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Posts Tagged ‘homeownership’

Price Gains Slowing; Markets May Stabilize

In a Wall Street Journal article from December 31, 2014, by Kathleen Madigan, it is mentioned that overall in the United States (as per the Case-Shiller 20 City Index) prices were up 4.6% from the previous year by the end of October 2014. The pace of growth has slowed from 4.8% in September and 10% in the first quarter. The article goes on to say this could indicate the markets are moving toward stabilization.

Understandably, in Florida, there is likely to be more price appreciation, as the state as a whole reflects the recession effect due to the ultra-slow judicial foreclosure periods. All in all, however, it’s definitely time to look to the stable markets with great economies and low unemployment. It is time for the classic long term hold of houses, where the tenant pays off the (very low) fixed-rate mortgage while inflation keeps eroding it.

No doubt newer homes will figure more prominently in 2015. The classic investment thesis holds strong in 2015 with an extra HUGE bonus: super low interest rates are still here – but many think they will vanish in the coming years.
Happy New Year!
Below is the article in its entirety for your review:

SLOWING PRICE GAINS SUGGEST STABLER MARKET

By Kathleen Madigan (WSJ)
Updated Dec. 31, 2014 12:41 a.m. ET

Yearly growth in home prices across the U.S. continued to moderate early in the fourth quarter, suggesting the housing market may be settling into a more sustainable recovery.

Prices nationwide increased 4.6% in the year ended in October, according to the Standard & Poor’s/Case-Shiller home-price report released Tuesday. That was down from 4.8% in September and a far cry from the 10%-plus gains in the first quarter. A 20-city measure more closely followed by economists increased 4.5% over the year in October, also down sharply from double-digit gains earlier in the year.

Demand for housing has slowed significantly in recent months despite stronger job growth, a rebound in consumer confidence and falling gasoline prices, which puts more money into consumers’ pockets. Sales of both new and existing homes fell in November. Yet the slowing trend is a positive for the 2015 housing outlook, say economists who follow the industry.

Price appreciation of about 5% is close to a sweet spot where more buyers are able to purchase a home and current owners accumulate housing wealth, but the market avoids a price bubble that could trigger a financial crisis, as happened in 2007.

“It’s a healthier market because first-time buyers feel more comfortable about coming in,” said Bill Banfield, vice president of capital markets at mortgage lender Quicken Loans, adding that the industry needs more first-time buyers to buy smaller homes that allow existing owners to move up into new construction or to an existing house that better suits their needs.

For 2014, however, first-time buyers accounted for only 29% of existing-home sales, according to data from the National Association of Realtors, much less than the historical norm of 40% for sales of primary residences.

Economists at IHS Global Insight agree slower price appreciation is positive for the housing outlook. “Home appreciation at a reasonable pace makes homeownership an attainable dream,” said Stephanie Karol, a U.S. economist at IHS Global. A repeat of the double-digit growth seen in early 2014 “would risk producing a bubble,” she said.

But just as each real-estate market is local, she pointed out the Case-Shiller price index of 20 cities masks the individual pricing experience going on across the country.

“Prices are rising fastest in cities such as San Francisco where geographic or legal constraints limit new construction,” Ms. Karol said. Cities with fewer zoning laws and more space—such as Charlotte, N.C., and Phoenix—are seeing smaller price gains.

Still, the average home-price gain of about 5% is good, she said, and IHS Global is upbeat about home demand and prices in 2015. The forecasting firm projects home prices, as measured by an index compiled by the Federal Housing Finance Agency, will increase 5% over the course of next year and sales of new and existing homes will average 5.92 million, up from 2014’s current pace of about 5.3 million.

Here is a link to the Wall Street Journal U.S. Housing Market Tracker:

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2016 and the Real Estate Investor

The year is off to a decent start–the fears many investors had that mortgage rates will go up very quickly due to the Fed’s raising the short-term rates recently have not only not materialized, but actually, mortgage rates have gone down twice. I will address it in a separate blog entry but as you can see there is no immediate correlation. Needless to say, mortgage interest rates WILL go up at some point which in part serves to frame the most important aspect of 2016.
During 2016 mortgage interest rates are likely to remain quite low for the entire (or most of the ) year. As single-family homes investors, those of you with decent credit and not a huge portfolio can still qualify and get these coveted 30-year fixed rate loans that you can only get on Single Family Homes (technically 1-4 residential units).

This is the year to focus and be effective in buying solid homes financed by these 30-year fixed rate loans at these incredible interest rates and lock them forever. You will feel like a genius later on after rates have climbed and here you are with an under-5% loan fixed forever, and never changing with the cost of inflation. In a continuous manner, inflation erodes your fixed loan, and the tenant is paying it off one little month at a time.

Do this in 2016. Do this several times. You will be setting up your financial future.

As far as markets, there may not be large appreciation swings in most markets during 2016. In a funny way, the ever-solid Texas is appreciating decently now, but people have some questions about its overall economy.

Oklahoma City with brand-new homes (under 50% of the property tax bite of Texas; it is poised to provide better cash flow on similar rents and home prices – which it has) is a very serious candidate for solid investments.

Jacksonville, Florida is the market least appreciated in the state so far and carries the best appreciation potential. Also in 2016, the Panama Canal project is slated to be finished, potentially generating major large-ship traffic into the Jacksonville port. Will they finish this gargantuan project on time? Will it drift over to 2017? Regardless, it is a dominant event.

Get those good single-family homes and finance them with low 30-year fixed-rate loans. Rinse and repeat. You will very likely be quite happy in the future when you look back at what you have done. We will be discussing this in detail, along with market teams and incredible experts, during our next quarterly 1-Day Expo near SFO on Saturday, March 5th. Everyone citing this blog can attend for free with guests. Just email us at info@icgre.com or call us at 415-927-7504.

Happy New Year!:

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Do You Think You Can Never get College Aid For Your Kids Due to Your High Income?

Many of you may automatically assume that you will get no college aid when your kids arrive at that age, due to your income, which you assume is too high (especially if you are in Silicon Valley) and crosses all the threshold.
 
Surprisingly, it is not a matter of just how high your raw income is. It is a much more complex matter of how your overall financing looks, is arranged, even optimized.
For this important knowledge, we have invited Gary Sipos, MBA, AIF, to educate us (no pun intended) on the subject. Gary has helped numerous families get into college in ways that were much more beneficial and frugal than they had imagined.
 
I always talk about real estate investments, the way we do it at ICG, as a means for a stable financial future with two main items: retirements and your kids’ college. I like to explain how Single Family Home investments are done with a long horizon that can assist both these goals in a very powerful way.
 
It is only natural that if we can optimize one of our biggest potential expenses, we would like to know about it.
 
Gary will be speaking THIS SATURDAY, March 5th, at our ICG 1-Day Expo near SFO. There will also be experts on financial planning, special lenders and loan programs, and market teams from choice U.S. markets for us to meet, learn from, and be exposed to some great properties.
 
Anyone mentioning this blog can attend for free (with guests who can come for free as well). Just email us at info@icgre.com to register. See you this Saturday.
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Home Prices Appreciation Creating Attractive Rentals For Investors

In yesterday’s Wall Street Journal there was an article (below) by Nick Timiraos regarding the effects of home price appreciation on affordability. As the article states, rising interest rates, a dearth of housing stock in many markets, still-tight lending criteria and a slow builder’s resurgence, create a real difficulty for many people to buy their first home. Needless to say, investors reap a certain benefit from this situation by enjoying an expanding demand for rentals. Since many investors have the means and sophistication to buy homes, the expanding rental pool actually improves the investment situation.

Here is the article as it appeared yesterday: 
 

Surging Home Prices Are a Double-Edged Sword

Affordability Troubles Grow, Especially for First-Time Buyers

 
March 9, 2014, 4:35 p.m. ET

The U.S. housing market faces a challenge at the start of the spring sales season: higher prices.
It is hard to overstate the benefits of rising prices to the economy broadly and to homeowners, banks and home builders specifically after years of declines. Price gains have pulled more Americans from the brink of foreclosure and given home buyers more confidence that they won’t get stuck with an asset whose value will decline.

But those gains have a painful edge, too, especially because prices have bounced back so strongly. The increases have rekindled concerns about affordability, particularly for first-time buyers, and could damp the gains of a housing rebound still in its early stages. The U.S. housing market faces an unexpected challenge at the start of the spring sales season: home prices are on a tear. Price gains have pulled more Americans from the brink of foreclosure and boosted demand from consumers no longer afraid to buy.
“Prices ran up so fast in 2013, it hurt first-timers’ ability to become homeowners,” said John Burns, chief executive of a home-building consulting firm in Irvine, Calif. “It’s going to be a slower recovery than people had hoped because a number of people have been priced out of the market.” Home values nationwide are up 11% over the past two years, according to real-estate information service Zillow Inc. and 14% below their 2007 peak. Mortgage rates, which jumped a full percentage point to about 4.5% in the past year, have sharpened worries over housing affordability.

Even as prices have increased, housing still appears affordable by one traditional gauge. Since 1990, American homeowners have spent about 24% of monthly income on their mortgage payments, according to data from Morgan Stanley. Today, that payment-to-income ratio stands at around 20%, below the long-run average. The problem with that view of affordability: It assumes borrowers have great credit and large down payments. The ratio isn’t favorable for first-time buyers and others with lower incomes and smaller down payments, which increases their monthly financing costs. The payment ratio for first-time buyers was around 24% at the end of last year, in line with its long-run average, according to the Morgan Stanley analysis.
This pinch on first-timers is troubling because, so far, the housing recovery has depended to an unusual degree on cash buyers and investors. The relatively weak position of entry-level buyers could further suppress the homeownership rate—now off more than four percentage points from its 2004 peak—as more of them rent, said Vishwanath Tirupattur, a managing director at Morgan Stanley. Making matters worse, home prices are going up fastest in markets that are already expensive, such as San Francisco and Los Angeles. Just 32% of California households at the end of last year could afford the monthly payments on a median-priced home in the state of $431,510, assuming a 20% down payment, according to the California Association of Realtors. That was down from 56% of households that could afford the payments on a $276,040 median-priced home in early 2012.

Rising prices are only part of the problem for first-time buyers. Inventory shortages and tougher mortgage-qualification standards benefit buyers who can make large down payments and those who can forgo a mortgage altogether. Because many markets have low supplies of homes for sale, all-cash buyers have routinely beat out first-time buyers by guaranteeing a quick, worry-free closing for sellers.

Meanwhile, federal officials have repeatedly increased insurance premiums on loans backed by the Federal Housing Administration, which serves many first-time buyers because it requires down payments of just 3.5%. While mortgage rates at the end of 2013 reached their highest levels in more than two years, the all-in cost of an FHA-backed loan—due to insurance-premium increases—was closer to a five-year high.
Rising prices are less of a problem for current homeowners seeking to trade up because they can tap growing home equity to make their next home purchase. An index tracking housing affordability from data firm CoreLogic Inc. shows that homes were 17% less affordable for first-time buyers at the end of last year compared with the year before, while the index was down just 6% for existing homeowners.

Ideally, higher prices would stimulate more home construction, which would ease inventory crunches that are partly responsible for price increases while boosting job growth. But builders have been slow to ramp up production, skittish after being caught with too much inventory when the 2008 downturn hit. Last year, many focused instead on higher-end houses, while entry-level construction was subdued. Sales of new homes last year rose by 14% from 2012, but the number of homes sold for less than $150,000 fell by 28%. Sales above $500,000 grew by 36%.

The worry is “a situation develops where construction remains low and prices continue to outpace incomes before first-time buyers can get in, and the next thing you know, you have to” bypass standard mortgage-qualification rules “to get people into homes,” said Thomas Lawler, an independent housing economist in Leesburg, Va.

Others fret that low interest rates have allowed prices to rise too fast relative to incomes, which have stagnated. While homes are still affordable on a monthly payment basis because of cheap financing, homes no longer look like a bargain when comparing prices to incomes. For the past few years, policy makers have focused on breaking a vicious downdraft in home prices. Now, it wouldn’t hurt housing to see price gains flatten out, especially if income growth remains tepid. If not, the housing market’s roller-coaster ride will continue.

Write to Nick Timiraos at nick.timiraos@wsj.com.
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New Markets Join the Fray as Pricing Changes

Up until the beginning of 2012 there were some states that lead the way as far as investor interest: California, Nevada, Arizona and Florida. That interest on the part of investors was justified, as these four states were the most clearly noticeable examples of recession housing prices. These four states were the “poster children” for extreme housing price collapse.

During 2012 and 2013 all four states exhibited strong housing price appreciation. Phoenix led everyone with a 70% jump. Las Vegas wasn’t far behind and California process improved rapidly. Florida prices went up but the uptick was tempered by far slower judicial foreclosure processes in Florida, as opposed to the quick and efficient trustee sale in the other three states.

Now, in the middle of 2014, Florida prices have improved quite a bit and yet, due to the slow foreclosure process, which creates a steady trickle of supply into the marketplace, Florida is still a place where investors look to buy. However buying in Arizona, Nevada and California has slowed significantly for now.Other states, which have not experienced such extreme price swings, are now becoming attractive investor destinations.

A prime example is Oklahoma City, with low unemployment and the benefit of the oil & gas industries. Rents are high and property taxes are low. Similarly, other “middle of the country” markets in states like Kansas and Missouri are starting to attract more buyers, as is the state of Texas (with a strong economy, high rents, but also very high property taxes and insurance rates) and states like Ohio.Overall it is possible that soon the effects of the recession will no longer be dominant and marketplace demand by investor will revert to parameters before 2008.

Some of these new markets will be present at our Real Estate 1-Day Expo this Saturday near the San Francisco Airport (see details at www.icgre.com). Call us (415-927-7504) or email us (info@icgre.com) and mention this blog entry and receive my book, for free, with registration at www.icgre.com.

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How to Create Multiple Income Steams to Secure a Strong Financial Future

Exploring this and other avenues for finding financial real estate success during our 1-Day Expo. 
As many of you know, we are holding our 1-Day Expo on Saturday, June 14th from 10:00-6:30 p.m. Even though we have been holding these events for over 20 years, I am always excited before we hold them. I know I will learn so much from the expert lecturers, the market teams who bring information straight “from the trenches” and from all of YOU who attend.
Just the Q&A sessions are so informative, I have yet to partake in one of our events and not learn a tremendous amount of valuable information during these sessions.
The networking is also so valuable, bringing new connections and new synergy.
This time we have three expert lecturers:
Attorney Brett Lytle on Asset Preservation & Protection. Brett always sees the smallest details, which stay hidden from most observers. He has led countless people to create a safer, more secure way to hold assets and will teach all of us how to do this.
Lucian Ioja uses his vast experience and knowledge to show us how we can create multiple streams of income and plan our financial life in a proactive, fruitful way. He also teaches us to utilize many different avenues to create these income streams; from using insurance in a sophisticated manner to real estate and other vehicles that we will explore.
Roger St. Pierre will teach us about getting non-recourse mortgages to buy real estate, with financing,  from our IRA accounts. A lot goes into this and that is why we invited Roger to instruct us.
There will be lenders with new types of investor (and homeowners) loans to tell us about.
We are bringing in three new markets with exciting deals at attractive price points, including brand new homes, as well as low-cost turn-key homes with tenants AND easy special financing even to investors who had been spurned by the banks.
Updates from the existing markets are always so fascinating. The work and preparation that goes into these refresher points from the markets always amaze me. There is so much to learn and so much to feel the pulse of what goes on nationally.
I’ve been asked to do something special for the blog readers, and we will give everyone who registers and mentions this blog, a free copy of my book Remote Controlled Real Estate Investing which goes into the details of buying properties far from home. So, register today to secure your spot and as an added bonus receive my book. For free.
Create Remote Controlled Real-Estate Riches - The Busy person's guide to real estate investing - Adiel Gorel
 
I am excited and very much looking forward to seeing you at our event. The 1-Day Expo will take place near the San Francisco Airport, at the South San Francisco Conference Center. We set the Expo time so people can fly in and fly out on the same day if they are not from the San Francisco Bay Area – the day starts at 10:00 AM and ends at 6:30 PM, providing attendees from Los Angeles, San Diego, Portland, Seattle, Phoenix and wherever it is that you call home to arrive and leave on the same day.
Of course, for Bay Area residents it is an easy drive and everyone appreciates the ample free parking at the conference center.
To register online through Eventbrite: http://bit.ly/1kk2she  and use the code: BLOGBOOK
 
or
 
Email us at info@icgre.com or call us at 415-927-7504 and mention you read about the expo on my blog.
 
 
 
Best,
Adiel

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