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Homeownership offers many advantages over renting, including a stable living environment, predictable monthly payments, and the freedom to make modifications. Neighborhoods with high rates of homeownership have less crime and more civic engagement. Additionally, studies show that homeowners are happier and healthier than renters, and their children do better in school.

But one of the biggest perks of homeownership is the opportunity to build wealth over time. Researchers at the Urban Institute found that homeownership is financially beneficial for most families, and a recent study showed that the median net worth of homeowners can be up to 80 times greater than that of renters in some areas.

So how does purchasing a home help you build wealth? And what steps should you take to maximize the potential of your investment? Find out how to harness the power of home equity for a secure financial future.

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WHAT IS HOME EQUITY?

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Home equity is the difference between what your home is worth and the amount you owe on your mortgage. So, for example, if your home would currently sell for $250,000, and the remaining balance on your mortgage is $200,000, then you have $50,000 in home equity.

$250,000 (Home’s Market Value)

– $200,000 (Mortgage Balance)

______________________________

$50,000 (Home Equity)

The equity in your home is considered a non-liquid asset. It’s your money; but rather than sitting in a bank account, it’s providing you with a place to live. And when you factor in the potential of appreciation, an investment in real estate will likely offer a better return than any savings account available today.

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HOW DOES HOME EQUITY BUILD WEALTH?

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A mortgage payment is a type of “forced savings” for home buyers. When you make a mortgage payment each month, a portion of the money goes towards interest on your loan, and the remaining part goes towards paying off your principal, or loan balance. That means the amount of money you owe the bank is reduced every month. As your loan balance goes down, your home equity goes up.

Additionally, unlike other assets that you borrow money to purchase, the value of your home generally increases, or appreciates, over time. For example, when you pay off your car loan after five or seven years, you will own it outright. But if you try to sell it, the car will be worth much less than when you bought it. However, when you purchase a home, its value typically rises over time. So when you sell it, not only will you have grown your equity through your monthly mortgage payments, but in most cases, your home’s market value will be higher than what you originally paid. And even if you only put down 10% at the time of purchase—or pay off just a small portion of your mortgage—you get to keep 100% of the property’s appreciated value. That’s the wealth-building power of real estate.

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WHAT CAN I DO TO GROW MY HOME’S EQUITY FASTER?

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Now that you understand the benefits of building equity, you may wonder how you can speed up your rate of growth. There are two basic ways to increase the equity in your home:

1.) Pay down your mortgage.

We shared earlier that your home’s equity goes up as your mortgage balance goes down. So paying down your mortgage is one way to increase the equity in your home.

Some homeowners do this by adding a little extra to their payment each month, making one additional mortgage payment per year, or making a lump-sum payment when extra money becomes available—like an annual bonus, gift, or inheritance.

Before making any extra payments, however, be sure to check with your mortgage lender about the specific terms of your loan. Some mortgages have prepayment penalties. And it’s important to ensure that if you do make additional payments, the money will be applied to your loan principal.

Another option to pay off your mortgage faster is to decrease your amortization period. For example, if you can afford the larger monthly payments, you might consider refinancing from a 30-year or 25-year mortgage to a 15-year mortgage. Not only will you grow your home equity faster, but you could also save a bundle in interest over the life of your loan.

2.) Raise your home’s market value.

Boosting the market value of your property is another way to grow your home equity. While many factors that contribute to your property’s appreciation are out of your control (e.g. demographic trends or the strength of the economy) there are things you can do to increase what it’s worth.

For example, many homeowners enjoy do-it-yourself projects that can add value at a relatively low cost. Others choose to invest in larger, strategic upgrades. Keep in mind, you won’t necessarily get back every dollar you invest in your home. In fact, according to Remodeling Magazine’s latest Cost vs. Value Report, the remodeling project with the highest return on investment is a garage door replacement, which costs about $3600 and is expected to recoup 97.5% at resale. In contrast, an upscale kitchen remodel—which can cost around $130,000—averages less than a 60% return on investment.

Of course, keeping up with routine maintenance is the most important thing you can do to protect your property’s value. Neglecting to maintain your home’s structure and systems could have a negative impact on its value—therefore reducing your home equity. So be sure to stay on top of recommended maintenance and repairs.

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HOW DO I ACCESS MY HOME EQUITY IF I NEED IT?

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When you put your money into a checking or savings account, it’s easy to make a withdrawal when needed. However, tapping into your home equity is a little more complicated.

The primary way homeowners access their equity is by selling their home. Many sellers will use their equity as a downpayment on a new home. Or some homeowners may choose to downsize and use the equity to supplement their income or retirement savings.

But what if you want to access the equity in your home while you’re still living in it? Maybe you want to finance a home renovation, consolidate debt, or pay for college. To do that, you will need to take out a loan using your home equity as collateral. 

There are several ways to borrow against your home equity, depending on your needs and qualifications:

1.) Second Mortgage – A second mortgage, also known as a home equity loan, is structured similar to a primary mortgage. You borrow a lump-sum amount, which you are responsible for paying back—with interest—over a set period of time. Most second mortgages have a fixed interest rate and provide the borrower with a predictable monthly payment. Keep in mind, if you take out a home equity loan, you will be making monthly payments on both your primary and secondary mortgages, so budget accordingly.

2.) Cash-Out Refinance – With a cash-out refinance, you refinance your primary mortgage for a higher amount than you currently owe. Then you pay off your original mortgage and keep the difference as cash. This option may be preferable to a second mortgage if you have a high interest rate on your current mortgage or prefer to make just one payment per month.

3.) Home Equity Line of Credit (HELOC) – A home equity line of credit, or HELOC, is a revolving line of credit, similar to a credit card. It allows you to draw out money as you need it instead of taking out a lump sum all at once. A HELOC may come with a checkbook or debit card to enable easy access to funds. You will only need to make payments on the amount of money that has been drawn. Similar to a credit card, the interest rate on a HELOC is variable, so your payment each month could change depending on how much you borrow and how interest rates fluctuate.

4.) Reverse Mortgage – A reverse mortgage enables qualifying seniors to borrow against the equity in their home to supplement their retirement funds. In most cases, the loan (plus interest) doesn’t need to be repaid until the homeowners sell, move, or are deceased.

Tapping into your home equity may be a good option for some homeowners, but it’s important to do your research first. In some cases, another type of loan or financing method may offer a lower interest rate or better terms to fit your needs. And it’s important to remember that defaulting on a home equity loan could result in foreclosure. Ask us for a referral to a lender or financial adviser to find out if a home equity loan is right for you.

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WE’RE HERE TO HELP YOU

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Wherever you are in the equity-growing process, we can help. We work with buyers to find the perfect home to begin their wealth-building journey. We also offer free assistance to existing homeowners who want to know their home’s current market value to refinance or secure a home equity loan. And when you’re ready to sell, we can help you get top dollar to maximize your equity stake. Contact us today to schedule a complimentary consultation!

The above references an opinion and is for informational purposes only. It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs.

Sources:

1. National Association of Realtors – https://www.nar.realtor/blogs/economists-outlook/highlights-from-social-benefits-of-homeownership-and-stable-housing
2. Urban Institute – https://www.urban.org/urban-wire/homeownership-still-financially-better-renting
3. Census Bureau – https://www.census.gov/library/stories/2019/08/gaps-in-wealth-americans-by-household-type.html
4. Remodeling Magazine – https://www.remodeling.hw.net/cost-vs-value/2019/
5. Investopedia – https://www.investopedia.com/mortgage/heloc/home-equity/
6. Bankrate – https://www.bankrate.com/mortgage/reverse-mortgage-guide/

 

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Learn how to determine your current net worth and how an investment in real estate can help improve your bottom line.

Among its many impacts, COVID-19 has had a pronounced effect on the housing market. Low home inventory and high buyer demand have driven home prices to an all-time high. This has given an unexpected financial boost to many homeowners during a challenging time. However, for some renters, rising home prices are making dreams of homeownership feel further out of reach.

If you’re a homeowner, it’s important for you to understand how your home’s value contributes to your overall net worth. If you’re a renter, now is the time for you to figure out how homeownership fits into your short-term goals and your long-term financial future. An investment in real estate can help you grow your net worth, build wealth over time, and gain a foothold in the housing market to keep pace with rising prices.

What is net worth?

Net worth is the net balance of your total assets minus your total liabilities. Or, basically, it is what you own minus what you owe.

Assets include the cash you have on hand in your checking and savings accounts, investment account balances, salable items like jewelry or a car and, of course, your home and any other real estate you own. 

Liabilities include your total debt obligations like car loans, credit card debt, the amount you owe on your mortgage, and student loans. In addition, liabilities would include any other payment obligations you have, like outstanding bills and taxes.

How do I calculate my net worth?

To calculate your net worth, you’ll want to add up all of your assets and all of your liabilities. Then subtract your total liabilities from your total assets. The balance represents your current net worth. 

Total Assets – Total Liabilities = Net Worth

Ready to calculate your net worth? Contact for a free assessment of your home’s current market value!

Keep in mind that your net worth is a snapshot of your financial position at a single point in time. Your assets and liabilities will fluctuate over both the short term and long term. For example, if you take out a loan to buy a car, you decrease your liability with each payment. Of course, the value of your asset (the car) will depreciate over time, as well. An asset that is invested in stocks or bonds can be even less predictable, as it’s subject to daily fluctuations in the market.

As a homeowner, you enjoy significant stability through your monthly real estate investment, also known as your home mortgage payment. While the actual value of your home can fluctuate depending on market conditions, your mortgage payment will decrease your liability each month. And unlike a vehicle purchase, the value of your home is likely to appreciate over time, which can help to grow your net worth. Right now, your asset may be worth significantly more than it was this time last year.

If you’re a homeowner, contact us for an estimate of your home’s market value so that you can factor it into your net worth calculation. If you’re not a current homeowner, let’s talk about how homes in our area have appreciated over the last several years. That way, you can get an idea of how a home purchase could positively affect your net worth.

How can real estate increase my net worth?

When you put your real estate dollars to work, it’s possible to grow your net worth, generate cash flow, and even fund your retirement. We can help you realize the possibilities and maximize the return on your investment.

Property Appreciation

Generally, property appreciates in one of two ways: either through changes to the overall market or through value-added modifications to the property itself.

1. Rising prices

This type of property appreciation is the one that many homeowners are enjoying right now. Buyer demand is at an all-time high due to a combination of record-low interest rates and limited housing inventory. At other times, rising home prices have been attributed to different factors. Certain local conditions—like a new commercial development, influx of jobs, or infrastructure project—can encourage rapid growth in a community or region and a corresponding rise in home values. Historically, home prices have been shown to experience an upward trend punctuated by intermittent booms and corrections.

2. Strategic home improvements

Well-planned and executed home improvements can also impact a home’s value and increase homeowner equity at the same time. The type of home improvement should be appropriate for the home and in tune with the desires of local buyers.

For example, a tasteful exterior remodel that is in keeping with the preferences of local home buyers is likely to add significant value to a home, while remodeling the home to look like the Taj Mahal or a favorite theme park attraction will not. A modern kitchen remodel tends to add value, while a kitchen remodel that is overly expensive or personalized may not provide an adequate return on investment.

Investment Property

You may be used to thinking of investments primarily in terms of stocks and bonds. However, the purchase of a real estate investment property offers the opportunity to increase your net worth both upon purchase and year after year through appreciation. In addition, rental payments can have a positive impact on your monthly income and cash flow. If you currently have significant equity in your home, let’s talk about how you could put that equity to work by funding the purchase of an investment property.

1. Long-term or traditional rental

A long-term rental property is one that is leased for an extended period and typically used as a primary residence by the renter. This type of real estate investment offers you the opportunity to generate consistent cash flow while building equity and appreciation.

As an owner, you don’t usually have to worry about paying the utility bills or furnishing the property—both of which are typically covered by the tenant. Add to this the fact that traditional tenants translate into less time and effort spent on day-to-day property management, and long-term rentals are an attractive option for many investors.

2.   Short-term or vacation rental 

Short-term rentals are often referred to as vacation rentals because they are primarily geared towards recreational travelers. And as more people start to feel comfortable traveling again, the short-term rental market is poised to become a more popular option than ever. In 2020 alone, in the thick of widespread travel bans, the short-term rental platform Airbnb’s market share of the hospitality industry reached as high as 41 percent.

Investing in a short-term rental offers many benefits. If you purchase an investment property in a top tourist destination, you can expect steady demand from travelers while taking advantage of any non-rented periods to enjoy the home yourself. You can also adjust your rental price around peak demand to maximize your cash flow while building equity and long-term appreciation. 

To reap these benefits, however, you’ll need to understand the local laws and regulations on short-term rentals. We can help you identify suitable markets with investment potential.

WE’RE HERE TO HELP

Ready to calculate your personal net worth? Contact us to find out your home’s current value. Whether you’re hoping to maximize the value of your current home or invest in a new property, we’re here to help you achieve your real estate goals.

The above references an opinion and is for informational purposes only.  It is not intended to be financial advice. Consult the appropriate professionals for advice regarding your individual needs.

Sources: 

1. National Association of Realtors –
   https://www.nar.realtor/newsroom/housing-market-reaches-record-high-home-price-and-gains-in-march
2. Forbes –
   https://www.forbes.com/advisor/investing/what-is-net-worth/
3. The Washington Post –
   https://www.washingtonpost.com/business/on-small-business/your-net-worth-is-americas-secret-economic-weapon/2020/08/20/70df5b92-e2d4-11ea-82d8-5e55d47e90ca_story.html
4. Bloomberg –
   https://www.bloomberg.com/news/articles/2021-04-09/home-prices-soar-in-frenzied-u-s-market-drained-of-supply
5. Federal Reserve Economic Data –
   https://fred.stlouisfed.org/series/MSPUS
6. Propmodo –
   https://www.propmodo.com/what-the-growing-short-term-rental-market-means-for-multifamily-real-estate/

 

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This is a follow up article to our October 28th article title, “The Sleeping Millennial Giant has Awakened.”

With ranks reaching 72 million strong, millennials are reaching peak age for homeownership. This generation has struggled to enter the housing market thanks to the fallout of the Great Recession and a mountain of student debt. But this Sleeping Giant has awoken, fueled by the work from home trend. And even if just 10% of millennials enter the home buying market – that’s 7 million people – that’s more than the number of homes sold in all of 2020 to ALL demographics.

Here are some fascinating, quick notes on the next wave of home buyers: Millennials…

• The share of millennials purchasing homes was on the rise between 2015 and 2019. The pandemic supercharged this trend, surging for those under 44 years of age in 2020, mostly due to super low mortgage rates.

• Millennials (26-41 years old and 22% of the US population) are working and reducing debt.

• There are roughly 72.8 million of them in the US.

• They also account for about 36% of the workforce.

• They are accumulating savings to pay down student loans and other obligations, a pivotal hurdle to homeownership.

• The Education Data Initiative estimates that while the youngest millennials have $22,953, on average, in student-loan debt, those in their early 30s have only $874, and those in their early 40s have largely paid off their debt.

• From November 2020 to April 2021, 3,458 applicants received loan discharges from the Public Service Loan Forgiveness program with total student loan forgiveness at $583 million.

• 95,000 applications were approved under the borrower-defense program, over its length, with close to $600 million discharged.

• They received more than $380 million in federal stimulus, starting in March 2020. 49% of the money was used for goods and services, 33% for paying down debt.

• 18% was used for savings and investments, probably including homes.

• The median net worth of millennials was $91,300 in 2019, compared with $64,600 in 2016…..up 40%

   

• The pandemic further fueled their wealth via stimulus checks.

• Many recently discovered investing. The median age of people who began investing during the pandemic was 35, compared with 48 for those who began doing so pre pandemic.

   

• Millennials make up 51% of new pandemic-era investors. (Schwab)

• Millennials are forming households, marrying, and having children, all of which requires space.

• The number of households headed by adults 30-to-44 years old jumped by 1.3 million during the pandemic.

• Married couples 31 to 40 were more likely than any other age group to purchase homes. (NAR, 2021 survey)

• The largest group of unmarried couples who purchased homes were adults aged 22 – 30.

• Millennials 31-to-40 years old were the most likely (61%) to have at least one child under 18 at home.

• Millennials accounted for the largest share of home buyers (37%) over the past year.

• Millennials are approaching peak earning years—ages 45 – 54—a critical time for financing a home.

• Their median annual income was $77,800 in 2019, suggesting that millennials have the earning power necessary for homeownership.

• Over the next two decades, 25% of the U.S. population is going to reach peak earning years, fueling continued housing demand—especially for inexpensive starter homes.

• An April 2021 YPulse study revealed that 55% of millennials want to work from home post pandemic.

• An NAR study revealed that millennials were the most likely to say that the reason for owning a home was to have a space of their own or for a larger abode—62% of 22-to-30-year-olds and 54% of 31-to-40-year-olds.

• As work from home is probably here to stay, millennial housing demand has room to run.

The demand from this important consumer group is likely to persist for several years….and homeownership is still central to them achieving the American Dream.

The Dinsmore Group would like to give content and writing credit to Leonard Steinberg @theleonardsteinbergteam. He shares his valuable insights through his wonderful Compass wide journal, Compass Contemplations. Mr. Steinberg holds the esteemed title of Chief Evangelist at Compass.

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The Millennial home buyer has been extremely disadvantaged due to a lack of more affordable home options in the markets combined with new competition from institutional and individual investors, not to mention Zillow Offers and other entities competing with all cash offers to buy these homes either to sell at a profit or rent. Affordability is a growing concern and I’m not sure what the solution is in a world where land, labor, materials and regulatory costs keep rising. Today I want to address the Millennial buyers (now 25-40 years old) who DO have the means to buy…..this sleeping GIANT that exists amongst this 72 million strong US demographic has boldly awakened in 2021.

Millennials who have a longer life expectancy appear to be forming households at a later age than prior generations, but now many are armed and motivated to buy homes and the demand far outstrips supply. Where is their wealth coming from?

– Many are burdened with college debt, but some are emerging from this.
– Many are climbing in their careers.
– Many have been saving and investing in stocks.
– Many are beneficiaries of new industries and companies going public.
– Many are beneficiaries of the GREAT WEALTH TRANSFER – over $ 60 TRILLION. Yes, Millennials’ parents and grandparents are not only delivering inheritance, but they are also gifting and diversifying estates small, large and huge, due to recent concerns about the potential of new estate and wealth taxation.

Even if only 10% of millennials – 7 million people – enter the home buying market, that’s more than the number of homes sold in all of 2020 to ALL demographics. The demand for housing is here to stay for many, many years!

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It’s the old supply-and-demand predicament: Home sales in the U.S. continue at a torrid pace, but the availability of listings remains limited. Buoyed by historically low mortgage rates, buyers keep shopping for homes, reducing the available inventory and sparking a rise in home prices across the country.

News website The Atlantic summarized the sizzling home market this way:

“Pick a housing statistic at random, and it’s probably setting an all-time record. Home prices: record high. Inventory: record low. Percentage of homes selling above asking price: record high. Average time on market: record low.”

Meanwhile, homebuilders are contending with an increase in material costs and a shortage of labor. These issues come amid an ongoing shortage of housing. A study commissioned by the National Association of Realtors found the U.S. is coping with a deficit of about 2 million single-family homes and about 3.5 million other housing units.

So what can we expect from U.S. real estate? Here are five factors that illustrate where the housing market is today and is likely heading tomorrow.

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ROCK-BOTTOM MORTGAGE RATES TO GRADUALLY RISE

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Low interest rates continue to fuel demand from homebuyers. Some experts believe mortgage rates will creep up later this year, but they expect rates to remain near historic lows. However, the Federal Reserve signaled in mid-June that it may institute two interest rate hikes as soon as 2023, which could then trigger a more substantial uptick in mortgage rates.

In June, the Mortgage Bankers Association reported that 2020 closed with the average rate for a 30-year, fixed-rate mortgage sitting at 2.8%. But the association anticipates the average rate climbing to 3.5% at the end of 2021 and 4.2% by the end of 2022.

“As the economy progresses and inflation remains elevated, we expect that rates will continue to gradually rise in the second half of the year,” said Sam Khater, chief economist at Freddie Mac.

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What does it mean for you?

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You’ve likely heard the old saying about “striking while the iron is hot.” Well, that phrase applies to the current environment for mortgage rates. It’s impossible to predict with certainty when mortgage rates will rise or fall. So, when mortgage rates are at or near historic lows (as they are today), you should seriously consider taking advantage of those rates to borrow money for a home purchase or to refinance your existing mortgage.

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HOME PRICES EXPECTED TO KEEP CLIMBING

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Low mortgage rates are sparking interest among homebuyers, but some are running into affordability issues.

In June, the national median list price for a home reached an all-time high of $385,000, up 12.7% on a year-over-year basis.7 And according to the Home Buying Institute, various reports and forecasts indicate home prices will keep climbing throughout 2021 and into 2022.

While this may be welcome news for homeowners, high prices are pushing homeownership out of reach for a growing number of first-time buyers. In a recent CoreLogic survey, 82% of respondents listed housing affordability as a key problem.

“Younger and first-time buyers, including younger millennials, are faced with the challenge of having sufficient savings for a down payment, closing costs and cash reserves,” said Frank Martell, President and CEO of CoreLogic. “As we look to the balance of 2021, we expect price rises to continue which could very well push prospective buyers out of the market in many areas and slow home price growth over the next year.”

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What does it mean for you?

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If you’re a buyer waiting on the sidelines for prices to drop, you may want to reconsider. While the pace of appreciation should taper off, home prices are expected to continue climbing. And rising mortgage rates will only make a home purchase more expensive. 

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SINGLE-FAMILY HOME SALES REMAIN ROBUST

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While record-high prices are sidelining some buyers, the impressive pace of single-family home sales marches on.

Single-family home sales are down from their peak in October 2020 yet are still above the overall level last year. In May 2021, 5.8 million existing single-family homes were sold in the U.S. That’s a 45% increase over the 4 million homes sold in May 2020.

However, home sales saw a 0.9% dip in May 2021 compared with the previous month, the National Association of Realtors says. That was the fourth straight month for a decline in home sales. The number of home sales has slid recently because of rising prices coupled with a shortage of available homes amid intense demand.

Fannie Mae expects total home sales to tick up slightly in the fourth quarter and finish the year up 3.8% over last year. They also forecast a slight decline of 2.2% in sales volume in 2022.

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What does it mean for you?

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The market for single-family home sales remains quite active. As a result, if you’re a homeowner, you may want to ponder whether to sell now, even if you hadn’t necessarily been thinking about doing so. With demand high and inventory low, your home could fetch an eye-popping price. 

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LACK OF INVENTORY STILL CONSTRAINS THE HOME MARKET

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According to the National Association of Realtors, in May there were 1.23 million previously owned homes on the market, down 20.6% from the same time last year.10 This translates to a 2.5-month supply of homes, which is well below the 6 months of inventory typically seen in a balanced market.

According to the Realtors group, this lack of inventory translates into tougher searches for buyers and contributes to a rise in prices.

“Demand for bigger and more expensive accommodations amid the COVID-19 pandemic, which has left millions of Americans still working from home, is driving a housing market boom. The inventory of previously owned homes is near record lows,” according to Reuters.

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What does it mean for you?

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If you’re thinking of selling your home, now may be the right time to do it. Across the country, it’s a seller’s market, meaning demand is outpacing supply. That supply-and-demand imbalance puts sellers in a great position to sell their homes at a premium price. The May 2021 Realtors Confidence Index from the National Association of Realtors found the average home that was sold attracted five offers, and the association says nearly half of homes are selling above list price.

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CONSTRUCTION OF SINGLE-FAMILY HOMES SEES SLIGHT UPTICK

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Frustrated buyers may soon find some relief, however, from an increase in new construction. Economists forecast that 1.1 million new houses will be started in 2021, compared with a predicted 940,000 units just six months ago, with 1.2 million new starts predicted for 2022 and 2023, according to the Urban Land Institute.

Amid the rise in home construction, builders are coping with rising costs for materials. In April, the National Association of Home Builders estimated that a surge in lumber prices over the previous year had led to $35,872 being tacked onto the cost of an average new single-family home.

“Shortages of materials and labor have builders struggling to increase production of new homes, though the demand remains strong,” Robert Frick, corporate economist at Navy Federal Credit Union, told the Reuters news service. “Potential homebuyers should expect tight inventories and rising prices for both new and existing homes for the foreseeable future.”

Builders (and buyers) did receive some good news in June, though: Lumber prices are coming down—although likely to remain above pre-pandemic levels for the foreseeable future.

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What does it mean for you?

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Given the issues affecting the new-home market, it may make sense to widen your home search to include both new and existing homes. Your brand-new dream home may not be available, but you might be able to find an existing home that lives up to your vision. Keep in mind that we can help you find either a new or existing home and can advocate for you to ensure you get the best deal possible.

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ARE YOU THINKING OF BUYING OR SELLING?

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If you’re in the market for a home, you’re ready to sell your house or you’ve simply been wondering whether you should sell, you definitely could benefit from an expert to help you navigate the sizzling hot real estate market. Let’s set up a free consultation to discuss your situation. We can help you figure out your options and come up with a plan to capitalize on the value of your current property or to find your ideal next home.

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Sources:

1. The Atlantic- https://www.theatlantic.com/ideas/archive/2021/05/us-housing-market-records/619029/
2. Wall Street Journal – https://www.wsj.com/articles/u-s-housing-market-needs-5-5-million-more-units-says-new-report-11623835800
3. Time – https://time.com/nextadvisor/mortgages/mortgage-predictions-2021/
4. Bankrate – https://www.bankrate.com/banking/federal-reserve/fomc-meeting-recap-june-2021/
5. Mortgage Bankers Association – https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary/mortgage-finance-forecast-archives
6. Associated Press News – https://apnews.com/press-release/globe-newswire/mortgages-mortgage-rates-business-0fc0360d0f4af0c988504385fa2794c3
7. Realtor.com – https://www.realtor.com/research/june-2021-data/
8. Home Buying Institute – http://www.homebuyinginstitute.com/news/home-prices-will-keep-rising-through-2021/
9. DS News – https://dsnews.com/daily-dose/07-06-2021/record-high-home-prices-intensify-affordability-challenges
10. National Association of Realtors – https://www.nar.realtor/newsroom/existing-home-sales-experience-slight-skid-of-0-9-in-may
11. Fannie Mae – https://www.fanniemae.com/media/40561/display
12. Real Estate Center at Texas A&M University – https://assets.recenter.tamu.edu/documents/articles/2046-7.pdf
13. Reuters – https://www.reuters.com/world/us/us-housing-starts-rise-less-than-expected-may-building-permits-fall-2021-06-16/
14. National Association of Realtors – https://www.nar.realtor/research-and-statistics/research-reports/realtors-confidence-index
15. Realtor magazine – https://magazine.realtor/daily-news/2021/05/17/report-half-of-homes-sell-above-list-price
16. Urban Land Magazine – https://urbanland.uli.org/capital-markets/uli-forecast-sees-increased-improvement-in-outlook-for-u-s-economy-2/
17. National Association of Home Builders – https://eyeonhousing.org/2021/04/higher-lumber-costs-add-more-than-35k-to-new-home-prices-119-to-monthly-rent/
18. Reuters – https://www.reuters.com/world/us/us-housing-starts-rise-less-than-expected-may-building-permits-fall-2021-06-16/
19. NPR – https://www.npr.org/2021/06/21/1008843212/lumber-prices-are-finally-dropping-after-they-soared-during-the-pandemic

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Selling your home when you still need to shop for a new one can feel daunting to even the most seasoned homeowner––especially when the demand for new homes keeps rising, but the supply feels like it’s dwindling. You’re not alone either if you’re already feeling drained by the complex logistics of trying to sell and buy a new home all at once. 

Searching for a new home can be exciting, but many homebuyers admit that it can also be stressful, especially if you live in an unpredictable market with plenty of competitors. Unfortunately, waiting out a competitive housing market isn’t always the best idea either since listings are expected to remain limited in the most coveted neighborhoods for some time.

That doesn’t mean, though, that you should just throw up your hands and give up on moving altogether. In fact, as a current homeowner, you could be in a better position than most to capitalize on a seller’s market and make a smooth transition from your old home to a new one. 

We can help you prepare for the road ahead and answer any questions you have about the real estate market. For example, here are some of the most frequent concerns we hear from clients who are trying to buy and sell at the same time.

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“WHAT WILL I DO IF I SELL MY HOUSE BEFORE I CAN BUY A NEW ONE?”

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This is an understandable concern for many sellers since the competitive real estate market makes it tough to plan ahead and predict when you’ll be able to move into your next home. But chances are, you will still have plenty of options if you do sell your home quickly. It may just take some creativity and compromise.

Here are some ideas to make sure you’re in the best possible position when you decide to list your home:

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Tip #1: Flex your muscles as a seller. 

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In a competitive market, buyers may be willing to make significant concessions in order to get the home they want. In some cases, a buyer may agree to a rent-back clause that allows the seller to continue living in the home after closing for a set period of time and negotiated fee. 

This can be a great option for sellers who need to tap into their home equity for a downpayment or who aren’t logistically ready to move into their next home. However, many lenders limit the duration of a rent-back to 60 days, and there are liability issues to consider before entering into an agreement. A contract and security deposit should be in place in case of any property damage or unexpected repairs that may be needed during the rent-back period. 

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Tip #2: Open your mind to short-term housing options.

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While it can be a hassle to move out of your old home before you’re ready to move into your new one, it’s a common scenario. If you’re lucky enough to have family or generous friends who offer to take you in, that may be ideal. If not, you’ll need to find temporary housing. Check out furnished apartments, vacation rentals and month-to-month leases. If space is an issue, consider putting some of your furniture and possessions in storage. 

You may even find that a short-term rental arrangement can offer you an opportunity to get to know your new neighborhood better—and lead to a more informed decision about your upcoming purchase.

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Tip #3: Embrace the idea of selling now and buying later.

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Instead of stressing about timing your home sale and purchase perfectly, consider making a plan to focus on one at a time. Selling before you’re ready to buy your next home can offer a lot of advantages. 

For one, you’ll have cash on hand from the sale of your current home. This will put you in a much better position when it comes to buying your next home. From budgeting to mortgage approval to submitting a competitive offer, cash is king. And by focusing on one step at a time, you can alleviate some of the pressure and uncertainty.

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“WHAT IF I GET STUCK WITH TWO MORTGAGES AT THE SAME TIME?”

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This is one of the most common concerns that we hear from buyers who are selling a home while shopping for a new one, and it’s realistic to expect at least some overlap in mortgages. To make sure you don’t get into a situation where you are carrying dual mortgages for longer than you can afford, examine your budget and calculate the maximum number of months you can afford to pay both. 

If you simply can’t afford to carry both mortgages at once, then selling before you buy may be your best option. (See Tip #3 above.) But if you have some flexibility in your budget, it is possible to manage both a home sale and purchase simultaneously. Here are some steps you can take to help streamline the process:

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Tip #4: As you get ready to sell, simplify.

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You can condense your sales timeline if you only focus on the home renovations and tasks that matter most for selling your home quickly. For example, clean and declutter all of your common areas, refresh your outdoor paint and curb appeal, and fix any outstanding maintenance issues as quickly as possible. 

But don’t drain unnecessary time and money into pricey renovations and major home projects that could quickly bog you down for an unpredictable amount of time. We can advise you on the repairs and upgrades that are worth your time and investment.

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Tip #5: Prep your paperwork.

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You’ll also save valuable time by filing as much paperwork as possible early in the process. For example, if you know you’ll need a mortgage to buy your next home, get pre-approved right away so that you can shorten the amount of time it takes to process your loan. 

Similarly, set your home sale up for a fast and smooth transition by pulling together any relevant documentation about your current home, including appliance warranties, renovation permits, and repair records. That way, you’re ready to provide quick answers to buyers’ questions should they arise.

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Tip #6: Ask us about other contingencies that can be included in your contracts. 

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Part of our job as agents is to negotiate on your behalf and help you win favorable terms. For example, it’s possible to add a contingency to your purchase offer that lets you cancel the contract if you haven’t sold your previous home. 

This tactic could backfire, though, if you’re competing with other buyers. We can discuss the pros and cons of these types of tactics and what’s realistic given the current market dynamics.

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“WHAT IF I MESS UP MY TIMING OR BURN OUT FROM ALL THE STRESS?” 

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When you’re in the pressure cooker of a home sale or have been shopping for a home for a while in a competitive market, it’s easy to get carried away by stress and emotions. To make sure you’re in the right headspace for your homebuying and selling journey, take the time to slow down, breathe and delegate as much as possible. In addition:

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Tip #7: Relax and accept that compromise is inevitable

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Rather than worry about getting every detail right with your housing search and home sale, trust that things will work out eventually––even if it doesn’t look like your Plan A or even your Plan B or Plan C. Perfecting every detail with your home decor or timing your home sale perfectly isn’t necessary for a successful home sale and compromise will almost always be necessary. Luckily, if you’ve got a good team of professionals, you can relax knowing that others have your back and are monitoring the details behind the scenes.

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Tip #8: Don’t worry too much if your path is straying from convention

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Remember that rules-of-thumb and home-buying trends are just that: they are estimates, not facts. So if your home search or sale isn’t going exactly like your neighbor’s, it doesn’t mean that you are doomed to fail. 

It’s possible, for example, that seasonality trends may affect sales in your neighborhood. So a delayed sale in the summer or fall could affect your journey––but not necessarily. According to the National Association of Realtors, the housing market tends to be more competitive during the summer and less competitive during the winter. But it’s not a hard and fast rule, and every real estate transaction is different. That’s why it’s important to talk to a local agent about your specific situation.

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Tip #9: Enlist help early.

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Which leads us to our final tip: If possible, call us early in the process. We’ll not only provide you with key guidance on what you should do ahead of time to prepare your current home for sale, we’ll also help you narrow down your list of must-haves and wants for your next one. That way, you’ll be prepared to act quickly and confidently when it’s time to list your house or make an offer on a new one.

It’s our job to guide you and advocate on your behalf. So don’t be afraid to lean on us throughout the process. We’re here to ease your burden and make your move as seamless and stress-free as possible.

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BOTTOMLINE: COLLABORATE WITH A REAL ESTATE PROFESSIONAL TO GET TAILORED ADVICE THAT WORKS FOR YOU

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Buying and selling a home at the same time is challenging. But it doesn’t have to be a nightmare, and it can even be fun. The key is to educate yourself about the market and prepare yourself for multiple scenarios. One of the best and easiest ways to do so is to partner with a knowledgeable and trustworthy agent.

A good agent will not only help you evaluate your situation, we will also provide you with honest and individually tailored advice that addresses your unique needs and challenges. Depending on your circumstances, now may be a great time to sell your home and buy a new one. But a thorough assessment may instead show you that you’re better off pausing your search for a while longer. 

Contact us for a free consultation so that we can help you review your options and decide the best way forward.

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Sources: 

1. Board of Governors of the Federal Reserve System, FEDS Notes – https://www.federalreserve.gov/econres/notes/feds-notes/housing-market-tightness-during-covid-19-increased-demand-or-reduced-supply-20210708.htm

2. Federal Reserve Bank of St. Louis, FRED Economic Data – https://fred.stlouisfed.org/series/MSPUS

3. Realtor.com – https://www.realtor.com/advice/sell/what-is-a-rent-back-agreement/

4. Bankrate.com – https://www.bankrate.com/real-estate/sell-your-house-while-buying-another/

5. National Association of REALTORS – https://www.nar.realtor/blogs/economists-outlook/seasonality-in-the-housing-market 

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