Monthly Archives: June 2016

This Housing Bubble Is Set to Pop

For generations, it was always a good bet to invest in a place Americans call home. Housing had almost always increased in value, and you received a multiple of whatever you invested into it in your total return.

Until 2008 that is.

That’s when home prices tanked and our economy entered a recession, leaving people like you and me holding the proverbial paper bag when it comes to overpriced and overleveraged mortgages.

Since then, the root cause of the housing bubble has remained in place – easy-money policies by the Federal Reserve to fuel lending. It has led to another housing bubble.

One that is set to burst sooner than most are anticipating.

Since 2009, the Fed has pinned interest rates near zero in an attempt to prop up our aging, lackluster economy.

With a sub-2% GDP growth rate, it’s hard to believe that this has been a success.

But the easy-money policies have propped up aspects of the market, just not in the pockets of the everyday American. Instead, it has bloated the pockets of Wall Street and investors.

Had someone told you in 2006, 2007 or even most of 2008 to sell your home, you likely would have ignored them. Not many people on Main Street noticed the lending practices going on behind the scenes and understood the extent of the bubble that was in place.

But hindsight is always 20/20.

The problem now is spotting similar bubbles going forward.

I’ll be the first to say that timing the week, month or even year that a bubble will pop is extremely difficult. But that doesn’t mean you can’t notice when that day is near, and for housing it may be just around the corner.

The Truth About the Housing Bubble

There is a substantial divergence as we approach 2015. Prices have climbed about 50% since 2000 and rebounded strongly from the bottom in 2010 to 2011. But existing home sales – the amount of homes actually sold – have lagged and are up just 5% since 2000.

Median prices have topped their bubbled peaks set in 2005, but this time, the amount of homes sold is 30% less.

That means we are seeing prices set new highs as fewer buyers are in the market.

The rationale is that housing currently has a tight supply, meaning there aren’t enough homes to meet the amount of potential buyers. That may be the case to some extent. But right now, homes that are either in foreclosure, bank-owned or completely vacant are near all-time highs.

Clearly there is more going on here than just a lack of supply. The reality is that many buyers are investors, buying properties and sitting on them. This crimps supply, which helps raise prices.

Back in 2008, you could have heard the same story. The goal was to flip houses, or own a few of them to rent out. We are seeing these actions roaring back today.

And if supply was so tight, buyers would simply build new homes, but those numbers are no better than the existing home sales.

There’s a big discrepancy from new homes sold versus the price these homes are fetching – and this is supply that is practically infinite as we can always build a new home.

Something’s got to give, and it’s going to happen soon.

Fed-Fueled Crash

I see one of two scenarios at play. Which one do you think will ring true?

  • Homebuyers continue to fork over more dollars to buy properties while we sit with stagnant wage growth, stagnant economic growth and low-wage jobs being about all that’s created.
  • We are on the edge of a bubble larger than the one we experienced less than a decade ago as housing prices race back down to where it is affordable and sees demand from new buyers.

The Federal Reserve is held accountable for this fiasco. If it goes forward with a rate increase in the near future, it will be us who pay the price of another bubble.

There’s only one action to take if you ask me – lower your exposure to the industry.

In stocks, that’s homebuilders and mortgage originators. Avoid them at all costs. In your personal investments, that’s being prepared for another real estate shock.

These prices are unsustainable and due for a correction.

Once that happens, opportunity awaits you to pick up houses and housing-related stocks on the cheap.

Article Source: http://EzineArticles.com/expert/Chad_Shoop/1964189

House Valuation – Its Importance and How It Is Done

house-valuation-1

Independent house valuation is one method which is being adopted by those who are willing to buy or sell a house. This is one method, which gives them a clear and comprehensive idea about the value of the property with regards to the market rate. Most of the people are not aware about the technicalities that go in when it comes to house value assessment; however, most of them know that is an important thing to do while buying or selling a property. When it comes to know the value of properties, there are numerous aspects which need to be considered. In the following sections, an insight will be presented on house valuation.

Income Method – What is it?

This is one method which is used for the property valuation. Here the total worth of a property is being estimated based on the revenue potential. The income which is calculated can either be generated as rental income or from re-selling the property. This is quite a complicated method; however, it is quite frequently being used by the investors when they are to fix a value on a property or when it comes to assessing the profitability of their investment in the days to come.

Certain assumptions need to be made and one needs to rely on them in order to come to an accurate conclusion using the income method. Here are the assumptions that are required to be made:

• Property Resale Value: This includes assuming the value which the property is likely to yield if it is being resold. Various factors need to be taken into consideration while assessing the resale value of a property.

• Income which is likely to be generated from Rent: This is another area which needs to be assessed. As mentioned, income from rent plays an important role while using the income method for property valuation.

How a Property’s Value is being calculated?

In order to get a better idea about the Independent house valuation, there are various assumptions and considerations which are needed to be made. This type of valuation comes into the picture when the generated income is set against the invested capital in order to find out how much profit can be generated by re-selling the property. One very common method which is being used to estimate the profit which is likely to be generated is by comparing the value of the property in question with the same type of capital expenditure or investment of similar nature.

Calculating the risk factors are perhaps the most difficult thing to do when it comes to ascertaining the value of a property. Though some sort of idea can be gained by having a look at the past market trends; however, it is very difficult to predict the nature of the property market in the days to come. Hence, it is wise to take the help of the valuation experts to know the actual worth of your property.

Before buying a property, selling it, hiring a property or giving out your property for rent, get it evaluated perfectly. For this one of the best companies you can find is Valuations.

Article Source: http://EzineArticles.com/expert/Chris_K._Ward/2091020

Rent or Buy? Which Option Makes Sense for You?

If you are the individual who is weighing the option of buying or renting a house, you need to consider a few factors. Your financial situation has to be assessed for your long-term planning and that it is not that simple as well.

Understanding your house budget and expenses

It is wise to review your household budget in comparison to the expenses before you begin looking for a new house. You have to find out how much can you afford to pay for accommodation without putting a burden on the budget.

You simply cannot go for rent or mortgage payments if you are unable to pay them on time. Several factors are involved both for renting or buying that should be considered prior to making a decision.

What are the requirements while renting or buying a house?

Your credit history and credit score are crucial and that they will be looked upon by the rental agency or the landlords for the mortgage or rent. You will be checked whether you are can pay the bills on time and are not overdue with the loans or the credit card balances. You have to check your score and credit history before applying for the apartment or the mortgage.

Other factors that are important include your strong employment history, W-2 forms and current bank statements that have to depict a good picture. A few rental agencies require professional or personal references as well as background check and contact information from the previous landlord respectively.

When is renting a viable option?

If you have uncertain employment: According to Evelyn Zohlen (financial planner), if you are unsure about your living paycheck and job situation, it is best to save money for the future living expenses. This will help you to build an emergency fund for you as well.

Limited funds: Renting is the better alternative when you do not have enough money for making the down payment or for managing the additional costs of owning the house.

Short time frame: If you have an assignment that lasts two years or you plan to move abroad in a couple of years, then renting a house is a better option.

When is purchasing a house a feasible option?

Buying a house only makes sense when you have the ability to cover the additional costs for owning a house. It is vital that you pay the closing costs and the down payment before you buy a house. It is seen that many banks receive a 20 percent down payment. This means for a house that costs 250,000 dollars, at 20 percent the down payment will be 50,000 dollars. So, the total amount includes percent in commission and another one percent in closing cost as well.

But if you have much debt, you should not put your savings for the down payment at all. It will be better to pay off the entire debt first until you get a better financial position for yourself. If there is no debt, then you need to work out the buying or renting options in detail.

Article Source: http://EzineArticles.com/expert/Aleena_Afzal/1504604