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There are many non-financial benefits of buying your own home. However, today’s headlines seem to be focusing primarily on the financial aspects of homeownership – specifically affordability. Many articles are making the claim that it’s not affordable to buy a home in today’s market, but that isn’t the case.
Today’s buyers are spending approximately 20% of their income on their monthly mortgage payments. According to The Essential Guide to Creating a Homebuying Budget from Freddie Mac, the 20% of income that purchasers are currently paying is well within the 28% guideline suggested:
“Most lenders agree that you should spend no more than 28% of your gross monthly income on a mortgage payment (including principal, interest, taxes and insurance).”
So why is there so much talk about challenges regarding affordability?
Since home prices are rising, it’s true that homes are less affordable than they have been since the housing crash fifteen years ago. Headlines making these claims aren’t incorrect; they just don’t tell the whole story. To paint the full picture, you have to look at how today stacks up with historical data. A closer analysis of affordability going further back in time reveals that homes today are more affordable than any time from 1975 to 2005.
Despite that, the chatter about affordability is pushing some buyers to the sidelines. They don’t feel comfortable knowing someone else got a better deal a year ago.
In a recent post, Odeta Kushi, Deputy Chief Economist at First American, offers a different take on the financial components of housing affordability. Kushi proposes we should at least consider the impact equity build-up has on the affordability equation, stating:
“For those trying to buy a home, rapid house price appreciation can be intimidating and makes the purchase more expensive. However, once the home is purchased, appreciation helps build equity in the home, and becomes a benefit rather than a cost. When accounting for the appreciation benefit in our rent versus own analysis, it was cheaper to own in every one of the top 50 markets.”
Let’s look at an example. In the above-mentioned post, Kushi examines the rent versus buy situation in Dallas, Texas. Kushi chose Dallas because home prices there sit near the median of the top 50 markets in the nation.
Kushi first calculates the monthly mortgage payment on a median-priced home with a 5% down payment and a mortgage rate of 3% (see chart below):
Kushi then takes the monthly cost and subtracts the appreciation the home had over the previous twelve months. The average house price in Dallas increased 17.5% in the second quarter of 2021 compared to last year (this is in line with the national pace). That equates to an equity benefit of approximately $3,550 each month if the pace remains the same (see chart below):
We can see the equity gained each month was greater than the monthly mortgage payment, resulting in a negative cost to own. The buyer could build their net worth by $1,830 each month – after paying their mortgage.
Kushi then compares the monthly cost of owning to the cost of renting (see chart below):
When adding equity build-up into the equation, the cost of renting is $3,140 more expensive than owning. Again, the First American analysis shows that it’s less expensive to own in each of the top 50 markets in the country when including the equity component.
If you’re on the fence about whether to buy or rent right now, let’s connect so we can determine if the equity increase in our local market should impact your decision.
If you’re trying to decide whether or not to sell your house, this is the time to think seriously about making a move. Fannie Mae’s recent Home Purchase Sentiment Index (HPSI) reveals the number of respondents who say it’s a good time to sell is higher now than it was over the past few summers (see graph below). Today, the majority of consumers, 75 percent, say it’s a good time to sell a house.
The higher good time to sell sentiment has to do with today’s market conditions, specifically low housing supply and high buyer demand. In the simplest terms, we don’t have enough houses available for sale to meet buyer demand.
According to the latest data from the National Association of Realtors (NAR), we’re still firmly in a sellers’ market because housing supply is well below a balanced norm (shown in the graph below). 
Clearly, the scales are tipped in a seller’s favor today. But while housing supply is undeniably low, the right side of the graph shows how the inventory situation is improving little by little each month as more sellers list their homes for sale.
As a seller, that means each month, buyers have more options to pick from. By extension, that means your house may get less buyer attention with time. Danielle Hale, Chief Economist for realtor.com, explains it like this:
“More homeowners continue to list homes for sale compared to a year ago… Notably, while new listings continue to lag behind a more ‘normal’ 2019 pace, the gap is shrinking. Even though homes continue to sell quickly thanks to high demand and limited supply, new listings are subtly shifting the balance of market conditions in favor of buyers.”
If you’ve been waiting for the perfect time to sell, there may not be a better chance than right now. Inventory is gradually increasing each month, so selling sooner rather than later will help you maximize your home’s potential.
If you’re planning to sell your house, 2021 is still the year to do it. The unique mix of low supply and high demand won’t last forever. Let’s connect to discuss what you need to do now to sell your house and take advantage of this sellers’ market.
As summer comes to a close, is it time to think about selling your vacation home? Based on recent data and expert opinions, it’s something you may want to consider. According to research from the National Association of Realtors (NAR), vacation home sales are up 57.2% year-over-year for January-April 2021.
If you’ve taken your last vacation this summer, here are reasons you should consider selling your vacation home this year.
As the report from NAR says, based on continuously evolving work needs, there could be more interest in your second home than you think:
“In 2020, across all nine divisions, the fraction of the workforce that work from home is typically higher in the vacation home counties than in the non-vacation home counties… The opportunity to work from home could further raise the demand for vacation homes in future years.
Recent data shows we’ll likely see a sustained increase in the rate of remote work over the next five years. That means your vacation home could be highly sought after by certain buyers. Lawrence Yun, Chief Economist at NAR, puts it best, saying:
“Vacation homes are a hot commodity at the moment . . . . With many businesses and employers still extending an option to work remotely to workers, vacation housing and second homes will remain a popular choice among buyers.”
When demand is high, so is buyer competition. When competition is strong, buyers will do everything they can to make their offer on your vacation home as appealing as possible. This can include things like all-cash offers and more. If you sell now, you’ll be able to benefit from high buyer competition and pick the offer with the best possible terms for you. That offer could give you the opportunity to purchase the primary residence of your dreams.
Or, if you find that you’ll continue working from home, you could consider taking up more permanent residence in your vacation home and selling your primary residence instead. While this isn’t a choice everyone can consider, it could be a great option.
No matter what the situation, you don’t have to make the decision on your own. Your trusted real estate advisor can help you determine your best option when you’re ready to sell.
Buyers remain interested in vacation homes this year for a number of reasons. Now that summer is winding down, it’s time to think about taking advantage of today’s demand for vacation homes. Let’s connect today if you’re ready to give your second home its day in the sun.