterLinkedIn Google+YouTube channel

Mid America Mortgage, Inc. Logo
Economic Observer
Commentary provided by MBSQuoteline. For live MBS pricing visit www.mbsquoteline.com.

This letter is for information purposes only and is not an advertisement to extend customer credit as defined by Section 12 CFR 1026.2 Regulation Z. Program rates, terms and conditions are subject to change at any time.

Even with higher home prices, most Americans say it’s a good time to buy

house money keys

Even with home prices on the rise, most Americans still see homeownership as a valuable investment and believe now is a good time to buy. Those were the key takeaways from a recent study from Fannie Mae.

According to Fannie Mae’s April National Housing Survey, nearly two-thirds of Americans, or 62%, said it was currently a good time to buy a home. That’s just slightly more than the 60% who felt the same way in March, and 61% who felt that way in April 2016.

The monthly survey polls 1,000 Americans with more than 100 questions, asking the respondents to rate their attitudes on owning and renting a home, price changes in the housing market, and the overall health of the economy.

“[Historically] low mortgage rates are a top reason Americans think it’s a good time to buy,” Sarah Shahdad, a market insights researcher at Fannie Mae told realtor.com. Shahdad also noted that summer is a particularly good time to buy for families with children. “A lot of people are thinking about getting settled before their kids start school,” said Shahdad.

Of the 27% of respondents who felt it was currently a bad time to purchase a home, practically all of them cited high home prices as the key factor in their attitude, said Shahdad. However, the number of April nay-sayers were fewer than March’s 30% and April 2016’s 31%.

“Housing affordability is still a challenge for people,” Shahdad said. “Incomes have not been rising as rapidly as home prices.”

About 53% of survey respondents said they believe home prices will go up in the next 12 months, and 62% said they think mortgage rates are likely to rise over the same time period. More than half of the respondents, 52%, said they anticipate rental prices to increase.

Despite the commonly held belief that home prices will continue to rise, fewer Americans said it was a good time to sell a home, according to the Fannie Mae survey. Those who felt bullish about selling comprised 57% of respondents in April, compared to 60% of respondents in March. However, more respondents felt good about selling in April when compared to the previous year. Fifty-two percent of respondents felt good about selling in April 2016, and 46% felt good about selling in April 2015.

The respondents who felt good about selling cited low mortgage rates, said Shahdad. Improvements in the economy are also likely playing a role, explained realtor.com’s senior economist, Joseph Kirchner.

“People are going to make a long-term financial commitment to purchasing a home because they have the income, they have the job, and they are more confident they are going to be able to keep that job,” said Kirchner. “People’s fears and insecurities [that] they got during the recession are waning.”

The post Even with higher home prices, most Americans say it’s a good time to buy appeared first on Mid America Mortgage, Inc..

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Homeownership Is a Good Financial Investment!

Homeownership Is a Good Financial Investment! | Simplifying The Market

According to a recent report by Trulia“buying is cheaper than renting in 100 of the largest metro areas by an average of 33.1%.” The report may have some people thinking about buying a home instead of signing another lease extension, but does that make sense from a financial perspective?

Ralph McLaughlin, Trulia’s Chief Economist explains:

“Owning a home is one of the most common ways households build long-term wealth, as it acts like a forced savings account. Instead of paying your landlord, you can pay yourself in the long run through paying down a mortgage on a house.”

The article listed five reasons why owning a home makes financial sense:

  1. Mortgage payments can be fixed while rents go up.
  2. Equity in your home can be a financial resource later.
  3. You can build wealth without paying capital gains.
  4. A mortgage can act as a forced savings account.
  5. Overall, homeowners can enjoy greater wealth growth than renters.

Bottom Line

Before you sign another lease, let’s get together and discuss all your options.

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