The Cost of Renting vs Buying

I’m going to wait to buy”; “Buying a home right now is just too expensive”; “I don’t want to be tied down to a mortgage”…

I hear these types of responses all of the time. It is disappointing when I know they could qualify to buy a home because, I know prices and interest rates will only go up over time. I also know that renting costs more than buying when you consider all of the related elements of dwelling costs.

My grandfather was born in and lived his entire life in San Francisco, CA.  When he was in his 20s he could have bought a house in San Francisco for $7,500. Today, homes in S.F. range in the millions of dollars. Unfortunately, he never did buy but rented. Had he purchased a home our family would be enjoying the beaches in Cancun.

Here is an article from “Market Watch” which addresses the question we all grapple with at some point in time. He also points out that we don’t need to buy a dream home to get started. Buy what you can afford now and move up has time and circumstances change.

In some cases there are legitimate reasons why someone can’t buy a home now: poor credit, saving money for closing costs and down payment, pending job relocation.  However, when you look at the reasons they are most often temporary and can be remedied.

Our daughter is currently renting. She and her husband just got full time jobs and have little savings. In the beginning, their landlord was pleasant and promised to take care of her place. However, things quickly changed. To make matters worse, he just raised the rent 28%! I’ll give you one guess what goal has moved to the top of their list.

If you are pondering the “rent vs. buy” question, I strongly recommend that you start the buying process as soon as you able.

Kitchen Trends Add Value

The best return on your home improvement dollars is in the kitchen.  This article offers 10 suggestions for kitchen updates in 2017.

While the mailbox, garage and front door have the highest return for their costs, the kitchen is the #1 investment room inside the house. While you may not get 1:1 return you will get more of your money back in the form of a higher sales price than a home with a dated kitchen – you will get more bang for your buck than say, money spent on a bedroom.

Besides, don’t we spend a great deal of time in the kitchen? Especially when family and friends are over. Holidays, special events etc., often evolve around the kitchen.

Rate increase: NBD

Media are so invested in ‘reporting’ sensational news that often, stories are made out of nothing. For example, all of the major networks this week have reported a “hike” in interest rates – as if that was news worthy.

First of all, a “hike” in the woods is typically a big deal. A “hike”can also refer to down hill movement. So that choice of words is used out of the media’s numb mindset of “breaking news” and “shocking developments“. A more appropriate word to describe an interest rate increase would be “adjustment” as in, “interest rate adjustment“. Our speech patterns however, have gotten lazier so saying a 3-syllable word like “adjustment” might be too much work for media-types.

Consider the truth about an interest rate increase. If you get a home loan of $424,000 at 4.5% interest rate for a 30 yr. loan, your monthly principle and interest payment will be $2,085.83. Last month, that loan might have only cost 4.25% with a payment of $2,085.83. The total difference in this “shocking development” is $62.50/mth. That’s it. And, that slight upward adjustment translates into $178 more gross pay per month needed to qualify for the 4.5% loan. No big deal (NBD) – right?

Having said this, in a season of increasing interest rates, there is no value in waiting for better rates. The slight adjustment in payments pails in comparison to typical appreciation of the home’s value. Just a 5% increase in our example home’s value would be $2,208/mth (annualized). So, don’t procrastinate buying or refinancing a home rationalizing to yourself,  “I’ll wait until the rates go back down”. 

Today’s Price vs. Bubble-Peak Price

In CA the average home ownership has been between 7 to 10 years.  So, now many home owners who, want to sell their homes, are having unnecessary hesitations. Their comments go something like this: “THAT’s all we can get for our house?! But we paid $X for it 10 years ago.  We’ll lose money if we sell at today’s price“.  So I ask: “Did you pay cash for your home?” When the home owners say: “no, we financed it” we have the following conversation.

Since you did not pay cash for your home, what you DID pay was principle, interest, taxes and insurance.  THAT’s what you have paid for your home, not the ‘Sales Price’ back then“.

Here is an example:  If they agreed to a sales price of $700,000 in 2006 and got a 90% home loan at 4.0% then what they have actually paid for their home looks like this: $198,293 principle (including the down payment) + $199,650* interest + $87,528* property taxes +$9,600 for insurance.  What they really paid was the total of $420,405 (*after income tax advantages).

So, if today’s market value is, say, $600,000 they didn’t really lose $100,000, they will actually get all of what they DID pay and another $179,595 ($600,000 – $420,405). That $179,595 is a 42.7% return on their investment!  Wow! What a different way to look at it.

Of course there were other expenses such as private mortgage insurance for a couple of  years, repairs and upgrades.  Still what they have actually paid for the home is considerably less than their original Sales Price.

Make sense?  If not, text, email or call me.  I’ll be happy to demonstrate your actual gain.

 

 

Do We Have Enough Homes?

On a national scale the enclosed article in Yahoo Finance points to the 6 reasons why there are NOT enough homes for prospective buyers.

Of course housing markets are typically influenced first by the neighborhood, then community, and finally by their region.  In ‘South County’ (Morgan Hill, Gilroy, Hollister, San Juan Bautista, CA) for example, there is a shortage of homes to choose from and, therefore, home values seem to be forever increasing.  12-16% annual appreciation is pretty typical.

In Hollister we are seeing a slight slow down in the appreciation pace for resale homes this year due to the significant number of new homes being built.  In 2015 the average single family residence value increased 12.6%.  Morgan Hill and Gilroy’s appreciation for the same period were: 15.5 and 16.9% respectfully. Hollister’s new home construction in 2015 affected its appreciation which, normally is on par or, even higher, than both Morgan Hill and Gilroy, CA.

So the proverbial question: “Is your glass half full, or, half empty?”

Home Buyers: Now’s the Time

I have been in the housing business so long that I’ve been through several outgoing, 2 term presidents, where their party was in control of both houses.  Typically, at the beginning of the election year, interest rates and gas prices begin to rise.  They peak during 3rd. quarter and begin to improve toward the national election in November.  (Watch, as soon as I say this, we’ll see an aberration in 2016.)

However, this article may well be a signal that the trend will repeat itself in the coming months.

Prospective homeowners would be wise to buy their home as soon as they can.  Sales prices in the South County (San Jose, Morgan Hill, Gilroy, Hollister, San Juan Bautista, CA) begin to rise more rapidly at the end of March and peak in July.  The interest rates will probably inch their way upward during this same time frame.

And look at the impact of a 1.0% rise in interest rates*:  A $400,000 home with 10% down to a new, $360,000 30 yr. fixed rate loan will see a $214 higher monthly principle and interest; a corresponding increase in the qualifying income needed by $642/mth.  The closing costs will also be slightly impacted.

If you are thinking of buying a home, now will be the lease expensive time for South County homes for the next year or more.

*4.0% to 5.0%

Morgan Hill, CA Home Values

Morgan Hill Ave. SPAs you can see here, the average sales price of single family residences in Morgan Hill CA continued to rise over the last 12 months.

This month’s average sales price (approximately $960,000) is roughly 26% higher than 11/14’s average price of $760,000.

You will also notice that the average price spiked in 9/15 at roughly $1,010,000.

Now is a great time to buy a home in Morgan Hill: the ratio of prospective buyers-to-available homes is a little more balanced; the interest rates are still South of 4.0%; and, the short commute into San Jose is very manageable.

It is also a great time to sell your home: it worth more now than in the last 10 years.

For both prospective buyers and hopeful sellers, a sale NOW will get you settled in before Christmas and for the start of the mid school year.

 

Gilroy, CA Home Prices

Gilroy, CA single family home prices have followed a fairly typical pattern over the last 12 months although the Gilroy Sales Price 2average sale price for 10/15 is virtually the same as 12 months ago.

I reviewed 548 Gilroy sales of single family residences from 11/14 to 10/15.  We saw a fairly flat market from Nov. last year to Feb. this year.  Then, in March the prices began to rise and spiked in July.  Since July the average sales prices drifted back to the same level as this time last year.

It is important to note that in 2014 Gilroy home values increased roughly 21% from Jan. through Dec.  And, Jan. this year saw average prices roughly 11% higher than 12 months earlier.

So, what does all of this mean?  Well, if you are a buyer and like to play the odds, your best buys will typically be between now and next Feb. or Mar.  If you are a home owner who is thinking of selling you may want to be ready to go on the market in March or April.

Lastly, you may find that next year, being a National Election year where a sitting majority will want to maintain their plurality, will be anyone’s guess as to what home prices are going to do in Gilroy.  Actually, I have a prediction based on the 9 other national election years I have seen while in the housing business.  Text, email or call me for that information.

Thanks to MLSListings for the data.

 

Home Prices in Our Bay Areas

Here is a quick glance, one page summary of year-over-year values for of our Bay Areas.

The median prices increased slightly in Santa Clara County (up 9%) and Monterey County (up 6%) but dropped 1% in San Benito County.

At the bottom of the summary page we see some indicators which suggest San Benito County values may rise in 2015: Inventory of homes for sale increased 14% 9/13 to 9/14 which is one of the causes of the median price to drop. However, the Days on Market (DOM) dropped a whopping 46%!  Since homes sold significantly faster year-over-year we may see San Benito County single family prices rise next year.

With one eye on these opaque indicators and one on “the holidays” disengagement many get caught up in – a shrewd buyer should buy a home before the year is out. And, with interest rates around 4% for a home loan, you could be one of the few others admire in the future: “You bought at the end 2014?  You really ‘lucked’ out”.

Why not text, email or call me?  With your answers to 4 simple questions I will be able to compute for you how much of a home you can qualify for and provide you with a list of those homes in your price range.

“Happy (Holiday) shopping”.

 

 

College Student: “Should I Buy or Rent?”

A college student posed this great question in Trulia: 

“I’m a college student looking to move to Sac this winter. Should i rent or buy? Property around Sac State is expensive…  I need some help on what i should do cause renting is more expensive then a mortgage would be”.

Here was my response:

I would buy if you can.
Why not email me these basic items and I will tell you how much of a loan you can qualify for and what your payment options are:
1. Gross, (before taxes) income year-to-date and for 2013;
2. Amount of cash you have for down payment & costs (including family gift $);
3. What is your minimum, monthly, required debt payment for all, unpaid card balances, car loans etc.;
4. Whether you have had any late charges, or collections.

I will email your results back along with a couple of outstanding, buyer-real estate agents contact info.

Same offer to anyone: you could send me the same info and I will provide you with the results listed above.