Friday, July 29, 2016

REAL ESTATE TOPICS...5 Ways to Ride the Tide of Rising Home Prices

By Marilyn Lewis
Home prices grew 5 percent between May 2015 and May 2016, says the respected S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index. As home prices grow, new opportunities open up for homeowners, buyers and sellers.
The surge in home values was “further proof that the U.S. housing market had its strongest spring since the recession,” The Wall Street Journal says. The growth was led by cities in the West. Portland (12.5 percent price gains), Seattle (10.7 percent) and Denver (9.5 percent) had the biggest increases among 20 cities studied.
The boom-and-bust-and-boom-again U.S. housing market has many heads spinning. Here’s a quick review, with data from the U.S. Census Bureau. These numbers — which are calculated using a different method than the Case-Shiller index — are for a median-priced home.
Remember, “median” means that half the prices in the market were higher and half were lower:
  1. Boom: November 2007. The median price of existing (not new) U.S. homes hits an all-time high: $249,100.
  2. Bust: March 2009. Home prices plummet by nearly 18 percent. The median price falls to $205,100 in a just over two years.
  3. Inching back: December 2012. By fits and starts, prices crawl upward. Around five years after the crash, home prices finally exceed the 2007 record.
  4. Boom: April 2016. Prices hit a new high, $320,000 — up 28 percent from the 2007 high.
  5. Wobbles: May and June 2016. After peaking, home prices fall back down to $288,800 in May. Then, they move back up again, to $306,700 in June.
Here are five opportunities that this moment offers, depending on where you are in life:

Option No. 1: Become a homeowner

If you want to buy a home, you may be relieved to know that the growth in prices has begun to slow. No one is expecting prices to fall but the intense competition for homes in a market with limited inventory for sale should ease a bit as higher prices prompt more property owners to sell.
Zillow — whose home value estimates differ from Case-Shiller’s — predicts home prices will rise less than 3 percent by this time next year. Still, demand should stay strong: Three-quarters of renters want to become homeowners — up from 68.5 percent in 2015, say researchers at the Federal Reserve Bank of New York.
If you want to be a homeowner, get moving, economist Robert Shiller told Bloombergrecently. “People should be buying a house if they want a house and not speculating that these price increases will continue,” said Shiller, one of the creators of the Case-Shiller Index.
He emphasized that house price appreciation has averaged less than 1 percent a year over the past century.
Before you buy, find out whether it is better to rent or buy where you live. Rent-or-buy calculators like this one on Zillow can show you which of these two options makes the most sense strictly from a financial point of view.
Of course, so much else is involved in the decision, including stability — the ability to stay put and keep kids in their schools without fear of being bumped out or priced out by rent increases. Here’s help thinking the question through: “To Buy or Rent? How to Find the Answer to That Million-Dollar Question.”
A word of caution: It’s reassuring to know that since the recession, the federal government has installed consumer protections that stop lenders and borrowers from committing most of the crazy mortgage excesses that caused the housing crash.
But it’s still important to be careful when taking on debt. Other stuff could happen. There’s no guarantee we won’t have another recession. You could lose your job, or become injured and unable to work.
It is also possible you will wake up one day and realize you hate your job and need to return to school or retrain. Or maybe your spouse might need to step away from work to care for elderly parents or stay home with the kids.
The safest plans take into account what may go wrong. Here’s how to cover your bases:
  • Don’t let housing eat up more than 30 percent of your income — 40 percent if you are determined to go out on a limb.
  • Don’t live on credit or go without an emergency fund that could cover three to six months of expenses or more.
Finally, be sure to shop around for the best deal on mortgages. Rates are very low in historical terms. But remember that a difference of a percentage point in interest can mean tens of thousands of dollars over the life of a 30-year mortgage. One place to start comparing loan costs is in our Solutions Center.

Option No. 2: Move up to a better home

Rising home prices are freeing many homeowners from their underwater home mortgages. A home is “underwater” — also called “negative equity — when its mortgage is bigger than the home’s market value.
Nearly one-third of home mortgages were underwater in 2012 after home values sank precipitously. Owners couldn’t sell these homes for enough money to pay off the mortgage, which contributed to a shortage of homes for sale. In January, a far smaller proportion — 12.7 percent — of U.S. homes had negative equity, Zillow reported.
Owners who are no longer underwater are now in a position to sell, and to move to a better home or better location.

Option No. 3: Pull out cash

With the rising prices, homeowners with median-priced homes have seen their own equity increase by $14,000 or $15,000 in the last year.
If you need some cash, you have an opportunity to pull cash out with a refinance of your home loan, or with a home equity line of credit. “Mortgage lenders have been inundated with refinance requests,” CNBC’s Reality Check reports. If you have enough equity in your home to refinance the mortgage, this is an excellent time to do it, since mortgage rates remain near all-time lows.
Refinance borrowers paid, on average, 3.48 percent (with an average 0.5 point) for a 30-year fixed-rate mortgage in late July, according to Freddie Mac.
An important tip: Leave plenty of equity untouched if you borrow. It’s insurance that, in case of another big price drop, you won’t be stuck with negative equity.
Watch the video of ‘5 Ways to Ride the Tide of Rising Home Prices’ on MoneyTalksNews.com.

Option No. 4: Take the money and run

For some, rising home prices offer a chance to make dreams come true. In the hottest markets — most of them in the West — high demand and high prices have prompted some homeowners to cash out and use the money to retire, or to change their lives entirely.
The Orange County Register reported on homeowners such as Bob and Jennifer Hochstadter, who sold the five-bedroom Laguna Niguel, California, home they’d owned for 35 years and pocketed the cash — more than $1 million, They moved into a smaller rental property they owned and have been traveling: “We just got back from a cruise on the Danube River,” Bob said. “The time we get to spend together we never had before, so it’s really nice.”
Of course, the beauty of the Hochstadters’ story is that they still had a place to live after selling their primary residence, and they were empty-nesters in a good position to downsize.

Option No. 5: Do nothing

If you’re happy and see no big reason to make a change, sit tight, enjoy your home and see where the market takes you. Chances are good that home values will keep growing and your rising home equity will accumulate until you need it.

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