Home-prices are on the rise and gaining more and more momentum as they grow. Predictions show we can expect U.S. annualized home prices to leap up to 5.4% by July 2020.  CoreLogic is exceeding its own forecast with this latest report.

CoreLogic stated, “Home-price gains will pick up speed in the coming year, with a 5.4% jump in the 12 months following July 2019, according to a forecast from CoreLogic. That would be a faster pace than the 3.6% annualized increase seen this July,”

Factors Driving the Momentum

Home-prices are fattening for two factors:

1.      Of course, we know that mortgage rates are exceedingly low. Thus lower financing means borrowers are qualifying for bigger and bigger mortgages.

Mortgages and Home Prices are Expensive, But Worth it.

2.      On a more negative note, a shortage of available homes for sale continues. This is especially true in lower-priced homes.

Thus, we see that sellers can simply hold out for the home prices they demand.

Frank Nothaft, the chief economist of CoreLogic, recently stated, “With the for-sale inventory remaining low in many markets, the pick-up in buying has nudged price growth up.”

Furthermore, he explained, “If low-interest rates and rising income continue, then we expect home-price growth will strengthen over the coming year.” And that certainly seems logical to us in the mortgage industry.

Home-prices in an Age of Healthy Economic Growth

In addition to these two factors, Palm State Mortgage Company cannot discount the steadily improving U.S. household income. And home-price gains play a part in that. Frank Nothaft, noted several points that contributed to this:

  • “The unemployment rate was 3.7% in July,
  • near May’s 3.6% and
  • that was the lowest level since the 1960s.
  • That’s forcing employers to pay higher wages to keep good workers.”

And he added, “The U.S. median annual household income in June was 1.8% higher than a year earlier, according to a report from Sentier Research based on inflation-adjusted Census Department data.”

Fact Checking Housing-prices: Research for Data Collectors

Among our readers we know we have people who love to compare and contrast data from various sources. So, it’s good to go on record that CoreLogic’s projection is above some other noted resources. For example, the Mortgage Bankers Association estimates a 3.8% gain for U.S. home prices over the next year, measuring the third quarter of 2020 from a year earlier. Likewise, Fannie Mae, “the largest mortgage finance company, puts it at 4.3%.”

During the last nine months, we have seen mortgage rates fall. Right now, the US rate for 30 years fixed mortgage has settled at 3.55 percent. That was the low in August, according to Freddie Mac. “The average rate ticked up three basis points to 3.58% last week.

Low rates mean buyers are qualifying for higher loans to cover home prices.

Key to House Happiness: Search for a Home You Know You can Afford

But let’s not stray too far off the topic of home-prices.

The Home-prices Trend:  Fewer Sales but More of Them

Trending right now, in the midst of low-interest loans, home-prices increased a whopping 0.7% from July to August. And that’s up from the upwardly revised increase of 0.4% in July. We can go back in time and check out 2016, and we find the index was 6.6 at that time.

To see a graph that traces the history of this trending high rise in Home-prices, check this reliable online resource. It seems like home prices are on a steady monthly and annually on the rise.

A Practical Note

So, on the one hand, this is a good number if you are selling a home, but it might not be so budget-friendly if you are shopping to buy a home. On the other hand, since home-prices are continuing to rise, is it wise to discourage your home buying mood?  Likewise, house hunters cannot enjoy these low-interest rates indefinitely.

So, What Now?

From Data to Advice

As we look at all this data on rising home prices, we do not have to wonder what to do with it for long. House hunt now before home-prices soar upward more. Here’s why:

  • First, let’s diffuse all that smoky talk of an impending economic slowdown.
  • Did you know that in 3 of the last 5 U.S. recessions, home-price values increased? And in the 4th one, “it decreased by less than 2%.
  • We believe, however, that housing will not trigger any upcoming recession.
  • By the same token, we think home values will still continue to appreciate.
  • And we do not see any storm clouds gathering on the horizon that resembles the 2008 thunder clouds of the housing market crash.

The Positives of Home Ownership, in Spite of Higher Prices

Every once in awhile we re-examine the advantages of homeownership.  It seems like the top reasons to own a home have intensified although

Buying instead of renting your home can save you money in the long run.

the prices have gone up.

1. Building Wealth:   Homeownership can be a very savvy financial move — but its wisdom lies in two definitive points:

  • Buy a home you can actually afford.
  • Be sure you want to live in the home you buy for at least 7 and we prefer 10 years.

2. Growing-Equity:  Remember you are building equity. “Your equity in your home is the amount of money you can sell it for minus what you still owe. Every month you make a mortgage payment, and every month a portion of what you pay reduces the amount you owe. That reduction of your mortgage every month increases your equity.”

Likewise, the experts tell us “That is especially true now with the elimination of risky mortgages like negative amortized and interest-only loans — thanks to the new “Qualified Mortgage” rules.

Keep in mind that “The way mortgages work is that the principal portion of your payment increases slightly every month year after year. It’s lowest on your first payment and highest on your last payment. Thus, as the months and years go by, your equity grows!”

3. Tax Savings:  Check the new Tax Code and your state laws. Do not automatically believe rumors that homeownership has no tax benefit.

4. Tax deductions on home equity lines:  Did you know you can deduct interest paid on a home equity loan (or line of credit)? You can even transfer your credit card debts to your home equity loan. Likewise, you can opt to pay a lower interest rate, and still obtain a deduction on the interest as well.

Attention Home Bargain Hunters:  Big News On the Capital Gains Laws!

5. Capital Gains Exclusion:  Here’s why living in the home you buy is a financial advantage. “If you buy a home to live in as your primary residence for more than two years, then you qualify for this deduction.”  When you sell your home, you can keep profits up to $250,000, single, or half a million if married. Thus you will owe no capital gains taxes on the deal.  You might not believe it but your house actually appreciated in spite of several years of falling home-prices. Plus, “if you purchased your home prior to 2003, chances are, it has appreciated in value and

Home Prices are on the way up.

Happy family landscaping their new home. Home Ownership has great perks!

this tax benefit will come in very handy.”

6. Mortgages Are Forced Savings Plans:  Each month you pay your mortgage payment, you are building up more equity. Thus you are saving for the future. (And Palm State thinks that’s a pretty wonderful advantage over renting.)

7. In the Long term, Buying Beats Renting for Value

Our Terrific Take-Aways

In a side by side comparison, a rented home might be cheaper than the payments on a mortgage in the first few years. However, as the interest “portion of your mortgage payment decreases, the interest will eventually be lower than the rent you would have been paying.

But think about it:  You’re investing. You’re not putting cash into a landlord’s pocket.

Palm State invites you to have a conversation with us about more of the advantages of homeownership in spite of rising home prices.  We can consult and find you the very best home mortgage deal for your fiscal situation. Knowing this, why would you want to fatten a landlord’s bank account when a house could fatten yours in the long run?  Let us help you start building your own equity nest-egg this year.