With Prices on the Rise, are Homes Still Affordable?

I just finished preparing April’s sales statistics for Cambrian. There is so much conversation about home affordability and growing rent prices, that it made me wonder: How affordable are homes today, compared to several years ago?

According to the National Association of Home Builders (NAHB), the average American homeowner remains in their home for 12 years.  I looked back to 2003 to see how statistically prices compare then to now

January, 2003:

Average fixed interest rate was 6%, assuming 20% down and a 30 year fixed-rate mortgage

Home prices, for a single family home, in San Jose was about $500,000

Average payment: $2400

The first payment broke out like this: (approximately)

$2000 interest

$  400 principal (equity)

$  500 property tax

$     85 insurance

Potential tax savings first month $2500

The average rent in San Jose for a 3 bed 2 bath single family home was $1825

1^st  quarter 2015:

Average fixed interest rate was 3.75% assuming 20% down and a 30 year mortgage, 740+ credit score

Median price for a single family home in the Cambrian area was $874,000 during 1st quarter 2015

Average payment: $3242

The first payment broke out like this: (approximately)

$2188 interest

$1054 principal (equity)

$  911 property tax

$  150 insurance

Potential tax savings first month $3099

The average rent in the Cambrian area of San Jose for a 3 bed 2 bath single family home is $3300

Analysis:

In 2003, the mortgage payment far outweighed a rental payment. Today a rent rate is higher than a mortgage payment with similar terms. 

Here is a shocking realization: In 2003, about 16% of the first payment went toward equity. In 2015, it is double!! Today, the first payment is made up of more than 32% principal (equity). You are putting much more money into your pocket and your tax savings is not much less than today’s rent payment. That means that truly, you are flushing money down the toilet each month a rent check is written.

Down payment is often the biggest obstacle many see as in the way for home ownership. It was for my husband and I when we purchased in 1992. We scraped to put 5% down as a newly married couple. Our purchase price of $201,000 has increased steadily, on average, since. There are many programs available for buyers with less than 20% down, and mortgage rates are still very affordable. Talk to one or more lenders to gather information about the options available and how they can fit into with your goals.

If you are a homeowner of 12 years, you may have amassed a large amount of equity. Perhaps it is time to move up; if you, or your spouse, are over 55, proposition 60 could come into effect and maybe able to move your current tax base.  http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm

Everyone’s circumstances are different, but investing your money in a home, rather than giving it to a landlord, maybe a goal with fewer obstacles and higher return than you may have anticipated

Change Can Be Good

 

Change is often viewed with trepidation and pessimism. The same is often said about our government; but, every once in a while, change is good.  And, when it is initiated by our government, it is shocking!

 

Today, the FHA, a governmental entity, announced that, effective January 26^th of this year, they will be lowering the monthly fee for Private Mortgage Insurance (PMI). http://20somethingfinance.com/what-is-private-mortgage-insurance-pmi/

 

When the banking crisis hit, part of the government response was to raise the fees associated with providing this loan. An FHA loan is characterized by a lower rate down payment than a conventional loan.  But, as with all things, you have to give a little to get a little. The government gives these loans, but their fees are a higher than most loans that require PMI. 

 

A typical FHA loan has a 1.75% upfront fee, paid at the time of close, on its loan (it can be wrapped into the loan).  In addition, this loan has PMI. When the banking crisis hit, the default rate on FHA loans rose dramatically and losses had to be recouped. The monthly PMI rate rose to 1.35% of your monthly payment, deemed necessary to insure the risk involved in lending on this program. 

 

But, here comes the good news:  Beginning January 26^th, the monthly rate is dropping from 1.35% to 0.85%. That can add up to significant savings over the life of the loan!! The reason?  Actuarial tables show that borrowers are defaulting less, making the need to collect insurance less expensive, simply put. The tables are reexamined on a regular basis, but today’s announcement is welcome news. http://www.housingwire.com/articles/32533-its-official-obama-to-direct-fha-to-cut-mortgage-insurance-premiums

 

Here is a tool to roughly help you understand a payment for a loan financed by an FHA loan: http://www.fha.com/calculator_payments  Of course, everyone’s situation, rates, and process to qualify will vary depending on individual circumstances, but this can be a starting point. 

 

Not only does this make qualifying less expensive, it also allows more borrowers to qualify.  In addition, interest rates still remain at historic lows.  An FHA loan might be as low as 3.75%, depending on your individual situation.  Seek information from an experienced FHA lender.  I work with Camille DuPuis: 

Camille DuPuis Princeton Capital 1096 Blossom Hill Road Suite 200 San Jose, CA 95123 408-445-5179 camilledupuis@princetoncap.com

 

I am experienced in, and enjoy, working with first time buyers, whether you are financing with an FHA, or conventional loan.  I am in the field every day, viewing properties as they come on the market.   I speak to listing agents and sellers, gathering information to help my clients gain an advantage in this current competitive market.  If you feel you would benefit from my services, give me a call!

Something Old, Something New...Opportunity and Favorite of the Week

Happy New Year!

While in pursuit of my goal to view new listings as they come on the market in Almaden, Cambrian and Willow Glen, I decided it would be appropriate to share what are, in my opinion, the "Opportunity" and "Favorite" properties of the week. 

1660 Campbell
 

The "Opportunity" is 1660 Campbell Avenue in San Jose.  This is a very wide street in an equally prestigious neighborhood.  This home sits among homes, most of which are well over 2 million, some 3.  At $1,699,000., it is a bargain (I know...not in my budget, either).  The buyer will do a major remodel and create a beautiful home fitting for the neighborhood.

My "Favorite" is 1523 Hicks.  I love new construction.  New, clean, umblemished.  This has lots of space, very quiet inside  Lots of natural light and an open floor plan.  Walk to Lincoln Avenue. 

As my intro mentioned, I am out in the field on a daily basis, looking at new listings as they come on the market ~ everything in Almaden, Cambrian and Willow Glen (well, I did skip 14551 Bercaw in Cambrian just before Christmas.  The listing indicated the home was in bad shape and 'smelled worse'.)

I talk to the listing agent, the owner, maybe even the neighbors to understand the property and seller motivation better.  I communicate this information to my best, most motivated buyers.  Information is power.  Power will give us the advantage over other, less prepared buyers and agents. 

Talking to agents also helps me build relationships.  If one of my buyers is really interested in a pending property, I will keep in contact with the listing agent in case it falls out of contract.  We may be able to make a compelling offer without dealing with the rest of the competition because the listing agent knows a qualified buyer is ready, willing and able.  Able to buy, able to save the seller some heartache.

I also find out about 'not yet on the market' properties through other agents...some sellers, for personal or professional reasons, may prefer to not put their property on the MLS which does lessen the aggravation of competition.

Knowing many of my colleagues also lets me campaign my upcoming listings in advance of the market date on the MLS.  Creates additional interest in the property, which drives viewings, offers and a successful sale...

If you are a serious, committed buyer who wants to enjoy the competitive advantages I have talked about, please let me know.  I would love to meet and talk to you, determine how we can best work together.  Maybe you will want to look at one of my "Opportunity" or "Favorite" properties.

First, welcome to my blog. While real estate minded and driven, I hope to entertain and enlighten you regarding South Bay real estate and my adventures. You will learn I am not short on opinions; while I don’t always express them; I try to exercise discretion, but do have them!

About me (if we are going to work together, I will get to know you, so you might as well get the first jump and decide whether you want to work with me). I am a wife, mother, an avid sports fan and consider it a privilege to live where we do. And, “mom” to a 23 pound cockapoo, Willie McCovey; can you see where some of my passions lie? J

I met my husband, Phil, over 25 years ago, June, 1989. He was the best man in my sister’s wedding on the Peninsula. I lived in Seattle at the time, so was just in for the weekend.  My now brother in law introduced him to all the single gals per my now mother in law’s request, except me. I was “geographically undesirable”.  We will be married 24 years this coming April. And, we were married during a Giants-Dodgers series weekend. The Giants won, and my mother in law said it was a good sign (we are not new to this baseball thing, and live it passionately).

Our greatest pride and joy are our boys, Andrew and Alex. Andrew is 21, Alex, 18; junior and freshman in college.  Becoming a Mom was not an easy road, so maybe it makes me more protective, proud and passionate, or not. But, they are our single greatest achievement, after being married since 1991. Having “the best” for them on the “big” things is highly important to us. Maybe not in shoes and electronics, but the things that matter for life. For us, that is education. 

We all have our goals and opinions about “best”. That is not part of this discussion; but those goals come with choices, based on needs and values. For us, when choosing our house in 1991 which school district to live in was not of highest importance, which is very unusual in today’s world. It was about what we could afford because we planned on, and were fortunate enough to be able to send them to, Catholic school (you just learned something else about me!). We prescribe to educating the “whole person” (the Jesuit philosophy). It was more than school scores, but also about imparting the understanding of an importance of being a part of the world and preparing to be a contributing citizen.  This philosophy is not limited to the Jesuits and is achievable in many ways, through many communities, churches, etc. It was the path we chose and were committed to it.  

We selected a smaller home in the Cambrian area which allowed us to send ours to St Chris, Bellarmine and now Santa Clara (because of some amazing academic scholarships tied to a Jesuit high school education, not unlimited funds).  It was a diamond in the rough; ugly exterior color, front yard weeds up to here, but we could get a conforming loan ($201,000 was the limit in fall, 1991), so was a winner to us. But, whatever your desire, goal, path or philosophy, I think the most important thing is that you stay true to those and are honored, respected and supported in them. As a real estate agent, I feel it is very important that I determine, recognize and support your needs and path. It is not that we have to share the same goals, but that yours are supported. After all, it is you buying the home, making the mortgage payment, not me!

For now, I am off to get a new head shot done. My photo and contact info will soon be popping up at the Branham and Ross Safeway, on that new display with the antibacterial wipes for the shopping cart!  Yep, that’ll be me staring right back each time you work to wipe those germs away!

In the meantime ~ Happy New Year! I will be avidly watching the Rose Bowl!

As my ongoing commitment to being your real estate resource in the South Bay, here are the homes new to the market in Cambrian, Almaden and Willow Glen last week.  You will see a column indicating which ones I have also viewed in person.  I would welcome meeting you, showing any of these homes to you, and providing any of my market statistics regarding sale to price ratios TY v LY, number of homes on the market, etc.  Let’s meet and I would love to share!