Is Renting the More Affordable Option?

Freddie Mac recently compiled a survey finding that 84% of renters believe that renting is more affordable than buying a home.  When they polled homeowners, 85% of them said owning a home is more affordable than renting.  Who is correct?  Well, you have to take a deeper look into the financial picture and have a full understanding of current loan programs to really see the answer. 

A lot of renters still believe you need to put 20% down to purchase a home, which may lead to miscalculating their financial plan.  Also, the latest release from the Consumer Price Index (CPI) showed that rents increased last month by 0.4% and by 3.8% year over year!  On the other end, if you purchased a home last year, CoreLogic reported that homes across the nation on average increased in price by 4% and are forecasted to increase by 5.2% going forward. Going back to the survey data, we see that 40% of renters are saying that they plan to purchase a home sometime in the future and almost half of the polled homeowners are planning on some type of renovation project.

So who is right? Every financial situation is unique, but this could be the best time for many renters to sit with a professional and discuss what it may take to purchase a home. With rent continuing

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30-Second Update: Purchasing a Home Despite Student Loan Debt

Recently, student loan debt has been a major hurdle for prospective homeowners.  Today, more than two-thirds of college graduates have student debt, compared with less than 50% in the early 1990s.  In addition, the average balance for today’s college graduates is $30,000, versus $9000 back then.  A $30,000 balance equates to a $400 monthly payment, which can impact the ability for the prospective home buyer to qualify. 

As of 2017, Fannie Mae made it much easier for home buyers with student loan debt to qualify for a mortgage, by allowing lenders to consider their lower, and more flexible student loan repayment plans.  The two types that are most commonly used are extended term payment plan, which would spread the payment over a longer period, and income-based repayment plan which would allow for your current income to play a factor (some payments as low as $0) in how much your monthly payment will be.

Overall, there are alternative options to a hindering student loan debt, that will allow you more flexibility when looking to purchase or refinance a home. 

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Home Prices Continue to Rise

CoreLogic released their Home Price Index (HPI) for the month of December, and it showed that home prices across that nation increased by 4% from December 2018 to December 2019.  Yes, there are pockets of the US where the HPI is higher or lower, but this report explained that not one state had an annual decline in price appreciation. 

Increasing home appreciation is due to elevated levels of purchasing demand, which is very strong especially within the millennial generation. Speaking of millennials, 79% of younger millennials express a desire to purchase a home in the future.  According to CoreLogic’s report, homeownership rates nearly double for millennials when they exit their twenties and reach their thirties.

Frank Martell, President and CEO of CoreLogic said, “On a national level, home prices are on an upswing.  Price growth is likely to accelerate in 2020.  And while demand for homeownership has continued to increase for millennials, particularly those in their thirties, 74% admit they have had to make significant financial sacrifices to afford a home.  This could become an even bigger factor as home prices reach new heights during 2020.”

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30 Second Update:  Mortgage Applications Off to Strong Start in 2020

According to the Mortgage Bankers Association’s (MBA) Weekly Index, mortgage applications increased 7.2% for the week ending January 24th, compared to the previous week.  This continues the strong start for mortgage applications in 2020.  According to the MBA, the Refinance Index increased 8% from the previous week and was 146% higher than the same week last year.  In addition, the Purchase Index was up 2% from the previous week and was up 17% from last year.

Overall, it is clear that borrowers are continuing to act on the low interest rate environment we are experiencing.  As of the week ending January 24th, the 30-year fixed rate was at its lowest level since November 2016.  Going forward, rates are expected to remain in the lower range due to the Fed’s decision on January 29th to maintain interest rates at their current level.

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Hot Housing Market

On the most recent National Association of Realtors’ Existing Home Sales report, which measures contracts that were signed for existing homes purchased in a given month, increased by 3.6% in the month of December and by 10.8% from a year ago!  The sales pace is their best level since 2018.  The median average home price increased by 7.8% for December, which was reported at $274,500.  First time home buyers accounted for 31% of the purchases.  This is a very strong report as is, but it’s even more impressive because housing inventories are at their lowest levels on record. 

Housing Starts, which measure the beginning of new construction for a house, increased by 16.9% in December, representing a thirteen-year high.   Year over year housing starts are up over 40.8% for December.  When looking deeper into the report, we see that single-family home starts increased by 11.2% in December, which represents the highest gain in starts since 2007.   Multifamily home starts were up 32% in December and up by 74.6% for the year term.

These two reports give us some very encouraging signs that the housing market is continuing to be very stable and healthy.   


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