A recent Survey of Consumer Finances study released by the Federal Reserve reveals the net worth of homeowners is forty times greater than that of renters. If you’re wondering if homeownership is a good investment, the study clearly answers that question, and the answer is yes.

Do Americans believe a home is a better investment than stocks?

In a post on the Liberty Street Economics blog, the Federal Reserve Bank of New York notes that 93.3% of Americans believe buying a home is definitely or probably a better investment than buying stocks.

Here’s how the results break down:The survey also shows a wide range of reasons why Americans feel that way (respondents were able to pick more than one answer):

Bottom Line

The data show how strongly Americans believe in homeownership as an investment. That belief is warranted. The Liberty Street Economics blog put it best by saying:

“Housing represents the largest asset owned by most households and is a major means of wealth accumulation, particularly for the middle class.”

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Over the past year, we’ve had plenty of opportunities to reflect on what we consider most important in our lives. The place we call home is one of the biggest things many of us are reevaluating. George Ratiu, Senior Economist at realtor.com, shares:

“The very nature of the pandemic, through the health implications, social distancing, and need to isolate, has really brought a central focus on the importance of home for most Americans…In a sense, it has elevated real estate markets as a centerpiece of our lives.”

For some, this has spurred an interest in making a move to a home that better suits our changing needs. In a recent study on today’s homebuyer preferences, the National Association of Home Builders (NAHB) states:

“When asked more specifically how the pandemic may have impacted their preference for home size…21% or about 1 out of every 5 buyers, do want a larger home now as a direct result of the health crisis, while another segment – 12% – would prefer a smaller one instead.”

While you might expect more time at home to lead to a need for more space, it’s interesting that a significant portion of homeowners actually want less. For those who own larger homes right now and have a desire to move, today’s housing market is full of opportunities. Danielle Hale, Chief Economist at realtor.com, explains:

“In a real estate market that is tipped in the favor of sellers, boomers and older homeowners are really the ones holding the cards…Those who are selling homes can use the profits to help them buy new ones.”

As a homeowner today, you likely have equity that can be put toward the purchase of your next home. With the equity growth homes have seen over the past year, you may have more than you think, which can help significantly as you make a move into your next home. According to a report from the National Association of Realtors (NAR):

“Home sellers cited that they sold their homes for a median of $66,000 more than they purchased it. Sellers 22 to 30 years gained the least at $33,400 in equity compared to sellers 66 to 74 years gained $100,000 in equity as they likely had lived in their homes for a longer period of time.”

Despite the benefits of growing home equity, some homeowners are still hesitant to move and could be considering remodeling or making changes to their current space instead. However, if you’ve thought about aging in place rather than downsizing, you may want to reconsider. The U.S. Census Bureau points out:

“Of the nation’s 115 million housing units, only 10% are ready to accommodate older populations.”

If your house is no longer the best fit for your evolving needs, it may be time to put your equity to work for you and downsize to the home you really want.

Bottom Line

Today’s housing market favors homeowners who are ready to sell their houses and make a move. If you’re thinking about downsizing this year, let’s connect to discuss your options in our local market.

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There has been a lot of discussion as to what will happen once the 2.3 million households currently in forbearance no longer have the protection of the program. Some assume there could potentially be millions of foreclosures ready to hit the market. However, there are four reasons that won’t happen.

1. Almost 50% Leave Forbearance Already Caught Up on Payments

According to the Mortgage Bankers Association (MBA), data through March 28 show that 48.9% of homeowners who have already left the program were current on their mortgage payments when they exited.

• 26.6% made their monthly payments during their forbearance period
• 14.7% brought past due payments current
• 7.6% paid off their loan in full

This doesn’t mean that the over two million still in the plan will exit exactly the same way. It does, however, give us some insight into the possibilities.

2. The Banks Don’t Want the Houses Back

Banks have learned lessons from the crash of 2008. Lending institutions don’t want the headaches of managing foreclosed properties. This time, they’re working with homeowners to help them stay in their homes.

As an example, about 50% of all mortgages are backed by the Federal Housing Finance Agency (FHFA). In 2008, the FHFA offered 208,000 homeowners some form of Home Retention Action, which are options offered to a borrower who has the financial ability to enter a workout option and wants to stay in their home. Home retention options include temporary forbearances, repayment plans, loan modifications, or partial loan deferrals. These helped delinquent borrowers stay in their homes. Over the past year, the FHFA has offered that same protection to over one million homeowners.

Today, almost all lending institutions are working with their borrowers. The report from the MBA reveals that of those homeowners who have left forbearance,

• 35.5% have worked out a repayment plan with their lender
• 26.5% were granted a loan deferral where a borrower does not have to pay the lender interest or principal on a loan for an agreed-to period of time
• 9% were given a loan modification

3. There Is No Political Will to Foreclose on These Households

The government also seems determined not to let individuals or families lose their homes. Bloomberg recently reported:

“Mortgage companies could face penalties if they don’t take steps to prevent a deluge of foreclosures that threatens to hit the housing market later this year, a U.S. regulator said. The Consumer Financial Protection Bureau (CFPB) warning is tied to forbearance relief that’s allowed millions of borrowers to delay their mortgage payments due to the pandemic…mortgage servicers should start reaching out to affected homeowners now to advise them on ways they can modify their loans.”

The CFPB is proposing a new set of guidelines to ensure people will be able to retain their homes. Here are the major points in the proposal:

• The proposed rule would provide a special pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after December 31, 2021.
• The proposed rule would permit servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application.
• The proposal rule wants temporary changes to certain required servicer communications to make sure borrowers receive key information about their options at the appropriate time.

A final decision is yet to be made, and some do question whether the CFPB has the power to delay foreclosures. The entire report can be found here: Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X.

4. If All Else Fails, Homeowners Will Sell Their Homes Before a Foreclosure

Homeowners have record levels of equity today. According to the latest CoreLogic Home Equity Report, the average equity of mortgaged homes is currently $204,000. In addition, 38% of homes do not have a mortgage, so the level of equity available to today’s homeowners is significant.

Just like the banks, homeowners learned a lesson from the housing crash too.

“In the same way that grandparents and great grandparents were shaped by the Great Depression, much of the public today remembers the 2006 mortgage meltdown and the foreclosures, unemployment, and bank failures it created. No one with any sense wants to repeat that experience…and it may explain why so much real estate equity remains mortgage-free.”

What does that mean to the forbearance situation? According to Black Knight:

“Just one in ten homeowners in forbearance has less than 10% equity in their home, typically the minimum necessary to be able to sell through traditional real estate channels to avoid foreclosure.”

Bottom Line

The reports of massive foreclosures about to come to the market are highly exaggerated. As Ivy Zelman, Chief Executive Officer of Zelman & Associates with roughly 30 years of experience covering housing and housing-related industries, recently proclaimed:

“The likelihood of us having a foreclosure crisis again is about zero percent.”

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A Fannie Mae survey recently revealed some of the most highly-rated benefits of homeownership, which continue to be key drivers in today’s power-packed housing market. Here are the top four financial benefits of owning a home according to consumer respondents:

• 88% – a better chance of saving for retirement
• 87% – the best investment plan
• 85% – the chance to be better off financially
• 85% – the chance to build up wealth

Additional financial advantages of homeownership included in the survey are having the best overall tax situation and being able to live within your budget.

Does homeownership actually give you a better chance to build wealth?

No one can question a person’s unique feelings about the importance of homeownership. However, it’s fair to ask if the numbers justify homeownership as a financial asset.

Last fall, the Federal Reserve released the Survey of Consumer Finances, a report done every three years, with the latest edition covering through 2019. Their findings confirmed that homeownership is a clear financial benefit. The survey found that homeowners have forty times higher net worth than renters ($255,000 for homeowners compared to $6,300 for renters).

The difference in net worth between homeowners and renters has continued to grow. Here’s a graph showing the results of the last four Fed surveys:The above graph only includes data through 2019, but according to CoreLogic, the equity held by homeowners grew by $26,300 over the last twelve months alone. That means the gap between the net worth of homeowners and renters has probably widened even further over the last year.

Some might argue the difference in net worth may be due to homeowners normally having larger incomes than renters and therefore the ability to save more money. However, a study by First American shows homeowners have greater net worth than renters regardless of their income level. Here are the findings:Others may think homeowners are older and that’s why they have a greater net worth. However, a Joint Center for Housing Studies of Harvard University report on homeowners and renters over the age of 65 reveals:

“The ability to build equity puts homeowners far ahead of renters in terms of household wealth…the median owner age 65 and over had home equity of $143,500 and net wealth of $319,200. By comparison, the net wealth of the same-age renter was just $6,700.”

Homeowners 65 and older have 47.6 times greater net worth than renters.

Bottom Line

The idea of homeownership as a direct way to build your net worth has met the test of time. Let’s connect if you’re ready to take steps toward becoming a homeowner.

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Last Friday, the Bureau of Labor Statistics released a very encouraging jobs report. The economy gained 916,000 jobs in March – well above expert projections of 650,000 to 675,000. The unemployment rate fell again and is now at 6%.

What does this mean for you?

Our lives are deeply impacted by our nation’s economy. The better the economy is doing overall, the better most individuals in the country will do as well. Here’s a look at what four experts told the Wall Street Journal after reviewing last week’s report.

Michael Feroli, JPMorgan Chase:

“The powerful tailwind of the reopening of economic activity appears to be gathering force; while the level of employment last month was still 8.4 million positions below that which prevailed before the pandemic, it is reasonable to expect that a majority of those lost jobs will be recouped in coming months.”

Mike Fratantoni, Mortgage Bankers Association:

“We fully expect that this pace of job gains will continue for months, and anticipate that the unemployment rate, now at 6%, will be well below 5% by the end of the year.”

Paul Ashworth, Capital Economics:

“With the vaccination program likely to reach critical mass within the next couple of months and the next round of fiscal stimulus providing a big boost, there is finally real light at the end of the tunnel.”

Jason Schenker, Prestige Economics:

“People are getting back to work and the vaccine isn’t just inoculating the population, it’s clearly inoculating the economy.”

What does this mean for residential real estate?

Today, the biggest challenge for homebuyers is the lack of homes currently for sale. With listing inventory down 52% from a year ago, bidding wars are skyrocketing. As a result, home prices are climbing.

One answer to this challenge is to build more homes to satisfy the demand. The latest jobs report gives hope for new housing construction, and therefore brings hope to buyers as well. Here’s what three industry economists said about the increase in construction jobs revealed in the report:

Lawrence Yun, Chief Economist, National Association of Realtors:

“Construction jobs boomed in March, one of the largest monthly gains ever. This raises the prospect for more home building and more inventory reaching the market in the upcoming months. The housing market has been hot with fast rising home prices but has been constrained by a lack of supply. By hiring more workers and building more homes, home prices will move to a manageable level to give more Americans a shot at ownership.”

Odeta Kushi, Deputy Chief Economist, First American:

“Great jobs report for a housing market in an inventory crisis. Residential construction building jobs increased 3.9% from pre-2020 recession peak in Feb. 2020. The construction industry remains a labor-intensive industry. We need more hammers at work to build more homes.”

Robert Dietz, Chief Economist, National Association of Home Builders:

“Good job numbers in March for residential construction. 37,000 gain from Feb to March. 3.03 million total employment for home builders and remodelers, and up 49,100 from Jan 2020.”

Bottom Line

An improving economy with a falling unemployment rate will benefit households across the country, as well as the overall housing market.

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