Tuesday, March 20, 2018

Income Doesn't Determine Whether People Buy Homes, for Now

There is much conversation in the media and around the water cooler about the impact of the recently enacted tax reform on housing markets. The doubling of the standard deduction, the limits on state and local tax deductions, and the cap on mortgage interest deductions all reduce the financial incentive for homeownership.

What’s important to remember is that while money is important, the decision to buy has more to do with a household’s stage of life. It’s never just about the dollars and cents – although the hot housing market has made income a bigger factor, when it comes to down payments, than it used to be.

A new analysis of homeownership rates demonstrate that point: In general, married or partnered households have higher homeownership rates than households headed by single people. Similarly, older households tend to have higher homeownership rates than younger ones.

You may think it’s because older adults often have higher incomes, because they’ve spent longer working, or because married couples tend to make more, because their households often have two earners. While those assumptions about the greater earning power of older adults and couples are true, income doesn’t significantly impact homeownership rates within any subgroup except couples under the age of 35.

For example, older couples with dual incomes take in around $44,000 more in household income than older couples with only one earner, but having a second earner increases their national homeownership rate by only one percentage point to 82 percent. Similarly, adding an additional earner to your household as a young single, whether that person is a relative or a roommate, jumps the household’s median income by about $39,000 but drops the homeownership rate by a single percentage point to 19 percent. Similarly, adding a second earner to a partnered couple over age 35 increases median income by $44,000 but homeownership by only 0.4 percentage points to 81.7 percent.

For married or partnered couples under 35, the story is different: For that group, an extra earner means a nearly $33,000 increase in median annual income and a 13 percentage point boost in the homeownership rate to 49.8 percent.

The down payment hurdle

One way income has started to affect the homeownership rate during this century involves down payments, which are much easier to save with more money flowing into the bank.

We looked at down payments two ways: One was to suppose everyone was aiming to save for the current median valued home, rather than the most expensive home they could afford.

Using rough back-of-the-envelope math, the number of years it would take to put 20 percent down by saving 10 percent of their current household income each year varies substantially by household type.

Single earners would take more than 12 years, while partners with one income would take six to 8.5 years, and partners with two incomes would take 3.6 to 4.9 years.

There’s a clear distinction in homeownership among most of the life stage groups, indicating that people at different stages of life value homeownership differently. But the income factor within those groups makes little difference. Why? From this angle, whether people buy a home or rent is dominated by life stages – but what they can afford and save for is determined by income.

Another way to look at down payments is to consider what it looks like when incomes do not keep up with home values – and, in this case, we find that incomes have made a difference in homeownership rates over time.

Let’s suppose the typical household aims to buy the most expensive house it can afford on a monthly basis[1]. Assuming they save 10 percent of their household income every year (and home values and incomes don’t change), it would take households of all types more than ten years to build up enough for a 20 percent down payment.

In 2000, by the same back-of-the-envelope math, it would have taken only seven years.

This is one reason the overall homeownership rate dropped to 63.6 percent in 2016, the most recent year for which data are available for our breakouts, from 66.2 percent in 2000. For partnered households, the rate dropped 3.3 percentage points in that time to 74.5 percent. For single households, it fell 2.1 percentage points to 50.1 percent.

Age is a major factor here: The reduction in homeownership rates is pronounced for young partnered couples with dual incomes (down 8.7 percentage points to 49.8 percent), and even more severe for young partnered households with only one income (down 12.3 percentage points to 36.8 percent). Incomes for young partnered households with one person working haven’t made up for home value gains: Between 2000 and 2016, median income for young partnered households with one person working increased by only 20.4 percent, well below the almost 53 percent increase in median income for partnered households in general.

People will continue to break into the market when and how they can by buying cheaper homes, homes farther out, smaller homes—whatever is feasible. The rub is that as U.S. housing markets continue to burn hot, the feasible options become harder to find for more of us.

[1] We estimated the maximum home price such that basic homeowners’ expenses do not exceed 30 percent of median household income. Median household income was drawn from the 2016 American Community Survey micro-data provided by IPUMS-USA, University of Minnesota, www.ipums.org. Homeowner expenses include the mortgage payment on a 30-year fixed-rate loan at prevailing mortgage rates with 20 percent down, property taxes at 1 percent of home value a year, assumed maintenance costs of 0.5 percent, and assumed homeowner’s insurance at 0.5 percent.

Article Source: https://www.zillow.com/research/income-not-determine-homeownership-18828/

Saturday, March 17, 2018

How to Save for a House in 10 Simple Steps

(Photo: Michael Dwyer, AP)

The housing market has rebounded sharply from its lows a few years ago. And with the job market improving and interest rates still relatively low by historical standards, many Americans are thinking seriously about buying a home right now.

The easy-money days of mortgage lending are long gone, however, and many banks are requiring bigger down payments.

Consider the median home price in America right now is $212,400. At just 5% down, that means you need more than $10,000 at closing for a typical home — and depending on the lender, your credit and local real estate market, you could need much more than that.

If you want to buy a house in the near future, that means building up some serious savings. Here are 10 simple steps to help you do just that:

•Create a monthly budget. You build savings by spending less than you earn. Therefore, any financial goals begin and end with your monthly family budget. It's important to be both honest and realistic about your spending habits out of the gate, and then stick with your fixed plan as much as possible. Electronic bill pay is a great tool here, because then your payments take care of themselves. Another option is to print out a list of your monthly expenses and check them off — both to make sure they get paid, but also to have the satisfaction of knowing you are on track.

•Quarantine your savings. Many people have trouble saving money because they simply see a lot of zeros in their bank account and assume that they are comfortably on track when they are not — or that they have wiggle room to spend. The simplest way to avoid this is to create a dedicated bank account just for your housing fund, and then quarantine it from any spending. You'll still have your regular checking account and debit cards to pay the rent or the cable bill, but that special savings account is off-limits no matter what.

•Make savings automatic. Once you have a dedicated savings account, tell your payroll department that you want a fixed amount sent there every payday via direct deposit and the balance sent to your checking account as usual. The savings will happen regularly this way, and you won't even notice as long as you've built a good family budget. The idea, as personal finance gurus like to say, is to pay yourself first so there's no excuses.

•Save 100% of any windfalls. Getting a $3,000 tax refund or a nice year-end bonus? While it's tempting to splurge a little even as you save a little, building up a down payment requires a lot of restraint. That applies both to your day-to-day expenses, as well as one-time infusions of cash. After all, if you've built a good budget, then you don't really "need" any of that money … so it's perfect for saving.

•Save in big chunks. Sure, you can save a few bucks each week by eating store-brand peanut butter instead of Jif. But you can make the biggest impact by cutting out the biggest expenses. Skipping your annual beach vacation won't be easy, and that rusty old car with the broken mirror may be a bit embarrassing to drive for another year … but snatching big bills where you can instead of pinching pennies is an effective way to build up savings quickly.

•Downsize before you upsize. Moving to a one-bedroom apartment from a two-bedroom apartment can drop your rent by 20% to 30% in most areas. If you don't have kids, it may be a smart move to live small before you move into your new home and then reallocate the unused rent into your housing fund. And an added bonus is that a smaller place will mean fewer boxes to move once you finally do find your dream home.

•Work more. Spending less is the obvious way to save, but working more and bringing home more money is also a great way to supercharge your savings. If you are eligible for overtime or additional work, take every opportunity that comes your way. And if you're not, consider taking a second job on the side even if it's only a few days or a few projects each month.

•Save less for retirement. If you have a 401(k) match, it's still a good idea to save enough in order to qualify for that employer-sponsored contribution. But typically, matches stop at 6%, so saving for a house may mean capping your retirement contributions there and instead allocating the additional cash toward your down payment. Remember, a house is also an asset … so you are simply saving for the future in a different way. Another option for first-time home buyers is to actually use retirement savings in your IRA to fund the purchase. In many cases, you can withdraw $10,000 without penalties from your retirement fund to help fund your home purchase.

•Ask for support. Much like going on a diet, staying on a strict savings plan is much easier with the support of the people around you. If your buddies are always inviting you to happy hour or your sister-in-law invites you shopping each weekend, the temptation and stress are going to be an issue. Make sure your friends and family know how your behavior is changing so they can meet you halfway.

•Don't punish yourself. The math of saving for a house may be straightforward, but the emotions of saving are very complex. If saving feels painful or frustrating every single day, you're much less likely to be successful at it. So, rather than let the frustration build up after you deny yourself every discretionary expense, take comfort in a simple pleasure once in a while. Cut down on eating out, but consider cooking a fancy dinner once a week at home with premium ingredients. Cut down on going to movies, but perhaps subscribe to Netflix instead. The idea is to save money, not to spend zero, and you will find it much easier to save if you're actually enjoying your life while doing so.

Article Source: https://www.usatoday.com/story/money/personalfinance/2014/09/14/home-mortgage-save-budget/15466845/

Wednesday, March 14, 2018

11 Ways To Raise Your Credit Score, Fast

A recent survey from the National Foundation for Credit Counseling indicates that more people would be embarrassed to admit their credit scores (30%) than their weight (12%).

While crash diets don’t usually work and can be unhealthy, it is possible to change your credit score fairly quickly. But just as with weight loss, “quickly” is a relative term. Seeing any improvement could take 30 to 60 days, according to Liz Weston, personal finance columnist and author of Your Credit Score, Your Money & What’s At Stake.

But nothing will change at all if you just sit there on the couch, eating Cheetos and charging items on the Home Shopping Network. So get moving!

The first thing to do is get a copy of your credit report from AnnualCreditReport.com. The three major credit reporting bureaus must give you one free copy per year, so plan to order one every four months.

Then use one or more of the following tips to boost that three-digit number that has increasing power over our everyday lives.

1. Dispute errors. Mistakes happen. You can dispute errors online through Equifax, Experian and TransUnion. After you’ve fixed any foul-ups, you might try to…

2. Negotiate. You can’t deny that you stopped paying a credit card bill when you were unemployed last year. But you can ask creditors to “erase” that debt or any account that went to collection. Write a letter offering to pay the remaining balance if the creditor will then report the account as “paid as agreed” or maybe even remove it altogether. (Note: Get the creditor to agree in writing before you make the payment.)

You might also be able to ask for a “good-will adjustment.” Suppose you were a pretty good Visa V -0.5% customer until that period of unemployment, when you made a late payment or two – which now show up on your credit report. Write a letter to Visa emphasizing your previous good history and ask that the oopsies be removed from the credit report. It could happen. And as long as you’re reading the report, you need to…

3. Check your limits. Make sure your reported credit limits are current vs. lower than they actually are. You don’t want it to look as though you’re maxing out the plastic each month. If the card issuer forgot to mention your newly bumped-up credit limit, request that this be done.

4. Get a credit card. Having one or two pieces of plastic will do good things to your score – if you don’t charge too much and if you pay your bills on time. In other words, be a responsible user of credit.

Can’t get a traditional card? Try for a secured credit card, taking care to choose one that reports to all three major credit bureaus. And if you can’t get a secured card, you might ask to…

5. Become an authorized user. This means convincing a relative or friend to be added to his or her existing credit card account. If you’ve had a checkered financial history, don’t be surprised if you hear the word “no” a lot. But you might luck out, especially if you’re a young person who has no history of poor credit use.

Offer to put an agreement in writing stating how much you can spend and how you will get your share of the bill to the cardholder. Then “do your part and use the card responsibly,” says Beverly Harzog, author of Confessions of a Credit Junkie. In other words, don’t buy more than you can afford and don’t leave your co-signer hanging when the bill is due. The point is to learn to use credit responsibly.

6. Under-use your cards. Yes, we did just tell you to get credit by any means possible. But don’t whip out the plastic to pay for everything. The “credit utilization ratio” should be no more than 30% and ideally even less. Harzog says that a 10% credit utilization ratio will “maximize this part of your FICO score.”

For example, suppose your Mastercard has a $1,500 limit and you routinely charge a grand a month. It doesn’t matter if you pay it all off before it’s due. What matters is the credit bureaus think “Curtis is using two-thirds of his credit! What a spendthrift!” And if you’re a cash-free kind of guy? Then try to…

7. Raise your credit limit. Ask your creditors to increase your limit, i.e. making that Mastercard good for up to $3,000. Be careful with this one, though: It works only if you can trust yourself not to increase your spending habits accordingly. Otherwise you’ll be right back to using 66% of your credit each month and how will that look?

Article Source: https://www.forbes.com/sites/moneybuilder/2014/05/02/11-ways-to-raise-your-credit-score-fast/#229e5a194bd7

Thursday, March 8, 2018

A Guide for First-Time Home Buyers

The biggest purchase you will ever make is buying a home and before you jump into home ownership, you have to make sure you are prepared. CBS MoneyWatch reporter Jill Harding joins CBSN to discuss what to consider when purchasing a home.

Monday, March 5, 2018

Your Next Home Could Be Made of Bacteria

Home construction is changing. Buildings of the future may be made with naturally grown materials and designed to withstand dramatic weather events like floods.

Friday, March 2, 2018

Ready, Set, Rec!

Recreation Manager Reggie Hubbard tells us about some of the fun activities taking place for everyone in the City of Vacaville, from kids to adults and seniors!