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How To Increase Your Equity Over The Next 5 Years

Many of the questions currently surrounding the real estate industry focus on home prices and where they are heading. The most recent Home Price Expectation Survey (HPES) helps target these projected answers.

Here are the results from the Q2 2019 Survey:

  • Home values will appreciate by 4.1% in 2019
  • The average annual appreciation will be 3.2% over the next 5 years
  • The cumulative appreciation will be 16.8% by 2023
  • Even experts representing the most “bearish” quartile of the survey project a cumulative appreciation of over 6.7% by 2023

What does this mean for you?

A substantial portion of family wealth comes from home equity. As the value of a family’s home (an asset) increases, so does their equity.

Using the projections from the HPES, here is a look at the potential equity a family could earn over the next five years if they purchased a $250,000 home in January of 2019:How to Increase Your Equity Over the Next 5 Years | Keeping Current MattersBased on gains in home equity, their family wealth could increase by $42,000 over that five-year period.

Bottom Line

If you don’t yet own a home, now may be the time to purchase. Owning or moving up to your dream home could allow you to ride the increase in equity of a growing asset.

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What to consider when refinancing

Refinancing your mortgage is something most homeowners consider at least once throughout the lifespan of their home loan. It allows you to pay off your previous loan by applying for a new one that has better financial advantages. While there are many good reasons to refinance, here are five common ones.

  • Scoring a lower interest rate. The number one reason homeowners decide to refinance is to secure a lower interest rate on their mortgage. Not only does this save you money in the long run and decrease your monthly payment, but you can start building equity in your home sooner.
  • Using an improved credit score. Even if interest rates have not dropped in the market, if you’ve improved your credit score over the last few years, you may be able to reduce your mortgage rate.
  • Shortening the loan’s term. If interest rates are decreasing, there is a chance you may be able to get a shorter loan term with little to no change in your monthly payment, allowing you to pay off your loan sooner.
  • Switching from an adjustable rate to a fixed rate. If you chose an adjustable-rate mortgage with great introductory rates when you initially financed your home, that rate may increase significantly over the years. By switching to a fixed rate while interest rates are low, you can protect yourself from future increases.
  • If there is a big purchase or payment on the horizon, such as funding a wedding or going back to school, your best option may be to use the equity you’ve built in your home to borrow money at a lower cost.
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Five Criteria for Pricing your Home

When you put your home up for sale, one of the best ways to determine the asking price is to look at comparable sales. There’s rarely a perfect apples-to-apples comparison, so a pricing decision often relies on comparisons to several recent sales in the area. Here are five criteria to look for in a sales comparison.

  1. Location: Homes in the same neighborhood typically follow the same market trends. Comparing your home to another in the same neighborhood is a good start, but comparing it to homes on the same street or block is even better.
  2. Date of sale: It varies by location, but housing markets can see a ton of fluctuation in a short time period. It‘s best to use the most recent sales data available.
  3. Home build: Look for homes with similar architectural styles, numbers of bathrooms and bedrooms, square footage, and other basics.
  4. Features and upgrades: Remodeled bathrooms and kitchens can raise a home’s price, and so can less flashy upgrades like a new roof or HVAC system. Be sure to look for similar bells and whistles.
  5. Sale types: Homes that are sold as short sales or foreclosures are often in distress or sold at a lower price than they’d receive from a more typical sale. These homes are not as useful for comparisons.
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Upsizing to a New Home

Unfortunately, our homes don’t always grow with us. What may have initially worked fine for a single person, a young couple’s starter home, or a family with a newborn can quickly become too small as families expand and multiple generations live under one roof.

Remodeling and adding to your home is one option for creating more space, but it can be costly, and the size of your property may be prohibitive. That’s when moving to a bigger home becomes the best solution.

WHERE DO YOU NEED MORE SPACE?

The first thought when upsizing your home is to simply consider square footage, bedrooms, and bathrooms. But it’s important to take a more critical approach to how your space will actually be used. If you have younger children (or possibly more on the way), then focusing on bedrooms and bathrooms makes sense. But if your children are closer to heading off to college or starting their own families, it may be better to prioritize group spaces like the kitchen, dining room, living room, and outdoor space—it’ll pay off during the holidays or summer vacations, when everyone is coming to visit for big gatherings.

MOVING OUTWARD

If you need more space, but don’t necessarily want a more expensive home, you can probably get a lot more house for your money if you move a little further from a city center. While the walkability and short commutes of a dense neighborhood or condo are hard to leave beyond, your lifestyle—and preferences for hosting Thanksgiving, barbecues, and birthdays—might mean that a spacious home in the suburbs makes the most sense. It’s your best option for upsizing while avoiding a heftier price tag.

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Must have Tools for New Homeowners

When you own your home, things are going to break and, unless you want to spend your money on visits from a neighborhood handyman, you’re going to need to fix them yourself. Luckily, you don’t need an arsenal of tools to handle most home maintenance fixes. These five tools will cover most of your basic projects.

  1. Cordless drill. A cordless drill is a must-have for installing cabinets, drawer pulls, hinges, picture frames, shelves and hooks, and more. Whether it’s for do-it-yourself projects or repairs, you’ll use your cordless drill just about every month.
  2. Drain cleaners. Shower and bathroom sink drains are susceptible to clogs because of the daily buildup of hair and whisker clippings. You can use chemical clog removers like Drano, but they’re expensive and the lingering chemical scent is unpleasant. Instead, buy some plastic drain cleaners that can reach into the drain to pull out the clog of hair and gunk. You can purchase them on Amazon or at a local hardware store for a low price.
  3. Shop-vac. No matter how careful you are, spills and accidents will happen and there are some tasks that just can’t be handled with paper towels or a standard vacuum, like pet messes or broken glass.
  4. Loppers. Even the minimum amount of care for your landscaping will require some loppers to remove damaged branches, vines, thick weeds, and any other unruly plants in your yard.
  5. Flashlight. You’re going to want something a little more powerful than your iPhone flashlight when you’re in the crawlspace!
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Low Mortgage Rates Spur Real Estate Demand

Low mortgage rates spur demand
Mortgage rates impact housing markets indirectly because interest rates are a key factor in the demand to purchase homes.

When rates are rising, financing a home purchase becomes more expensive, dampening the demand to buy. The opposite effect occurs when rates are dropping. As financing becomes cheaper, more people decide to buy a home rather than rent.

Many people believe the Federal Reserve sets mortgage interest rates. It doesn’t do so directly, however, there is a connection.

The Mortgage Reports explains that the Fed controls the federal funds rate, a short-term rate that banks use to make loans among themselves. This rate and the Fed’s commentaries about the economy indirectly influence the overall level of market rates, including those for home loans.

The mortgage rates individual home buyers and homeowners pay are set by banks, credit unions, mortgage companies and other lenders.

Image result for mortgage rates

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New Construction Expands Supply

New construction expands supply

Existing homes aren’t the only source of supply of homes for sale. Homes also come on the market when they’re offered by new-home builders.

Newly built homes typically cost more than comparable resale homes. That premium exists because new homes:

  • Comply with current building codes for safety and structural soundness.
  • Require less maintenance in the near term.
  • Are usually more energy-efficient than older homes.

The National Association of Home Builders (NAHB) and U.S. Census Bureauare good resources for information about new-home permits and starts.

A permit grants the builder permission from the local government to begin construction. A start occurs when the builder breaks ground to construct a new home. Permits and starts are good indicators of future new housing supply.

Image result for new construction

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Median Home Prices

Median home prices hint at housing market’s direction

Median home prices, also noted by the NAR, can be a useful indicator of the direction of real estate markets, but this data must be analyzed with caution.

The median price is “in the middle” on a list of prices of sold homes. This means exactly half of the homes listed are above this price and exactly half are below.

While it may be tempting to track monthly or quarterly median prices trends, the only valid comparison is with the same time period a year earlier, according to NAR. That’s because sales and prices are affected by seasonality. Prices in December, when most housing markets are slow, aren’t comparable to prices in July, when markets are closing sales from the spring home-buying season.

Most housing markets are segmented by price bands. An entry-level condominium or small house isn’t comparable to a larger home or mansion. In some markets, high-priced homes are segmented into two markets: million-dollar and multi million-dollar.

These sub markets are important because median prices can be skewed by changes in the mix of homes sold. If an unusually large number of luxury homes sold in a specific area during a certain time frame, the median price might spike even if the overall level of prices was flat. Conversely, an unusually large volume of sales of lower-priced homes can cause the opposite effect.

Still, median prices can show the general direction, up or down, of housing market prices over time. This information can be helpful for buyers and sellers.

Buying when prices are rising can be frustrating. One challenge is that prices of recently sold comparable homes might not be a good indicator of current home values due to the rapid pace of home price appreciation. In a hot market, buyers will experience a lot of competition and will most likely need to make a bid above the asking price.

Falling prices enhance buyer purchasing power. You might be able to buy a larger or nicer home, or one in a more desirable location, for less than you would previously have paid.

Selling when prices are rising can be wonderful. You may be able to list for higher, or receive higher offers, than you expected.

Selling when prices are falling can be challenging. You’ll have to settle for less and price your home lower than the comparable sales data to avoid what’s often referred to as chasing the market down, with multiple price reductions as prices fall further.

Median home price Impact for the buyer Impact for the seller
Increasing Challenging, bids will most likely exceed asking price Good, can expect offers above asking price
Decreasing Good, more buying power Challenging, settle for lower sale price

NAR releases median price data quarterly for detached houses in approximately 175 metropolitan areas. Local Realtor associations and multiple listing services also release this type of data. The economists’ analyses and footnotes can contain important information about the statistics and what they mean.

In some cases, national and local data can vary dramatically due to differences in data collection methodologies. NAR advises its members that local data may be more relevant than national numbers.

understanding fundamentals of real estate

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Criteria for Pricing a Home

When you put your home up for sale, one of the best ways to determine the asking price is to look at comparable sales. There’s rarely a perfect apples-to-apples comparison, so a pricing decision often relies on comparisons to several recent sales in the area. Here are five criteria to look for in a sales comparison.

  1. Location: Homes in the same neighborhood typically follow the same market trends. Comparing your home to another in the same neighborhood is a good start, but comparing it to homes on the same street or block is even better.
  2. Date of sale: It varies by location, but housing markets can see a ton of fluctuation in a short time period. It‘s best to use the most recent sales data available.
  3. Home build: Look for homes with similar architectural styles, numbers of bathrooms and bedrooms, square footage, and other basics.
  4. Features and upgrades: Remodeled bathrooms and kitchens can raise a home’s price, and so can less flashy upgrades like a new roof or HVAC system. Be sure to look for similar bells and whistles.
  5. Sale types: Homes that are sold as short sales or foreclosures are often in distress or sold at a lower price than they’d receive from a more typical sale. These homes are not as useful for comparisons.
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When to Refinance

Refinancing your mortgage is something most homeowners consider at least once throughout the lifespan of their home loan. It allows you to pay off your previous loan by applying for a new one that has better financial advantages. While there are many good reasons to refinance, here are five common ones.

Scoring a lower interest rate. The number one reason homeowners decide to refinance is to secure a lower interest rate on their mortgage. Not only does this save you money in the long run and decrease your monthly payment, but you can start building equity in your home sooner.
Using an improved credit score. Even if interest rates have not dropped in the market, if you’ve improved your credit score over the last few years, you may be able to reduce your mortgage rate.
Shortening the loan’s term. If interest rates are decreasing, there is a chance you may be able to get a shorter loan term with little to no change in your monthly payment, allowing you to pay off your loan sooner.
Switching from an adjustable rate to a fixed rate. If you chose an adjustable-rate mortgage with great introductory rates when you initially financed your home, that rate may increase significantly over the years. By switching to a fixed rate while interest rates are low, you can protect yourself from future increases.
Cashing out home equity. If there is a big purchase or payment on the horizon, such as funding a wedding or going back to school, your best option may be to use the equity you’ve built in your home to borrow money at a lower cost.