Fred Gregory CRS, Broker/Owner DRE Lic.#00899603

New Study Shows Buying A Home Is Now Better Than Renting A Home

We are in the "perfect storm" for real estate. The combination of low real estate prices and low interest rates make this the best buying opportunity in many years.

This was verified in a paper to be published in Real Estate Economics. The paper is titled Lessons from Over 30 Years of Buy versus Rent Decisions: Is the American Dream Always Wise? The paper is authored by Eli Beracha of East Carolina University and Ken H. Johnson of Florida International University.

The following are quotes from the paper:

"Two major findings evolve from the analysis. First, individuals, on average, were better off in economic terms to have rented for most of the years in the study period. This first result is strongly dependent upon fiscally disciplined individuals that, without fail, reinvest any residual savings from renting. Second, fundamental drivers now appear to be in place that favor homeownership over renting in the near term future."

"The second finding might seem unwise to many given the recent crash in the real estate markets around the country. However, rent-to-price ratios now seem to be in place along with other fundamental drivers that favor ownership over renting in the near term future. Sections on a review of the extant literature, proposed hypothesis, data, methodology, results, and concluding remarks follow in order."

"Ownership is virtually universally viewed as being the superior choice when whether to buy or rent residential property is being decided. Evidence suggests that ownership increases preferable societal outcomes and increases individual wealth (Engelhardt, 1994; Haurin, Hendershott, and Wachter, 1996; Rohe, McCarthy, and Van Zandt, 2002; Haurin, Parcel, and Haurin, 2002; and Dietz and Haurin, 2003, among others). In fact, there seems to be an almost nati onal obsession with ownership, resulting in a paradigm that favors ownership."

A recent article on CNN Money reached the same conclusion. "For the first time in years, buying a home may beat renting." "Even in cities where people are, theoretically, better off renting, they may not be in reality. Paying off a mortgage is a forced savings plan, said Baker. The mortgage bill comes in every month, the homeowner pays it and the mortgage balance goes down." "Renters, meanwhile, are just as likely to spend their savings. They'll wind up with less money than homeowners, which is kind of what your dad was saying all along."

The guidelines for new mortgages are changing. Everything we take for granted about home loans (and being a home owner) is being debated now in Washington D.C.

Its clear that required mortgage down payments will increase along with other key elements that many of us have taken for granted. For example, there is growing support to eliminate the mortgage interest tax deduction. There are also political rumblings behind getting rid of the ‘As American As Apple Pie' 30 year mortgage and replacing it with a 15 or 20 year term.

Already a new approved guideline, the new QRM (Qualified Residential Mortgage) rules will be in full effect April 2012. (Its widely believed that the QRM rules will force minium down payments to increase to 20%). As Fannie and Freddie are ‘scaled down' and their continued roles in the mortgage markets are in flux expect lots of heated debate about mortgage requirements. Stay tuned and be vigilant.

The question remains, given today's guidelines what are the absolute bare-minimums to obtain a mortgage?

....and perhaps more interesting...how to obtain a mortgage immediately after a Short Sale..read on...

By far the easiest mortgage to obtain is a FHA loan:

1) 3.5 percent down payment, based on the purchase price of the home (e.g., $7,000 on a $200,000 home), or a gift of that same amount;

2) 3 percent to 6 percent of the purchase price, on top of the down payment, for closing costs, or a credit from the seller of the same amount; and

3) 640 FICO credit score - the middle score of those generated by the three credit bureaus (some banks will lend to borrowers with middle scores lower than 640, but will require more than the minimum down payment).

Lenders will want you to document income, asset and job history documentation, current paycheck stubs, two months' bank statements and two years of W-2 forms or tax returns, and:

• a minimum of two years have passed since the discharge of a bankruptcy;
• a minimum of three years have passed since a foreclosure;
• anywhere from zero to three years have passed since a short sale, depending on the circumstances surrounding the short sale.

2011 Housing Predictions | Homes Losing 1% in Value Per Month

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Zillow's just released housing report reinforced the fact that Home values are very much on the decline. Actual numbers, home values fell 3% quater over quater, the largest decline since late 2008. You read that correctly, home values are falling 1% per month.

Is it possible that homes will lose 1% per month for the rest of 2011....in other words, will homes depreciate nationally 12% in 2011?

Absolutely.

Stan Humphries, economist with Zillow. "We now believe a bottom will come in 2012, at the earliest."

Home prices have fallen for 57 consecutive months. Thus far in 2011, nearly 75 percent of all homes in the U.S. lost value during the first quarter. The hardest hit metro areas were Ocala, Fla.; Puebos, Co., Detroit, and Atlanta. Only one market - Honolulu - showed improvement. Home values have fallen 8.2 percent from March 2010, Zillow said, and are down nearly 30 percent since the market peak in June 2006.

Underwater owners reached a new high in the first quarter . 28.4 percent, up from 27 percent at the end of 2010. Based on the current rate of depreciation, 40% of all homeowners with a mortgage will be underwater (mortgage balance greater than market value) later this year.

Here is some interesting news for anyone considering getting a building permit or an approval from the planning department within San Diego County Calif.

To save $1 million a year, the mayor of San Diego will fold the Planning Department into the department in charge of processing building permits, the Development Services Department.

This has planners and advocates of organized growth worried. No one really understands the impact but until the bugs are worked out it may cause disruptions in services. There is concerns that long range planning for open space, parks, schools, fire stations and infrastructure elements will get suppressed by the drive to speed up permit processing. Budget constraints and staffing concerns have stimulated this change.

The following excerpt is from Sign On San Diego:

Mayor Jerry Sanders has abolished the city planning department and merged personnel with building permit processors.

"The consolidation will allow the staff of these two related departments to work more closely together and create efficiencies in management and information sharing," Sanders said in the announcement issued last week. "There's a natural overlap in the two departments on most of the issues we're dealing with, so I'm certain we'll see better functioning and service to the public with their integration."

According to Sanders' proposed 2011-12 budget, the new department will have 561 employees and a spending plan of $63.6 million. Within that is a planning division budgeted at $4.1 million and 22 employees.

In the 2010-11 budget, planning has 129 employees and a $22.3 million budget, while development services has 474 employees and a $48.6 million budget. The planning director salary is currently set at $162,000, but the present and proposed budget lists the development services director's pay at $139,194.00

Every time we begin the buying journey with a new client we ask them what is their credit score. Most of the time they give us an adjective like, bad, great, fabulous and sometimes they state that it is lousy. Our brand new 2 minute video on the importance of your Credit Score can really come in handy for anyone who really isn't quite sure what credit scores are and how their buying position is effected by it. We have also included some links to good information: "How does your credit score compare?" "10 signs you might have a credit problem"