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What Real Estate has that Stocks Don’t!

Most people believe that investing in the stock market is the best way to build wealth. The idea is simple enough: You purchase stock in a company with the understanding that they will work to increase their profits, which in turn, increases the value of your stock. If you’re very lucky, they may even send you dividends based on the number of shares you hold (but don’t count in it—and if they do, it won’t be much).

As you can see, those who invest in stocks are at the mercy of the companies they’ve invested in to generate profits and increase stock value. Many investors find the lack of control in this arrangement to be very frustrating.

For those investors who prefer a more active, hands-on approach, real estate has proven to be an even more lucrative alternative. Once they have acquired a property, these investors have control over a variety of elements affecting the size of their returns, including property condition, rent charged and tenant screening. These decisions have a direct impact on creating a steady stream of cash flow while building equity, both of which will work to build wealth over time.

But it’s not just this control that makes real estate investing so attractive. In fact, the numbers are on the side of real estate investment. For instance, if you had invested $100,000 in the S&P 500 back in January 2000, your investment would be worth $115,190 in June 2013.That same investment in real estate would be worth $214,700 according to median sales price figures from the National Association of Realtors. That’s a 15.19 percent increase for the S&P 500 and a 53.8 percent increase for real estate. And, based on Census Bureau averages of rental pricingduring that time, cash flow from a rental property would generate $97,223.  When combined with the average appreciation over that time period, this investment’s returns would total $251,023—even after the worst housing crash in our generation. Any investor can see that a 151 percent increase is a more attractive proposition than a 15 percent gain.

Certainly, investment properties will have expenses associated with them, such as insurance and maintenance; however, working with a knowledgeable agent to find the right property and do the math ahead of time can help mitigate risk and help ensure cash flow. Partnering with a Certified Investor Agent Specialist^® (CIAS) is essential in identifying and negotiating your purchases to ensure a great investment from the outset. 

Considering all the great deals in today’s market, the still low interest rates, tax benefits, and proven stability over time, it’s easy to see that when compared to other asset classes, real estate is indeed the best avenue for building wealth. 

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Another One Bites The Dust!

Anyone can list a house but the Karen Davis Real Estate Team gets them SOLD!!

 

Karen Just Sold!

What Is A Short Sale?

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The Housing Market Is Bouncing Back!

Housing markets in 52 out of the approximately 350 metro areas nationwide have now returned to or exceeded their pre-recessionary levels of activity, according to the newly minted National Association of Home Builders/First American Leading Markets Index (LMI), released recently.

The index’s nationwide score of .85 indicates that, based on current permits, prices and employment data, the nationwide housing market is running at 85 percent of normal activity.
Baton Rouge, La., tops the list of major metros on the LMI, with a score of 1.41 – or 41 percent better than its last normal market level. Other major metros at the top of the list include Honolulu, Oklahoma City, Austin and Houston, Texas, as well as Harrisburg, Pa. – all of whose LMI scores indicate that their housing markets now exceed previous norms.

Looking at smaller metros, both Odessa and Midland, Texas, boast LMI scores of 2.0 or better, meaning that their housing markets are now at double their strength prior to the recession. Also at the top of the list of smaller metros are Casper, Wyo.; Bismarck, N.D.; and Florence, Ala., respectively.
“This index helps illustrate how far the U.S. housing recovery has come, and also how much further it has to go as we continue to face some significant headwinds in terms of credit availability, rising costs for lots and labor, and uncertainties regarding Washington policymaking,” says NAHB Chairman Rick Judson, a home builder from Charlotte, N.C.

The LMI shifts the focus from identifying markets that have recently begun to recover, which was the aim of a previous gauge known as the Improving Markets Index, to identifying those areas that are now approaching and exceeding their previous normal levels of activity. More than 350 metro areas are scored by taking their average permit, price and employment numbers for the past 12 months and dividing each by their annual average over the last period of normal growth.

For single-family permits and home prices, 2000-2003 is used as the last normal period, and for employment, 2007 is the base comparison. The three components are then averaged to provide an overall score for each market; a national score is calculated based on national measures of the three metrics. An index value above one indicates that a market has advanced beyond its previous normal level of economic activity.

“Smaller metros are leading the way to a housing recovery, accounting for 43 of the top 50 markets on the current LMI,” observes NAHB Chief Economist David Crowe. “This is very much in keeping with the results of our previous index for improving markets, and is an indication of the extent to which local economic conditions dictate the strength of individual housing markets.”
“The housing markets of 118 metros scored by the LMI this month show activity levels of at least 90 percent of their previous norms – a very encouraging sign of things to come,” said Kurt Pfotenhauer, vice chairman of First American Title Insurance Co., which co-sponsors the LMI report.

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Homes Selling Faster Than Previous Year

Nationwide, homes listed for sale on Zillow were selling at a rapid clip, to the tune of a month faster in September than a year ago, according to a new analysis. Zillow measured homes sold on the real estate marketplace, and as a whole homes in September spent a median of 86 days on Zillow, down 30 days from 116 days in September 2012.

Among the 30 largest metro markets covered by Zillow in September, homes moved the fastest and spent the fewest days listed on the site in the Bay Area (48 days); Sacramento, California (59 days); and Dallas, Texas (60 days). Homes sold faster this September compared to last September in 30 of the largest metros. Those metros include Las Vegas (44 days faster), Sacramento (43 days faster), and San Antonio (37 days faster).

Zillow calculated the median number of days listings spent on Zillow, at the national, metro, and county levels, dating to January 2010. In order to correct for homes that are listed, then removed and re-posted with new prices, Zillow considered multiple listings within 40 days at the same address as one listing. Since the beginning of 2010, homes nationwide have spent a median of 119 days on Zillow before being sold or taken off the market.

“The declining inventory of for-sale homes over the past year naturally creates pressure for buyers to more quickly snap up the inventory that is on the market. This demand has been fueled by huge resets in home prices since market peak, historically low mortgage rates and a slowly improving broader economic climate,” said Dr. Stan Humphries, Zillow chief economist.

“Home shoppers in today’s environment need to be prepared to move quickly, with pre-approvals in place and an established sense of what they’re willing to pay for a home,” he continued. “But even though things are moving fast, buyers should resist the urge to enter into bidding wars or pay prices they’re uncomfortable with. We do expect that this need for speed will abate in the near-term as mortgage rates rise and more inventory becomes available because of new construction and declining negative equity.”

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30-year mortgage, or 15? 5 questions to help you choose

It has been a slow and painful process, but the housing market is now in recovery and foreclosures have been dropping. Since the housing bust, regulators have focused on preventing borrowers from entering into potentially toxic loans. To help accomplish this, the U.S. government established the Consumer Financial Protection Bureau (CFPB) in 2010.

As part of this effort, the CFPB has proposed new disclosure forms to help borrowers understand the real risks and costs associated with their mortgage. But many potential borrowers are still unsure about the type of mortgage that is right for them. Many borrowers may be attracted to 15-year mortgages, which have a shorter term and lower interest rates than 30-year mortgages. But such a mortgage may not be right for their needs.

Despite the rise in popularity of the 15-year mortgage, it is not necessarily for everyone. For borrowers, it is important to get as much information about the different common mortgages institutions offer — and to understand the different terms. While the amount being borrowed, or principal of the loan, is often clear, the cost of the loan, or interest rate, is often less so.

In an interview with 24/7 Wall St., Guy Cecala, publisher of Inside Mortgage Finance, said borrowing to buy a home is a more complicated decision than refinancing. It is "much more of a calculation about what you can afford, how secure you are about your job, what's the likelihood you're going to want to move in less than five years."

Borrowers must understand how payments, which consist of principal repayment and interest, will be structured under the different types of mortgages. They need to consider how much they will be paying for the loan, not just now, but in the future as well. And they should also consider their budget, age and other factors before deciding on a mortgage.

These are the questions to ask when deciding between and 15 and 30-year mortgage.

1. Can you afford to pay off the mortgage in 15 years?

Although a 15-year mortgage offers a lower rate relative to a 30-year mortgage, thereby allowing borrowers to pay interest for only half as long, a 15-year mortgage comes with a higher total monthly payment. This is because the principal must be paid off faster, making each principal payment larger.

Because borrowers pay down the principal balance faster, in the longer run they save on interest payments. Inside Mortgage Finance publisher Guy Cecala noted, "if you can afford the higher payments associated with the shorter-term 15-year mortgage, there is no reason not to take one."

However, because the monthly payments are higher, it can strain borrowers' ability to set aside money for retirement or their kids' college tuition. These borrowers may be better-off with a 30-year mortgage. Similarly, if the higher payments of a 15-year mortgage mean borrowers have less money to invest elsewhere and diversify their portfolios, they may be better off with a 30-year mortgage.

2. Are you buying your first home?

First-time home buyers often benefit from selecting a 30-year mortgage because the monthly payments are lower. A longer-term mortgage can make a more expensive home more affordable for a new buyer. According to Cecala, most first-time home buyers "are trying to get in as much house as they can."

Of course, 15-year and 30-year mortgages are not the only options available to consumers. Borrowers can take an adjustable-rate mortgage, which offers a low initial rate that stays unchanged for some period, such as five years. When the period expires, borrowers could pay more if interest rates rise. But for buyers who are not looking to own their home for too long and who are confident that they will be able to resell the home, an adjustable rate mortgage may be a sensible option.

3. Are you looking to refinance?

If you already have a mortgage and would like to refinance, now may be a good time. Cecala noted that if your current payments on a 30-year mortgage are high enough, you might be able to refinance into a 15-year mortgage and make similar monthly payments while shortening your mortgage term.

An additional factor that may make refinancing more attractive is the current difference, or spread, between interest rates on 15-year and 30-year mortgages. According to Cecala, "historically, the difference between the 30-year fixed rate and the 15-year fixed rate has been about 25 basis points," or about 0.25%. Currently, the spread between the two rates is especially large, at close to 1% in some cases.

4. Are you planning on retiring soon?
How close a borrower is to retiring plays a major role in whether to take out a 15-year mortgage. Typically, borrowers who take 15-year mortgages are at least 40 years old, according to Cecala. These borrowers are often willing to pay off the balance on their mortgages faster in order to retire with little or no outstanding debt on their homes. However, many older homeowners also must weigh prepayment — making early payments on their mortgage — against the need to save for retirement. According to the CFPB, 30% of homeowners aged 70 and older have outstanding mortgages.

5. Do you have a strict savings plan?
Choosing a 15-year mortgage over a 30-year mortgage also may be a worthwhile choice if you are not a disciplined saver. But many people may lack the discipline needed to save long-term, Cecala noted, especially in amounts that would offset what they would save by switching to a 15-year mortgage. He also added that "a lot of times people need that extra money for something else," and so they choose to keep their money in a 30-year mortgage with lower individual monthly payments.

Some truly disciplined savers may actually benefit from carrying their mortgages into retirement. According to a May story published by Time magazine: "if you expect to earn more after tax on your investments than you pay after tax on your mortgage, keep the mortgage." What you want to avoid in retirement, however, is a situation where you are juggling a mortgage on top of your basic costs of living, taxes and health care payments.

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Karen's Market Update

Investors, highly focused on the economic data, had a lot to consider last week. The Economic Calendar was packed, and nearly all the major reports exceeded expectations. Stronger economic growth is negative for mortgage rates, and rates ended the week higher.

A shockingly strong Employment report caused a swift increase in mortgage rates on Friday. Against a consensus forecast of 120K, the economy added 204K jobs in October, and the figures from the prior two months were revised higher by 60K. The Unemployment Rate, however, rose from 7.2% to 7.3%. The increase in the Unemployment Rate was influenced by the government shutdown during the first half of October. The headline figure of 204K jobs is based on a survey which counts furloughed government workers as employed, while the Unemployment Rate is based on a different survey which counts them as unemployed. Before the data, most investors had expected that the Fed would begin to taper its bonds purchases in March or April. If the pace of job creation continues at this level, though, the Fed could begin to scale back sooner.

In similar fashion, the Gross Domestic Product (GDP) report, the broadest measure of economic growth, was much better than expected. Third quarter GDP rose to 2.8%, well above the consensus of 2.0%. The reaction in mortgage markets was somewhat limited, though, since the details did not quite indicate the same strength as the headline number. Part of the outperformance was due to an unexpectedly large increase in inventories, which means that some growth was "pulled forward" from the fourth quarter. The extra goods produced during the third quarter which caused inventories to expand will reduce production in the fourth quarter.

This week, the Trade Balance and Productivity will be released on Thursday. Industrial Production, Empire State, and Import Prices will come out on Friday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. Mortgage markets will be closed on Monday in observance of Veterans Day

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Happy Veteran's Day!

Karen's Mortgage Market Recap

Present Market Conditions
Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac. "Fixed mortgage rates edged up leading to the federal budget deadline this week. Recent confidence measures depict some of the effects of the government shutdown and uncertainty of the budget impasse. For instance, consumer sentiment in October fell for the second straight month to the lowest reading since January, according to the University of Michigan. Similarly, October's homebuilder confidence fell to a four-month low. However, despite these downturns in confidence, mortgage applications rose for the second consecutive week as of October 11th, elevated by increases in applications for refinancing."

Expectations
Now that the government shutdown is over, the normally scheduled economic reports will resume this week. On Tuesday, the important September Employment report, originally scheduled for October 4, will be released. Retail Sales, CPI, and other postponed reports will be released in the coming weeks. Existing Home Sales will be released on Monday, Jobless Claims on Thursday, and Consumer Sentiment on Friday. The New Home Sales report scheduled for Thursday, may be delayed.

Guidance
Rates are still at low levels. Now is the best time to meet with your mortgage professional to discuss a mortgage solution to meet your financial goals.

Average Rates

FHA/VA 3.875%, Conventional 4.25%, Jumbo 5%, FHA Plus 4.125%, 203K 4.25, VHDA FNMA 97 no/MI 4.75, no points, exclusions apply.

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Today We Are Honoring Dedication, Commitment and Sacrifice

Today is the Day of the Deployed, and the employees of Veterans United Home Loans came together to show support. We want to say thank you to military members and the families that stand behind them, awaiting their safe return.

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