Here’s a Cheatsheet to Understanding House-Pricing Indexes

Heres a Cheatsheat to Understanding House Pricing Indexes- 150x150House-pricing indexes measure changes that occur in the pricing of residential homes. The most commonly used house pricing index is the Case-Shiller Index, put together by Karl Case, Robert Shiller and Allan Weiss in the 80s. After developing the housing index, they started a company to help them sell the research. Their company was later purchased by Fiserv, Inc., which records the data behind the index. After the data is recorded, it is distributed by another financial services company called Standard & Poor’s.

The Case-Shiller index is actually composed of several indexes, such as the national home price index, which is determined quarterly and published in February, May, August and November. Another index is the 10-city composite index, and it covers the following cities: Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, DC. A third index is the 20-city composite index which, besides the cities listed above also includes: Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland, Seattle and Tampa. Also, all the cities in the 20-city composite index have 20 individual indexes.

What Does the Case-Shiller Index Do?

The Case-Shiller index analyzes the changes in the pricing of single-family homes by comparing the prices for which the same properties have sold over time. Because newly built homes don’t have a pricing history, they are excluded from the analysis conducted by the Case-Shiller index. New homes usually must have had 2 owners before it can be determined how their pricing has changed over time. Condos are also excluded from the Case-Shiller index, although there is an index that analyzes condominium pricing in five major areas: Chicago, Boston, Los Angeles, New York and San Francisco.

The Case-Shiller house-pricing index tracks homes sold at market value for prices that can be used to accurately determine the state that the housing market is in. Transactions where homes have been sold far under market value, for example between close family members, won’t be included in the case-Shiller index, because they don’t accurately represent the housing market activity in that area. However, foreclosure sales are included in the Case-Shiller index because they are considered regular transactions.

Home-pricing indexes help both home sellers and home buyers. Buyers who look at indexes and see that home prices tend to increase will know that they have to hurry up and make their purchase before prices go up significantly; sellers who notice that prices are increasing can wait a while longer until they put their house on the market and increase their chances of getting a better price.

Other House-Pricing Indexes

The Case-Shiller house-pricing index might be the most popular, but there are a few other indexes that track home prices. One of them is the United States Federal Housing Finance Agency (FHFA) which, besides sales, also includes refinances. The FHFA includes 363 metro areas and covers mortgages for single-family residences which are backed by Freddie Mac or Fannie Mae.

Other indexes are the LoanPerformance Home Price Index, which covers almost the whole country, and the IAS360 House Price Index, which is published with a smaller lag than the Case-Shiller index, making it more accurate.

The Case-Shiller and other house-pricing indexes can help, whether you are looking to buy a home or sell one. Keeping a close eye on these indexes before getting involved in a real estate transaction can help you get a better deal, or, at the very least, help you better understand the housing market.

Answered: Your Most Burning Questions About Mortgage Interest Deduction

Answered-Your Most Burning Questions About Mortgage Interest Deduction- 150x150Mortgage interest deduction has been around for a long time and has helped support the real estate market in the United States. This saves a significant amount of money for home owners, especially for those who have recently taken out a mortgage loan. Having this tax deduction makes home ownership more affordable because it reduces the home owner taxes. Here is a list of the most common questions about mortgage interest deduction and the answers that you are looking for:

Top 5 Mortgage Interest Deduction Questions

  • Question 1: Do the rich benefit more from mortgage interest deduction? The truth is that, while mortgage interest deduction is beneficial for rich people, it mostly benefits middle-class families. 86 percent of the households who take advantage of mortgage interest deduction have an income of less than $200,000, with most of these households including the incomes of two married people.
  • Question 2: Would eliminating mortgage interest deduction affect the economy and the housing market? Eliminating mortgage interest deduction would affect both the housing market and eventually the economy. Home buyers would be less attracted to buying a home, which would result in lower home prices due to low demand. Current home owners would experience major losses because they would find themselves with underwater mortgages. Falling home prices and less home buyers would mean that tax revenues would decrease, which would have a large negative impact on the economy.
  • Question 3: Is it true that only a small percentage of home owners claim mortgage interest deduction? Almost all home owners with a mortgage take advantage of mortgage interest deduction at one point during home ownership. In fact, over 70 percent claim mortgage interest deduction in the first year of home ownership.
  • Question 4: Would everyone have to pay more in taxes if mortgage interest deduction was eliminated? The middle-class would be most affected if mortgage interest deduction was eliminated. The taxes that middle-class households would have to pay would be much higher than what upper-class households would have to pay.
  • Question 5: Does mortgage interest deduction encourage people to buy larger homes? Generally, the size of the home has more to do with the size of the family which buys it. Of course, bigger families need a bigger home, so they will have to pay more interest, which means they will benefit more from mortgage interest deduction than families who purchase smaller homes.

There are a few misconceptions surrounding mortgage interest deduction, but the bottom line is this: most home owners can take advantage of mortgage interest deduction. You shouldn’t choose a home based on how much you will save with mortgage interest deduction, but remember that owners of larger homes save more money over time. Eliminating mortgage interest deduction would most likely have huge negative impact on the economy, so you can still take advantage of it for the foreseeable future.

 

How Do Changes in Interest Rates Affect the Housing Market?

How Do Changes in Interest Rates Affect the Housing Market- 150x150Most people have to take out a mortgage loan in order to become home owners. Whether the mortgage loan has a fixed or adjustable rate, a long or short term, you will have to pay interest. How much interest you will be paying on your mortgage loan depends on many factors, such as the loan type, the repayment duration, or how big your down payment is. These are the factors that will influence the interest rate that is advertised by the lender. Interest rates are also affected by factors which can’t be controlled by the borrower or the lender, such as the actions of the Federal Reserve or the state of the economy. Because most people and families buy homes through a mortgage loan, the housing market is deeply affected by changes in current interest rates.

What Are Interest Rates and How Do They Work?

An interest rate is the rate at which someone can borrow money from a lender for a predetermined period of time. The interest rate will normally be a percent of the total amount borrowed, and will be paid each month, depending on the type of loan. For example, some loans require a larger payment towards the interest in the beginning, while the payment towards the principal is very low.

Interest rates on a mortgage loan can be of two kinds: fixed and adjustable. After being determined before the closing of the loan, fixed interest rates remain the same for the duration of the repayment period. Adjustable interest rates are normally fixed for a short period of time, after which they can increase or decrease, depending on many factors, such as the health of the economy.

How Do Interest Rates Affect the Housing Market?

Normally, low mortgage interest rates attract more home buyers. Paying less interest means that the overall mortgage loan value will be lower, so people will be saving money. When rates are low, home sales rise because more people can afford to take out low-cost loans. Home owners can refinance their mortgage, and try to take out a lower interest rate mortgage to pay for their home. Low interest rates result in a large demand for homes, so the home construction industry is also stimulated.

When interest rates are high, the demand for homes decreases because mortgage loans become more expensive, and most people can’t afford them anymore, don’t qualify, or simply choose to rent until interest rates go down again. High interest rates also affect home builders, as the demand for new homes also decreases.

Interest rates have fluctuated significantly throughout history, influenced by changes in local and global economy, wars, recessions and many other factors. The housing market will always have to gain or suffer from these fluctuations. Also, understanding how these fluctuations in interest rate affect the housing market can help investors make better decisions. Choosing between a fixed-rate or an adjustable-rate mortgage, and knowing when to refinance can make a huge difference in how much it will cost you to become a home owner, or how much profit you will make if you invest in real estate.

See How Easily Reinstatement Can Get You Back on Track with Your Mortgage

See How Easily Reinstatement Can Get You Back on Track with Your Mortgage- 150x150One way to get back on track and reverse the foreclosure process on your home is through mortgage reinstatement. Mortgage reinstatement gives borrowers a second chance to keep their home and restore their mortgage loan. Most people believe that when they default on their mortgage and the home goes into foreclosure, there is no option left. Lenders agree to a mortgage reinstatement easier than most borrowers assume, but it will require you to regain control over your financial situation.

Going Into Foreclosure

The housing market received a large hit from the recent economic recession, and millions of Americans have felt it. While the housing market is in recovery, the effects of the recession can still be felt today.

When you stop making mortgage payments or fall behind, the lender will charge you some penalty fees and issue a warning. If you still can’t pay your mortgage, the mortgage goes into default, and you risk losing your home. You will then receive another letter from your lender, which will explain what will happen to your home. The lender will ask you to pay the entire remaining mortgage balance immediately, or they will start the foreclosure process.

The lender files the required documents with your local court, which will rule in their favor if you don’t do anything to remediate the situation. When the court rules in the lender’s favor, your house will go into foreclosure and can be auctioned off and sold.

Reinstating Your Mortgage Loan

Losing your home to foreclosure is the worst case scenario, but fortunately there is something you can do. Regaining control over your budget and being able to get back on track will allow lenders to reinstate your mortgage loan. Foreclosures can take several months to complete, giving you time to work something out and regain the ability to make your mortgage payments.

Getting your home out of foreclosure is going to be expensive, and it all starts with you taking care of all the penalty fees that have been adding up since you stopped making your mortgage payments. Consulting your lender is very important, because your lender will be the most qualified person to tell you what you need to do in order to achieve reinstatement. Your lender will most likely avoid evicting you from your home and do whatever possible to keep you in your mortgage.

Your lender will have the power to modify your mortgage loan to fit your budget and even give you a lower interest rate, which will lead to a lower monthly payment. If you can prove to your lender that you can start making mortgage payments on time each month again, they will most likely work with you to reinstate your mortgage loan.

Reinstating your mortgage loan is an easy way to get you back on track with your mortgage and avoid losing your home, but it all depends on your ability to come up with a budget that will allow you to start paying your mortgage again. Losing a home is not easy and will most likely lead to a lot of stress, or even depression, but as you’ve read in this article, all is not lost when your home goes into foreclosure. Mortgage reinstatement is a viable option for those who are able to get their finances back on track.

Renting vs. Owning: Which is Best for You?

Renting vs. Owning- Which is Best for You-150x150Right now when the housing market is slowly recovering and interest rates are still near record lows, it might be the best time to consider becoming a home owner. Of course, depending on your financial situation, home ownership might not be the best choice for you. People have always debated whether it’s better to own a home or rent one, but the truth is that it mostly depends on each person or family’s budget, location, and future plans.

Owning a home can be as affordable as renting or even more affordable in some parts of the United States. The difference in price can be easily figured out by simply comparing mortgage prices to rental prices in your area. But even if renting seems cheaper, you will need to take into consideration all the advantages that home ownership has to offer.

Factors that Should Influence Your Decision

First of all, probably the most important factor that will influence your decision on whether to rent or buy a home is location. Prices fluctuate significantly depending on what area the home is located in. You might want to be closer to your job, which may make you look at homes in more expensive parts of the city or town. Prices for homes could be well out of your price range, so renting will be your only viable choice. Alternatively, you could move to a less expensive area, which will make your daily commute longer, but will give you the advantage of being able to afford buying a home.

Another factor that will have an impact on your decision is timing. You have witnessed the rise and fall of the real estate market during the past few years, and you have probably realized that buying a home has a lot to do with timing. Millions of people have lost their homes during the economic collapse because they became home owners before the housing market bubble burst. Interest rates also fluctuate, so buying when interest rates are low is a wise choice.

Last, but not least, one factor that should influence your decision is your financial situation. When analyzing your financial situation, you need to have a look at both your savings as well as your income and future earnings. This way you will determine if you are in a good position to become a homeowner, or if you should rent until you can make the necessary changes that will allow you to buy a home.

Pros of Owning a Home

Becoming a home owner is something that most people aspire to. Statistics show that home ownership in the United States is at nearly 70 percent, which means that it is a dream that can come true quite easily. Home ownership comes with great advantages that you won’t get if you rent. Here are some of them:

  • Equity. When paying your mortgage loan, you are increasing your degree of ownership with every monthly payment. By paying rent, you are pretty much losing that money, as opposed to ownership where you can actually borrow against your equity to finance other purchases or refinance your home.
  • Tax deductions. Your mortgage loan interest and property taxes are tax deductible, which will save you a significant amount of money each year. If you work from home, your home office and part of your utilities may be eligible for further tax deductions.
  • Make changes to your home. When you own a home, you can decorate it any way you want. You can paint the walls any color you choose, hang pictures on the walls, and even add rooms or other structures to it. When renting, you can only make small modifications, and you will most likely need the building owner’s permission.
  • Choose how to deal with repairs. Whether you can repair and maintain your home on your own, or hire a contractor, you can do as you wish, without being at the mercy of your landlord, as is the case with renting.

Pros of Renting a Home

Depending on many factors, renting could be a more viable option than owning a home. Here are some of the more important benefits of renting:

  • Low upfront cost. When renting, you are required to pay the first and last month’s rent, and probably a security deposit upfront. There are no large down payments, home inspection fees, and closing costs, like when buying a home. The difference between the upfront costs of renting and buying can be as high as several tens of thousands of dollars.
  • Easier to relocate. If you need to relocate for reasons such as a job change or divorce, you can easily pack up and move. Also, if your salary changes, you can easily move to a different area.
  • Increase your credit score. A low credit score can get in the way of becoming a home owner, so renting for a while not only allows you to have a roof over your head, but it will also help increase your credit score and get back on the path to home ownership.
  • No repairs and maintenance. If something in your rented home, like appliances or fixtures, stops working or breaks, you won’t have to replace it and pay for it. The landlord will take care of repairing and replacing things.

Both owning and renting have their advantages, but choosing one or the other will mostly depend on your budget and plans. Prices and interest rates fluctuate often and sometimes significantly, so buying a home at the opportune time will save you a lot of money and future headaches. Also, if you are not comfortable with the current housing market situation or your financial situation, then renting will most likely be the better choice.

Mortgage Rates in 2013: Will They Go Up, Down, or Hold Steady?

Mortgage Rates in 2013-Will They Go Up, Down, or Hold Steady-150x150The home-buying season has arrived and the 2013 real estate market seems to be moving a little faster, while mortgage rates are still lower than ever. You might be wondering if mortgage rates are going to hold steady, increase, or decrease, considering the fact that they have gone up since the historic lows recorded last year.

While the economic growth seemed to slow down considerably at the end of 2012, it looks like it came back on the right track at the beginning of this year. In an economy that is fueled by consumer spending, people keeping their job is of the utmost importance, so the recent layoffs decrease has helped significantly as well. The real estate market has contributed to the economic recovery also. Existing home sales have gone up as well as new home construction, but the inventories are fairly low because the construction industry is also in recovery.

What Influences Mortgage Rates?

Back in November of 2012, mortgage rates were 3.31% for a 30-year fixed-rate mortgage and have increased to 3.51% by February 2013. Even with the slight increase, mortgage rates are still close to record lows, and actually lower than they were at this time last year.

One of the main factors that influence mortgage rates is the housing market recovery, which has suffered significantly due to the economic crisis of 2008. Home sales are rising, but the inventories are getting lower, which will drive home prices up. Builders are also slowly recovering, so more and more new homes will become available.  All of these contribute to the appreciation of the housing market.

The United States economy, which is seeing slow recovery, has the most influence on the housing market. After the recent recession, economists expected a 3 to 5 percent growth in Gross Domestic Product (GDP), but the United States is only experiencing a 2 percent growth. The recovery is slow but steady and will lead to a stronger housing market.

Will Mortgage Rates Go Up or Down in 2013?

Excluding another major crisis, a new war, or the further deterioration of the European economy, it is safe to say that the mortgage rates will slowly rise in 2013. The economic increase will lead to an increase in corporate profits, which will positively influence confidence among consumers and potential home buyers. As a result, the demand for stocks will increase, the demand for bonds will decrease, and mortgage rates will go up.

The mortgage rates will most likely remain under 4 percent for 2013, but gain up to 0.5 percent by the end of the year. If the economy continues to grow, you should expect higher mortgage rates in the future, but if there is a new financial or political crisis, the rates will go down to what they were in 2012, and possibly even lower.

Do You Recognize the Early Warning Signs for Increasing Home Interest Rates?

Do You Recognize the Early Warning Signs of Increasing Home Interest Rates- 150x150Home interest rates are near historic lows at the moment, but have started to slowly increase since last year when they were at an all-time low.  For the past few months, interest rates have been steadily rising and, while a huge increase is very unlikely, so are further decreases.

Mortgage rates today for a 30-year fixed-rate mortgage are around the 3.5 percent mark, an increase over the November 2012 rate of 3.31 percent. Rates for a 10-year fixed-rate mortgage are hovering around 2.60 percent, staying near the historic lows reached last year.

Rates are expected to go over 3.75 percent by the end of 2013, and maybe even reach 4 percent. This increase will affect homeowners who wish to refinance more than they will affect people who are looking to buy a home. This rise in mortgage interest rates will make buying a home more expensive, but it isn’t expected to slow down the housing market recovery.

Factors Contributing to Increasing Home Interest Rates

During the past few years, the Federal Reserve has purchased bonds for hundreds of millions of dollars, which keeps the mortgage interest rates low, in order to attract more consumers and investors. The result was an increase in refinances, but it hasn’t generated as many home purchases as it was expected.

The main factor that will contribute to increasing home interest rates is the economic growth. Along with economic growth, there will be a decrease in unemployment rates, an increase in new construction and home prices, which will stimulate the housing market to grow, and mortgage interest rates will rise.

At the end of last year, a 7.8 percent unemployment rate was recorded, the lowest since 2009. As more and more people get jobs, many of them will want or need to relocate, so the real estate market will see more buying activity.

Builders are also recovering from the economic recession and are starting to build more new homes, as the demand increases monthly. It is expected that new homes construction for single families will see a 20 percent increase compared to 2012, and multi-family homes a 15 percent increase over last year.

The steady increase in home prices helps the economic growth, therefore being a contributing factor to the rise in mortgage interest rates. Statistics show that home prices have seen a 10 percent increase between 2011 and 2012. Mortgage loan requirements are still pretty strict, but it is still expected that there will be more home sales in 2013 than there were in 2012.

The economy is expected to only grow by 2 percent this year, so the mortgage interest rates increase won’t be so extreme. The economic growth should be a warning sign for all those who wish to buy a home while taking advantage of the near record low interest rates. Unless an unforeseen event that will affect the economy occurs, such as a new economic collapse or war, the economy will continue to grow and even pick up the pace, so looking at the warning signs and being ready to buy will help you save a significant amount of money.

10 ‘Make it or Break it’ Real Estate Issues for You in 2013

Top 10 Real Estate Industry Issues in 2013- 150x150Since the housing bubble burst in 2008, most people don’t trust the real estate industry anymore. The housing market is slowly recovering, and statistics show that most Americans would buy a home in the next few years, even if they expect the prices to go up in the near future.

Prices on homes have already started to climb, with a steady increase in almost each month of 2012. National home prices have increased by over 6 percent in October last year. In California, one of the states that were the most affected by the housing market crash, more than 50 percent of the homes listed for sale received multiple offers from eager buyers. The same trend was followed by Florida and Arizona last year.

Being an industry that has just started to recover, the real estate industry still faces a lot of issues in the years to come. Here are the top 10 issues that you should be aware of:

Top 10 Industry Issues

1. An Increase in Home Prices. With builders not being able to keep up with the demand for new houses, prices for older houses will continue to increase. The construction of new homes is almost three times lower than it should be to keep up with the population increase and the recent job growth. The inventory of homes for sale is at the lowest since 2006, and economists predict a 5 percent increase in home prices for 2013.

2. An Increase in Rent Prices. The job growth will push most people, who moved in with their parents or with friends back when the economic problems started, to start looking for apartments and houses to rent. This will create a lot of demand for rentals, which will cause rent prices to increase by up to 9 percent in 2013.

3. Less Good Deals on Foreclosed Homes. Sales of foreclosed homes represented only 11 percent of all home sales in 2012, down from 28 percent in 2011, and are expected to be even lower in 2013. This happened because banks have sold many distressed home loans to companies who agreed on new terms with the borrowers, instead of foreclosing.

4. An Increase in Short Sales. Instead of dealing with an expensive and time consuming foreclosure, banks prefer that the borrowers sell their home for less than what the mortgage is worth. In many cases borrowers are not required to pay the difference, which will generate more short sales, while the number of foreclosures will diminish.

5. An Increase in First Time Home Buyers. It is predicted that the growth in demand for homes in 2013 will be caused mostly by first time home buyers.

6. Bigger Home Building Costs. Even if new constructions are at a low level right now, construction materials are at high prices. The labor costs are also high because many construction workers left the industry when the crash occurred. The demand for new homes will lead to even higher costs for new construction in 2013.

7. Property Management Increase. Foreclosed homes that have been sold to investors in the past are now entrusted to professional property management organizations to maintain and rent. The number of foreclosed homes that will be sold to investors will increase in 2013, and so will the number of property management companies needed to manage them.

8. An Increase in Mortgage Interest Rates. Current mortgage rates have been at an all-time low lately, so predictions indicate that they will only go up in 2013. However, the interest rates will only slightly increase, to an average of 4 percent.

9. Credit Requirements. In order to get approved for a mortgage loan, your credit score must be in the 760s right now, but this might change in 2013. As more and more people will buy homes, lender competition will make credit requirements much more lenient.

10. A Two-Tiered Industry. Because banks don’t give out many construction loans, the home builders will be divided into two types: large home builders with access to funds, who can handle big projects, and small to medium home builders, who depend on loans and can’t handle big projects. This will create less competition and bigger prices.

The real estate industry has suffered greatly in the last 5 years, but it’s showing signs of recovery. While the worst has passed, there are still plenty of issues that need to be resolved, but that will happen slowly over the next few years.

Can the Real Estate Industry Ever Be as Good as it was Before 2008?

Is 2013 the Year for the Real Estate Industry Comeback- 150x150The economy still has a long way until full recovery after the burst of the housing bubble. The real estate industry has seen some tough times in the last few years, and has only recently started to recover. Economists say that 2013 will be the year when the real estate industry will finally get back on the right path and see some noticeable growth. Economists also mentioned that the real estate industry comeback will be the main factor that will generate the economic growth in 2013.

Recent Changes in the Real Estate Industry

In the last months of 2012, the housing market started to become a sellers’ market, with home inventories low and higher home prices. Banks that have lots of distressed homes are holding on to them, planning on selling them when prices increase even more. Unfortunately, the most important thing that the real estate industry needs in order to stimulate the economy is inventory.

Another factor that influenced the real estate industry lately is the job market growth. Unemployment is still high around the United States, but the job market is definitely recovering. The lack of inventory is also affecting people who need to move in order to be closer to their job, but analysts hope that this surge of jobs will eventually help residential real estate recover and start growing more rapidly.

With interest rates at historic lows right now, and are expected to remain low in 2013 unless the job market sees dramatic improvement. While lenders are starting to ease up on qualification requirements, many home buyers still find it difficult to get approved for a mortgage loan.

Real Estate Outlook in 2013

The recent changes in the real estate industry point towards modest, but steady, growth. Home sales and prices are growing, and home builders are starting to recover in order to meet the new homes demand. All things considered, 2013 might just be the year for the real estate industry comeback. Let’s take a look at the factors that will influence real estate most in 2013:

  • The multi-family market has been experiencing a great recovery in the past months, and this trend is expected to follow in 2013. Low interest rates and more lenient restrictions have made apartments attractive for buyers, while the limited home inventory has attracted more investors in this market.
  • The single-family housing market has transformed from a buyers’ market into a sellers’ market and will most likely continue to remain this way in 2013. Without single-family home inventories, the real estate industry won’t be able to stimulate the recovering economy to its full potential.
  • The office space market started to recover, as well, and it’s predicted that it will grow even more in 2013. Unfortunately, the job market isn’t growing fast enough to cause a big increase in the office space market, but will regain more stability in 2013.
  • The industrial real estate market might see an increase in leasing, but a decrease in sales in 2013. Depending on the area, there are places where the industrial real estate market will grow, but also places where it will stagnate or even deteriorate, as it is closely tied to employment.

Whether 2013 will be the year when the real industry makes a comeback or not, one thing is for sure: the industry is recovering. The recovery might not come overnight, but, as long as industries that are closely related to real estate make a comeback, so will the real estate industry.