Is Student Loan Debt a Threat to Home Ownership?

Is Student Loan Debt A Threat to Homeownership? No! | MyKCM

Over the course of the last thirty years, a shift has happened. An entire generation has been raised to believe that a college education is their key to unlocking opportunities that were not available to their parent’s or grandparent’s generations.

Due to this, student loan debt has soared to $1.5 trillion and represents the largest category of debt, surpassing credit card and auto loan debt in 2010 and never looking back. As more and more Americans continue their education amongst rising tuition costs, this number will no doubt increase.

Many housing experts have blamed student loans for a drop in the homeownership rate for young families, and to an extent, they’ve been right. Increased debt at the time of graduation has no doubt limited young people from being able to afford a home at the same rate as their parents or grandparents did at the same age.

In a recent Forbes article, the author explained that “in just the class of 2017, the average student has about $40,000 in debt — almost enough for a 20% down payment on a median-priced home.”

The Federal Reserve set out to determine exactly how much impact student loan debt has had on the homeownership rate of those 18-34 (millennials). Their results found that,

Every $1,000 in student loan debt delays homeownership by about 2.5 months, but it doesn’t prevent homeownership entirely.

In fact, by the time college grads reach their 30s, those with student loan debt have a homeownership rate nearly identical to those who didn’t take out loans.” (emphasis added)

In the Wall Street Journal’s coverage of the Fed report, they found that recent graduates prioritize paying off their student loans over saving for a down payment, despite their desire to be a homeowner. Many with debt want to “get that monkey off (their) back (before they) make any new investments.”

This has just delayed the wave of young home buyers from hitting the market. But as Danielle Hale, the Chief Economist at warns,

“2020 will be peak millennial, the year when the largest number of millennials will turn 30.”

By age 30, those who attained a bachelor’s degree right after high school will be one or two years away from paying off their loans and will have been in their career long enough to earn a higher salary.

In the long run, research shows that attaining a bachelor’s degree or more actually increases the chances that someone will become a homeowner.

Bottom Line

If you are one of the many millennials who has prioritized paying down your student loans over saving for a down payment, you’re not alone. Even if you are a couple years away from paying off your loans, let’s get together to help you determine if waiting really is the best decision for you!

February Market Watch

The start of the year has been lackluster to say the least. The small remaining inventory has been slowly disappearing without much in terms of new listings.

Numbers in King County for January are down over the 2018 final outcome. However, price per square foot is up meaning lower priced smaller homes were selling thus bringing the overall average price down.

Snohomish County is slightly lower across the board. However the inventory there created a more balanced buyer-seller market. Now that the market is back to 2.5 months of inventory numbers should swing slightly in favor of sellers again.

I believe early spring (Feb/March listings) will be more competitive than any time during the last 5 months.

Bottom Line

As a buyer the inventory is below what a balanced market typically presents. If you can find a home that has been on the market for 30 or more days there is plenty of room for negotiation. For sellers, listing in the next 6 weeks allows you to beat the typical spring influx of new inventory. We call this the “early spring” timeframe.

How Owning a Home Increases Wealth

Everyone should realize that unless you are living somewhere rent-free, you are paying a mortgage – either yours or your landlord’s. Buying your own home provides you with a form of ‘forced savings’ that allows you to use your monthly housing costs to increase your family’s wealth.

Every month that you pay your mortgage, you are paying off a portion of the debt that you took on to purchase your home. Therefore, you own a little bit more of your home every month in the form of home equity. As your home’s value increases you also gain home equity.

Every quarter, Pulsenomics surveys a nationwide panel of over 100 economists, real estate experts, and investment and market strategists and asks them to project how residential home prices will appreciate over the next five years for their Home Price Expectation Survey (HPES).

The latest data from their Q4 2018 Survey revealed that home prices are expected to round out the year 5.8% higher than they were in January. For the next 5 years, home values will appreciate by an average of nearly 3% a year.

This is still great news for homeowners!

For example, let’s assume a young couple purchases and closes on a $250,000 home in January. Simply through their home appreciating in value, those homeowners can build their home equity by nearly $40,000 over the next five years.

How to Simply Increase Your Family Wealth by Paying for Housing | MyKCM

Let’s look at the potential equity gained over the same period of time at some higher price points:

How to Simply Increase Your Family Wealth by Paying for Housing | MyKCM

In many cases, home equity is a large portion of a family’s overall net worth.

Bottom Line

If your plan for 2019 includes entering the housing market to purchase a home, whether it’s your first or your fifth, let’s get together to make your plan a reality!

2018 Market Review

Even with the market slow down towards the end of 2018 the year finished strong with great gains in both King and Snohomish counties.

The year began with an inventory level under one month’s supply and ended hovering between 2 and 2.4 months in King County. A balanced market has a 6 month supply of inventory meaning if no new homes were listed it would take 6 months to sell the existing homes. It’s no secret that an inventory level at 1 month and below will create a market frenzy with an extremely lopsided supply versus demand. For the entire year, inventory levels were still well below half of what a balanced buyer/seller market looks like.

Seattle median home prices topped out at $800,000 mid-year and ended at $765,000 which is nearly $100,000 above the county average of $680,200. Bellevue saw a low of $959,000 in November while every other month boasted average sales prices well over the million dollar mark.

To put things in comparison, a few months back Las Vegas overtook Seattle as the fastest growing market in the U.S. While we have shown a slow down to our epic pace the Seattle area is still going strong. In Las Vegas 2018 ended with an average sales price of $350,000 and a list to sales price ratio of 98.9%, meaning buyers had some room for negotiation. And, the average days on market, from the time the home was listed to the home going under contract with a buyer, was 26 days. Inventory levels for Vegas ended 2018 at a 2.5 month’s supply. Basically, Seattle’s slow down (not including purchase price averages) was the hot year Vegas had.

Bottom Line:

Seattle still has a strong economy, a robust relocation market for jobs, and a highly desirable quality of life. While this market has slowed we still rival the next new hot market. It’s all about perception and after what we have been through our current situation seems slow. If you are looking to make your next move whether it’s renovation, refinance (cash out or line of credit), or are considering upsizing or downsizing, let’s set an appointment to talk more!

What if I wait a Year to Buy a Home?

What If I Wait A Year to Buy a Home? | MyKCM

National home prices have increased by 5.4% since this time last year. Over that same time period, interest rates have remained near historic lows which has allowed many buyers to enter the market and lock in low rates.

As a seller, you will likely be most concerned about ‘short-term price’ – where home values are headed over the next six months. As a buyer, however, you must not be concerned about price but instead about the ‘long-term cost’ of the home.

The Mortgage Bankers Association (MBA), Freddie Mac, and Fannie Mae all project that mortgage interest rates will increase by this time next year. According to CoreLogic’s most recent Home Price Insights Reporthome prices will appreciate by 4.8% over the next 12 months.

What Does This Mean as a Buyer?

If home prices appreciate by 4.8% over the next twelve months as predicted by CoreLogic, Below is a simple demonstration of the impact that an increase in interest rate would have on the mortgage payment of a home selling for approximately $250,000 today which represents the average home price nationally. Imagine what these numbers look like for homes priced above $600,000 which is more typical for our area.

What If I Wait Until 2019 To Buy A Home? | MyKCM

Bottom Line

If buying a home is in your plan for this year, doing it sooner rather than later will save you thousands of dollars over the terms of your loan. Curious what the numbers look like in our area? Set up a time to meet and we can look specifically where you want to buy!What If I Wait A Year to Buy a Home?

The Science of Selling

Listing a home is more than just packing, decluttering, and depersonalizing. I am a firm believer in the science of the sale.

Those listing broker personal touches are what transcend a listing from good to great.

Buyer impressions are made from the moment they pull up to the home. Otherwise known as curb appeal.  Is the landscaping tidy? Is there a mix of colors? Are the walkway, front steps, porch, and door all dirt free?

When a buyer walks through the door does it feel like home? Does it smell like home? Is the lighting right? Does the house flow with proper movement? Are questions readily answered? And above all, does the listing show effort on the seller’s part?

All of these aspects set the tone and perception of the home’s general condition whether warranted or not. Subconsciously the buyer feels the home is well cared for.

To be even more specific, the home must appeal to several of the buyer’s senses and not be overstimulating. For example, strong or competing smells are a no-no. Use one simple scent like a diffuser of soft vanilla. Over saturation of color, scent, and sound also confuse the brain and cause dissonance and confusion. The buyer has to work much harder to make sense of the environment when they are faced with sensory overload.

Bottom Line:

Behind every good listing is an amazing listing broker. To learn more about the right marketing and staging strategy for your home let’s set an appointment.

The Cost of NOT Paying PMI

Saving for a down payment is often the biggest hurdle for a first-time home buyer as median incomes, rents, and home prices all vary depending on where you live.

There is a common misconception among home buyers that a 20% down payment is required, and it is this limiting belief that often adds months, and sometimes even years, to the home-buying process.

So, if you can purchase a home with less than a 20% down payment… why aren’t more people doing just that?

One Possible Answer: Private Mortgage Insurance (PMI)

Freddie Mac defines PMI as:

“An insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.

Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”

As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. The monthly cost of your PMI depends on the home’s value, the amount of your down payment, and your credit score.

Below is a table showing the difference in monthly mortgage payment for a $250,000 home with a 3% down payment and PMI vs. a 20% down payment without PMI:

The Cost of NOT Paying PMI | MyKCM

The first thing you see when looking at the table above is no doubt the added $320 a month that you would be spending on your monthly mortgage cost. The second thing that should stand out is that a 20% down payment is $50,000!

If you are buying your first home, $50,000 is a large sum of money that takes discipline and sacrifice to save. Many first-time buyers save for 5-10 years before buying their homes.

To save $50,000 in 10 years, you would need to save about $420 a month. On the other hand, if you save that same $420 a month, you could afford a 3% down payment in less than a year and a half.

In a recent article by My Mortgage Insider, they explain what could happen in the market while you are waiting to save for a higher down payment:

“The time it takes to save a (larger) down payment could mean higher home prices and tougher qualifying down the road. For many buyers, it could prove much cheaper and quicker to opt for the 3% down mortgage immediately.”

If the prospect of having to pay PMI is holding you back from buying a home today, Freddie Mac has this advice,

“It’s no doubt an added cost, but it’s enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”

Based on results of the most recent Home Price Expectation Survey, a homeowner who purchased a $250,000 home in January would gain $50,000 in equity over the next five years based on home price appreciation alone (shown below).

The Cost of NOT Paying PMI | MyKCM

Bottom Line

If you have questions about whether you should buy now or wait until you’ve saved a larger down payment, let’s get together to discuss our market’s conditions and help you make the best decision for you and your family.