Consumer Confidence

Consumer confidence is a funny thing. As adults, we understand that wanting something doesn’t necessarily make it so (for example, no matter how much we want our favorite dessert to have zero calories, it doesn’t); however, with consumer confidence it’s the opposite. When enough people believe something, it becomes true. It’s not actually the belief, but rather the actions we all take as a result of our beliefs.

If we are confident that the economy is improving, that our jobs are secure, that good times are ahead; we’re more likely to spend more money. Spending primes the pump and keeps the economy moving, thus reinforcing our positive feelings about how things are going. If we are concerned that the economy is contracting, that our jobs are in jeopardy, that a decline is coming; we’re more likely to hold onto our money. Less money in the economy will slow growth and make all those negative predictions come true.

According to a recent HousingWire blog, a national survey indicates that 52 percent of Americans now believe it would be easy for them to get a home loan (as compared to 45 percent, who do not). This confidence is likely to bolster the ongoing housing recovery.

Even with poor job numbers in December and January, consumer attitudes toward the economy overall also improved, although people with a positive view are still in the minority (at about 40 percent).

The share of people who expect their personal financial situation to improve in the next year increased to 44 percent, continuing an upward trend since November 2013.

Other notable findings from the survey include:

  • Approximately 88 percent of people think home prices will either stay the same or go up in the next 12 months.
  • Only 55 percent of respondents say mortgage rates will go up in the next 12 months, and this number is on the decline.
  • About two-thirds of people think it is a good time to buy a house, which is down a couple percentage points from last month.
  • Those who say it is a good time to sell a house increased 5 percentage points from last month to 38 percent.

So, what does this all mean? Well, I think interest rates will continue to rise slowly. I also think real estate values will continue to rise. Even if we only see a 2 percent jump in prices this year, now is still a good time to buy because real estate is a leveraged purchase.

Let’s break it down. If you put 20 percent down on a $100,000 home, you’d pay $20,000. At the end of the year, that same home is now worth $102,000. It’s like money in the bank. If you add that $2,000 of value to the $20,000 you invested, you now have $22,000 of equity. The additional equity represents 10 percent of your original investment ($2,000 is 10 percent of $20,000), so you’ve increased your equity by 10 percent, even though values only went up 2 percent.

That’s all for this week. One of the things I like to do in my column is highlight local charity events. If you have one coming up, let me know and I’ll try to share the information here.

Next time I’ll write about all the things to think about before a move. If there’s something you would like me to write about or if you have questions about real estate or property management, feel free to contact me at rselzer@selzerrealty.com or visit our website at www.realtyworldselzer.com. If you make a suggestion I use, I’ll send you a $5.00 gift card to Schat’s Bakery & Café. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.

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Buying Versus Renting

Like I mentioned last week, the market continues to be good for buyers. It’s so good, in fact, that I thought I’d dedicate a column to explaining why renters should consider buying right now. While I know numbers can turn a lot of people off, I think it’s important to use an example so you really know what I’m talking about.

Let’s say you’re a first time homebuyer who’d like to purchase a $200,000 home. You don’t have money for a down payment, but you have a job and good credit. Here’s how this could work:

Estimated monthly expenses

Loan                        $ 950

Taxes                      $ 200

Insurance              $   75

$1225/month

 

“But what about other expenses?” you ask. “If I own my home, I can’t call a landlord to fix things.” That’s true. At some point, you’ll need to paint your home inside and out, put a new roof on, replace the water heater, etc. So, let’s estimate about 1.5 percent of the purchase price for upkeep each year (about $250), since that’s usually about what it costs.

But wait, there’s good news to balance the maintenance expense. You get to write off some of the mortgage payment. Let’s say your household income puts you in the 25 percent tax bracket. Some of your mortgage payment is tax deductible: about $867 ($667 is the interest on your loan and it’s deductible, as is the $200 homeowner’s tax). So, multiply $667 by 25 percent, and you will get back about $217 per month.

Mortgage payment                $1225

Maintenance/upkeep          $  250

Tax benefits                            $ -217

$1258/month

 

So, like with anything in life, restrictions apply, but they aren’t too bad. First, you need to have good credit (a credit score in the mid 600s). Next, you need reportable income. It’s time to claim that babysitting money or those waitressing tips as income, because if your income isn’t reportable, you’ll have a tough time getting a loan. For this particular loan that I’ve used as an example, there are minimum and maximum income restrictions based on formulas that have to do with the number of people in your household, the number of children you have, and other factors. The final requirement is job stability. You need to have been in your job for at least a year, and it needs to appear that you will remain in that job for the foreseeable future.

Owning your own home has benefits that go beyond financial. Pounding a nail wherever you want doesn’t require anyone else’s permission. Where to plant trees is your choice. Choosing which paint color to use is your spouse’s choice. And, your elbow grease benefits YOU. If you think you might be able to purchase a home, and you’d like to learn more, call your local real estate agent and they can help you figure it out.

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