Blog :: 11-2014

Homeownership and Wealth Creation - NYTimes.com

Homeownership and Wealth Creation - NYTimes.com

By THE New York Times EDITORIAL BOARD NOV. 29, 2014

Since the housing bust, renting has been in and owning a home has been out, especially among young adults who in earlier decades would have been first-time home buyers. As the rate of homeownership has declined, from a peak of nearly 70 percent in 2004 to a 20-year low of 64.3 percent recently, the number of owner-occupied homes has barely budged, while the number occupied by renters has increased by nearly 25 percent.

Those trends have led to questions about the future of homeownership. Would more and longer rentals be a bad thing? Are the benefits of homeownership overrated? The answer to the first question is yes; the answer to the second is no.

Homeownership long has been central to Americans' ability to amass wealth; even with the substantial decline in wealth after the housing bust, the net worth of homeowners over time has significantly outpaced that of renters, who tend as a group to accumulate little if any wealth.

A recent study by researchers at the Joint Center for Housing Studies at Harvard University analyzed the reasons for these differing outcomes. Paramount among them is that homeownership requires potential buyers to save for a down payment, and forces them to continue to save by paying down a portion of the mortgage principal each month.

Renting, in contrast, offers the potential for comparable wealth building only if renters invest an amount equal to a down payment plus any savings from renting. As a practical matter, most renters do not do that. Even in instances where renters have excess cash, saving a substantial amount is difficult without a near-term goal, like a down payment. It is also difficult to systematically invest each month in stocks, bonds or other assets without being compelled to do so.

The analysis does not downplay the risks of homeownership or the devastation of the housing bust. But the lesson of that debacle is not for individuals to avoid homeownership or for policy makers to devalue its importance. Rather, the lesson should be to foster conditions under which middle- and lower-income Americans can sustain homeownership and avoid the ruin of foreclosure.

For starters, legal and regulatory protections against practices that inflated the housing bubble need to take root. The Dodd-Frank financial reform law, for example, requires lenders to ensure that borrowers have the ability to repay their home loans and outlaws complex mortgage terms that enrich lenders but expose borrowers to payment shocks.

The law also established the Consumer Financial Protection Bureau, with the purpose of looking out for consumers' interests in financial transactions. The C.F.P.B. has gotten off to a good start, but Republicans, who now control Congress, have consistently tried to weaken the agency and the provisions of Dodd-Frank generally. President Obama must be prepared to veto legislation to repeal or weaken mortgage-finance and consumer-protection reforms.

Equally important, larger economic forces that make homeownership less possible for working people need to be in the forefront of political debate -- even if Republican control of Congress makes actions to address them unlikely. Long-term wage stagnation, for example, has made it increasingly difficult to accumulate enough for a down payment, and has led many homeowners to refinance their mortgages in order to pull out equity for consumer purchases.

The solution is to lift wages, not only with new policies like higher minimum wages and toughened labor standards, but also with approaches to managing the economy to ensure that a fair share of growth goes to wages and salaries, rather than going disproportionately to corporate profits.

Renting can make sense as a lifestyle choice or because of income constraints. As a means to building wealth, however, there is no practical substitute for homeownership.

via Homeownership and Wealth Creation - NYTimes.com.

 

How Much Home Can You Afford?

By: Craig Donofrio  

Looking at sprawling villas in the suburbs and 2,000-square-foot condos in the middle of downtown is one thing. How much home you can afford may be entirely different.

Of course, there's nothing wrong with looking. But when it comes down to finding a place that fits perfectly in looks, size and price, you need to know your affordability factor.

What Is Your Family Plan?

It's not just how much you make; it's also what you plan to do with it.

Do your best to anticipate what the next five years or so will be like for you and your family. Are you planning to have kids in the next few years? Is your teen graduating from high school? Will they need you to co-sign for a college loan? Are you planning for a wedding?

All these can raise your debt-to-income ratio. Even if you can afford a mortgage with a 40% debt-to-income ratio now, life events like having children can bring that ratio up to and over 50%.

Do your best to map out what the next five years or so will look like and keep an emergency fund for the unexpected.

Plan for the house you can afford today--not what you can afford a few years from now when the raise kicks in.

What Is Your Payment Approach?

Do you want to plan conservatively, moderately or aggressively? The difference can determine the type of home within your ballpark range.

For example, if you make $73,000 a year, have a $40,000 down payment, $350 in monthly debts and want to buy a house in Ridgefield, CT, these are the scenarios to consider:

The conservative approach: no more than 28% of your income goes to housing expenses and 36% goes to debts. House affordability range: $303,000

The moderate approach: no more than 33% of your income goes to housing expenses and 38% goes to debts. House affordability range: $349,000

The aggressive approach: no more than 36% of your income goes to housing expenses and 41% goes to debts. House affordability range: $362,000

The more aggressive the approach, the more budgeting discipline you need.

You also will need better credit, as you will be taking on more debt for a more expensive home. Figure out which works best for you--remember, it's better to err on the safe side rather than be strapped for cash each month.

Check out the realtor.com® affordability calculator to see what spending approach looks like for you in the area of your choice.

What Is Your Preferred Location?

You might not have the means to afford a house in a central location. If that's the case, consider a ZIP code in a neighboring area.

To get a feel for houses in your price range, use our affordability calculator for a nearby area and then check the listings at the bottom of the page.

If you can't find something you like, you can always go down in price or continue to rent until you have the means to afford that dream home.

What Are Other Homeownership Costs?

Home ownership isn't as simple as paying the mortgage. You can be sure other expenses will pop up.

For example, if you can't make at least a 20% down payment, you will need private mortgage insurance. If you have an FHA loan, you will have to budget for premiums.

There's also property tax and home insurance on top of closing costs. Repairs, general maintenance, condo fees, utilities and buying new furniture for your new home also need to be anticipated.

The more thorough your budgeting, the more comfortable you'll be when shopping for a home.

How much home can you afford?

Tips for Creating the Perfect Atmosphere for a Winter Home Sale

To successfully sell your home, you must take advantage of every showing. This can be especially hard in winter when the light is poor and your yard is not looking its best. Luckily there are a few simple things you can do boost your home's charm offensive.

1. Turn up the heat

Impressing buyers in winter means literally turning up the heat. Pop on the heaters at least an hour before potential buyers come round. The warmth will give them a good feeling as they step in from the cold. If you have an open fire, light it. Nothing screams warm and cozy like a beautiful fire.

2. Banish the gloom

Nobody likes dark places. If your property looks good in daylight, try to schedule your viewing when daylight is at its strongest. For evening viewings, switch on the center lights and add table lamps and uplighters to brighten gloomy corners. A few scented candles in strategic places like the bathroom, the living room or the bedroom can add a homely, romantic feel.

3. Clean light sources

No seller should underestimate the power of a good clean. But if you are selling in winter, you need to pay particular attention to your light sources and window dressings -- window glass, curtains, blinds, shades and light bulbs. A dusty light bulb or dirty shade can obstruct as much as half the light, which will make your home look gloomy.

4. Exploit the season

Christmas is just around the corner and with it comes lights, ornaments and the smell of mulled wine! By using these decorations wisely, you can really sell a lifestyle to potential buyers. Remember that you want to create the illusion of space, so don't go overboard. Buyers want to imagine family celebrations in your property, not get trapped between the sofa and a ten-foot Christmas tree.

5. Reduce noise for a soothing atmosphere 

A house is a shelter from the hustle and bustle of everyday life. Would-be buyers want a home that will make them feel comfortable and relaxed, especially in winter, when they are more likely to curl up with a book in front of the fire than kick a ball around the park. Create a soothing atmosphere by limiting the noise. Do not start the washer, dryer or dishwasher before receiving visitors. Turn off the TV. Background music is fine, but  keep it soothing.

6. Pay attention to your outdoor space

A winter garden need not be a neglected garden. Keep it tidy by deadheading old flowers, raking leaves and mowing your lawn. Consider planting some evergreen or winter flowering shrubs to add a splash of color to a yard or patio. A fire pit or patio heater is a great way to open up you outdoor pace if you are still getting some last-minute winter sun.

If you make your property as welcoming as possible, you will stand the best chance of selling your property during the quieter winter season. Good luck!