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Metro Brokers of OK Sold the Most Real Estate in Norman in 2017 | Norman Transcript

Metro Brokers of OK Sold the Most Real Estate in Norman in 2017 | Norman Transcript

When I was growing up I was one of those kids whose aptitude run parallel to my grades in the classroom. I was clearly the best in my class at math for many years, but I was also in a class for kids who weren’t great at reading – which I found humiliating/confusing. I couldn’t figure out if I was a smart kid or a dumb kid. I just wanted clarity actually, because not knowing which one I was constantly plagued my identity. I finally got out of the reading class in 3rd grade, but I still questioned my intelligence. I did however find that whenever I had a teacher who gave me more space to learn how I needed to I felt enormously more capable and, I would regularly lead in class rather than distract. Even when I did testing in college for ADD they found that I had a high level of intelligence, but I had trouble functioning within the established structures of a classroom. They found that I struggled in class not because I had ADD, but because I was anxious due to not functioning well in the established/traditional way that I was “supposed to”.

Fast forward about 20 years and I am still that same little kid. I know my limits and capacities better than I did 20 years ago, but I’m still challenged daily by not feeling like I fit in a simple box. Luckily I found a company 4 years ago that gave me exactly what I needed: flexibility, and a big green light! People doubted that changing some of the traditional paradigms in real estate would work, but I’m very proud to be a part of my company. I don’t want to take away from any other company (I’m so proud of the community that our industry has), but there is a reason why our company has grown faster than any other company, and sold more houses in Norman than any other company the last few years. Go team! Below is an article from the Norman Transcript about our success do to challenging norms. Thank you to the 7 founders of the company who took a big risk, it paid off.

Grady

Not Your Average Real Estate Broker | Norman Transcript

Metro Brokers of Oklahoma was founded a decade ago by a group of realtors who wanted to bring a different set of values to real estate.

Apparently, their vision to combine broker autonomy with high ethical standards has paid off. According to a ranking report of 2017 calendar year numbers, Metro Brokers was the leading agency for total transactions in Norman.

With 14.33 percent of the Norman market share, 247 listings, 294.5 sales and a total of 541.5 total transactions, they are ahead of the leading and more traditional Norman real estate companies.

“We opened Aug. 1, 2007, so we’re going into our eleventh year,” said Gwen Arveson, owner and principal broker. “We have offices all over the metro with 189 agents and 35 branch offices.”

Arveson and Betty Goss, owner-manager and branch broker, believe the supportive yet independent culture of their workplace is at least partially responsible for their success.

“We are not a traditional real estate company,” Goss said. “We believe in allowing our associates to run their own business with integrity, and we support them. We don’t have production requirements.”

In 2017, Metro Brokers of Oklahoma ranked fourth in the Oklahoma City metro for total transactions, but that’s not a market Arveson, Goss or their fellow co-owners had planned to enter initially.

Goss and Arveson were friends with each other and the other Metro Brokers owners when they decided to form the company.

“We were all selling real estate, and we decided we wanted to structure a company that was different than any company in Norman,” Arveson said. “We did that all the way from writing our vision statement to writing our culture statement of the type of people we wanted to attract.”

The business started in Norman and organically spread to the metro.

“We were not prepared to do the branch office thing,” Arveson said. “There were just seven of us who wanted to sell real estate. We have never recruited anyone. People came to us. Another thing that makes us different from other real estate companies is that we allow our branches to work with total autonomy within the law.”

Goss is a long-time Norman resident who got into real estate so she could avoid an office job.

“My best friend said I was good with people and should try real estate, and I did and I love it,” she said.

Arveson and Goss say Metro Brokers nurtures self-motivated realtors rather than promoting competition. The company doesn’t recognize the top producer of the month, but it does provide support through office facilities, insurance coverage, a website, brand awareness, training and collaboration among members who are more willing to help because they’re not in competition.

“We do interviews,” said Arveson. “Before anyone can join us, they have to come to a 30 minute interview that two of the owners conduct.”

The focus of those interviews includes ethics and values.

“When we’re interviewing, we listen to their background story,” Goss said. “We listen to keywords to how they handle their previous work. Above all, we look for integrity with how they are going to treat their counterparts, owners and the public with respect to how they do business.”

Metro Brokers does not charge extra fees to brokers — there are no desk fees, technology fees or franchise fees, and the annual membership fee never increases, it is locked in for life.

“The company was started by all Oklahoma people, and we are not a franchise so the money stays in Oklahoma,” Arveson said. “We offer full service real estate. We allow the branch offices to fully run their offices however they want. We don’t interfere with their finances.”

Arveson started in real estate in 1986. Working with like-minded realtors to create a business comprised of a “professional but non-restrictive membership group” to support each other in running a “fair and profitable real estate business,” was the culmination of a dream come true and the fruition of the values she and the other owners hold dear.

“We start every meeting with prayer,” Arveson said. “All of the owners are Christians. That doesn’t mean you have to be a Christian to work here, it just means you have to respect what we do.”

Brokers determine their own goals, commission fees, income and expenses.

“We teach them to compete with themselves,” Arveson said. “We want them to work together rather than being competitive. The real estate business is already competitive enough.”

That approach is paying off in more than just sales numbers.

“We have more associates than anyone in Norman,” Goss said. “People who do business with us are pleased with our reputation as experienced realtors who do the right thing.”

Source: Not your average real estate broker | Local News | normantranscript.com

Tax Tips For Homeowners That Could Help Reduce Tax Bills

Tax Tips For Homeowners That Could Help Reduce Tax Bills

Taxes… There are but a few exercises that help people recall their anger and anxieties better than thinking about their taxes. I personally am a believer in a civil society, and I don’t find it helpful for anyone to complain so much about paying taxes. However, it does hurt each year when I have to pull out my checkbook to pay the remainder of my bill. The last few years I’ve done myself a favor and gotten them done early, and it’s a big weight off of the old shoulders honestly. Maybe it’s a good time to go ahead and start figuring out your taxes, and if you’ve bought a home recently here is a list of things you’ll want to remember. Keep in mind that this was produced by Credit Karma and you should look into any services  that may be advertised or suggested before using them.

-Grady

Tax tips for homeowners

Young couple using a tablet to review their finances in their new home.

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Owning a home gives you access to special tax breaks, and taking advantage of them could help you at tax time.

“Many homeowners miss out on a lot of deductions every year because they aren’t aware of all the savings opportunities available to them,” says Josh Zimmelman, president of Westwood Tax and Consulting.

These seven tax tips could help you make the most of the many tax breaks for homeowners and maximize any income tax refund you may be owed.

1. Stay organized

Many of the tax deductions or credits you can take as a homeowner require you to keep detailed records of your home-related expenses. Start saving receipts and other information right away; don’t wait for tax time to roll around.

“If you take a few minutes to set up an organization system for your tax paperwork and financial records, it should be quick and easy to maintain,” Zimmelman says.

One way is to keep hard copies of all your financial documents and receipts. Or, you can scan and store your documents digitally. Apps like HomeZada can help you stay organized for a small fee.

2. Itemize your deductions

For the 2017 tax year, the standard deduction is $12,700 if you’re married filing jointly, $6,350 if you’re single or married filing separately, and $9,350 if you’re filing as head of household.

As a homeowner, though, you may have enough in eligible expenses to itemize your deductions. If those itemized deductions add up to more than the standard deduction, you could lower your tax bill even more.

Eligible expenses could include:

  • Home mortgage interest
  • Property taxes
  • Charitable contributions
  • State and local income taxes or sales tax (but not both)
  • Loss from property damage or theft
  • Some medical expenses not paid for by insurance
  • Work-related expenses your employer didn’t reimburse you for

3. Keep track of your moving expenses

Taking advantage of the moving expenses deduction can be a valuable tax tip for homeowners. If you moved into your home this year because of a work relocation, you might be able to deduct some of your moving expenses and some of the closing costs on your home.

To qualify for the moving expense deduction, you have to meet certain requirements. For example, your new workplace must be at least 50 miles farther from your old home than your old workplace was. Also, the move must occur within one year of starting the new job.

“Deductible [moving] expenses might include money spent on travel, moving trucks and storage units,” Zimmelman says.

As for closing costs, you can deduct some or all of the discount “points” you paid to lower the interest rate on the loan.

File your taxes with Credit Karma Tax

Prepare and file your federal and state income taxes for free. And if you’re owed a refund, we’ll make sure you get the max back.

4. Hold onto home improvement receipts

If you make any improvements to your home, the expenses aren’t deductible for the current tax year. However, when you sell the home in the future, they can help lower your tax burden then.

That’s because you can add home improvements expenses to your adjusted basis, which is generally what you paid to buy the house, plus the cost of construction, renovation, or other improvements you’ve made, minus any losses you’ve experienced from damage to the home.

For the tax year in which you sell the home, your taxes on the sale are based on the sale price plus any concessions you get from the seller (such as them paying closing costs) minus your selling expenses. If the amount you gain from that equation is higher than your adjusted basis you have a capital gain on the sale. So, the higher your adjusted basis, the less taxes you may have to pay on your profit from the sale.

5. Track your home office expenses

If you work from home, you may be able to deduct some of the expenses you incur for your business use of your home.

“Not every person who works from home can claim a home office,” Zimmelman says. “The home office must be used regularly and exclusively for business and be the primary site of the business.”

Types of expenses you can deduct include the actual expenses you incur for the home office and depreciation for the portion of the home used.

You may even be able to qualify for this deduction if you’re an employee. You have to meet additional requirements, however. For example, your remote work situation must be for your employer’s convenience. So, if you’re working from home just because it’s an option, you might not qualify for the deduction. If, on the other hand, the employer has no home office and you have no choice, you could be eligible.

6. Make energy-efficient updates

Adding a solar energy system to your home is not only good for the environment, it can also be good for your tax refund. The IRS allows you to take a tax credit worth 30 percent of the cost of installing a solar energy system.

If you’re thinking about holding off on taking advantage of this tax credit, don’t wait too long. The credit amount for residential improvements decreases to 26 percent in the year 2020, then to 22 percent in 2021, after which it goes away entirely.

7. Save your tax records

Here’s one tax tip for homeowners that’s probably valuable for most people. Once you take advantage of all the available deductions and credits in the current tax year, hold onto them.

“You never know when you might get audited,” Zimmelman says. “It’s important to have the documentation to back up your deductions.”

The law requires that you keep all the records you use to file your tax returns for three years from the date a return was filed. That’s typically how far the IRS goes back when doing an audit. Keep in mind, however, that the IRS can go back further (usually no more than six years back) if it identifies a substantial error in a return.

Bottom line

Owning a home can be expensive, but, fortunately, the tax breaks can help make up for the extra costs. As a homeowner, it’s critical to know which deductions and credits you qualify for and to make sure you maximize them to your benefit. Using Credit Karma Tax™ to file your taxes for free, and following these tax tips for homeowners could help.


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Source: Tax tips for homeowners could help reduce tax bills ⎸Credit Karma

4 Ways To Pay Off Your Mortgage Early

4 Ways To Pay Off Your Mortgage Early

Understanding the power of compounding interest can truly change your life. You’ve probably heard people describe money as a snowball – meaning it’s either shrinking or growing at an exponential rate. Well that simple concept should give motivation for people to aim to pay off their mortgages early if they can. If you’d like to see what I’m talking about Click Here to play with a mortgage calculator and study how much money you might save in interest if you pay a little extra each month. Or study below one of the other 3 paths. There’s never a better time than now to make a positive change in your life.

-Grady

4 ways to pay off your mortgage early

If you can afford it, it might be simple to pay off your mortgage early. But should you? That’s a complicated question.

Homeowners with low mortgage rates may be better off putting extra money in a Roth IRA or 401(k), both of which might offer a higher return than paying off the mortgage.

Then there’s the college aid factor. If you’re applying for need-based aid for your kids, that home equity could count against you with some colleges because some institutions view equity as money in the bank.

If, after those caveats, you want to pay off your mortgage early, here are four ways to make it happen.

  • Refinance with a shorter-term mortgage
  • Pay a little more each month
  • Make an extra mortgage payment every year
  • Throw ‘found’ money at the mortgage

Should You Pay Off Your Mortgage Before You Retire?

There are many misconceptions about mortgages and retirement. Greg McBride breaks down the facts.

1. Refinance with a shorter-term mortgage

You can pay off the mortgage in another 15 years by refinancing into a 15-year mortgage.

Let’s say you got a 30-year fixed-rate mortgage for $200,000 at 4.5 percent. Then, five years later, you can refinance into a 15-year loan at 4 percent. Doing so pays off the mortgage 10 years earlier and saves more than $60,000 (if you exclude closing costs on the refi).

Those shorter-term mortgages often carry interest rates a quarter of a percentage point to three-quarters of a percentage point lower than their 30-year counterparts.

Refinancing isn’t quick or free. It requires filling out the application, providing documentation and having an appraiser visit. There are closing costs.

And even with a lower interest rate, that quicker payoff means higher monthly payments. And this method is a lot less flexible. If you decide that you don’t have the extra money one month to put toward the mortgage, you’re locked in anyway.

Unless the new interest rate is lower than the old rate, there’s no point in refinancing. Without a lower rate, you’ll get all the same benefits (and none of the extra costs) by just increasing your payment a sufficient amount.

2. Pay a little more each month

Divide your monthly principal and interest by 12 and add that amount to your monthly payment for a year. Result: You make the equivalent of 13 payments in 12 months.

Let’s say you got a $200,000 mortgage at 4.5 percent. After five years of making the minimum payments, you add an extra 1/12 of a month’s principal and interest to each monthly payment. Doing so pays off the mortgage three years and three months earlier and saves more than $18,000 interest.

Before you make anything beyond the regular payment, call your mortgage servicer and find out exactly what you need to do so that your extra payments will be correctly applied to your loan.

Let them know you want to pay “more aggressively” and ask the best ways to do that.

Some servicers may require a note with the extra money or directions on the notation line of the check.

In any event, if you’re putting extra money toward your loan, always check the next statement to make sure it’s been properly applied.

3. Make an extra mortgage payment every year

Instead of paying a little more each month, make one extra monthly payment each year. One way to do this is to save 1/12 of a payment every month, and then make an extra payment after every 12 months. This gives you the flexibility to use the extra savings for something else if a more pressing expense arises.

Let’s say you do this starting the first month after getting a 30-year mortgage for $200,000 at 4.5 percent. That would save more than $27,000 interest, and you would pay off the mortgage four years and three months earlier.

4. Throw ‘found’ money at the mortgage

Get a bonus? A tax refund? An unexpected windfall? However it ends up in your hands, you can funnel some or all of your newfound money toward your mortgage.

Let’s say you got a 30-year, fixed-rate mortgage for $200,000 at 4.5 percent. Then, five years later, you can make an extra $10,000 lump-sum payment. Doing so pays off the mortgage two years and four months earlier, and saves more than $19,000 in interest.

The upside: You’re paying extra only when you’re flush. And those additional payments toward the principal will cut the total interest on your loan.

The downside: It’s irregular, so it’s hard to predict the mortgage payoff date. If you throw too much at the mortgage, you won’t have money for other needs.

Related Links:

Related Articles:

 

Source: Pay Off Mortgage Early: 4 Ways To Do It

Planner Shares System For Managing Money – Business Insider

Planner Shares System For Managing Money – Business Insider

Being a real estate agent is often a lot like being a party planner. There are several people and issues that need to be kept up with, and consistently held to account. Part of making sure that the party goes off without a hitch when working with a homebuyer is making sure that they have a financial plan to execute the purchase. Most people like to keep their finances rather private, so it’s important that people know that making that plan can be done in private. I often recommend that people use a few different free services to monitor their finances and credit: Mint.com, and Credit Karma. They both run ads, but if you can just ignore those you can be a step ahead. Feel free to send me a message if you have any questions about either one of those services. Now, read this article and if you don’t have these basic financial tools in place start setting them up. You can do it – now let’s make a plan and throw that party!

If you are seriously wanting to get your financial house in order you might reach out to an accountant/cpa and maybe even a financial planner to look at how you can use your money to best fit you life and goals. And you might also talk to an estate planner in case you are worried about what will happen to your assets in the case of you passing away. My sister Claire is actually an estate planner and you are more than welcome to call her to ask about what that looks like, just tell her that I sent you. 🙂

Claire Bailey,  Bailey and Poarch: (405) 329-6600

Grady Carter
Realtor®, GRI
Metro Brokers of Oklahoma
Lic. #160723

 

“A few years ago, I put in place a ‘Money Flow’ system to help my family track our spending.”

A Financial Planner Shares Her Personal System For Managing Money

family walking beach winter

The author’s family is not pictured.Flickr / James Brown

Part of the reason we accumulate debt is that there are so many distractions in our lives – things we want to buy but don’t need.

But we also ring up debt because we simply don’t understand the flow of our income and expenses, so we can’t accurately estimate how much money we have available to spend.

I’ve struggled with this myself. A few years ago, I put in place a “Money Flow” system to help my family track our spending.

You may have heard of a system like this before, but follow along on this tour, because it really works.

Putting the pieces in place

1. Set up two free checking accounts:

  • One to pay fixed expenses (such as the mortgage, car payments and utility bills).
  • One to pay variable expenses (groceries, gas, clothing and so on).

2. Set up a high-yield online savings account.

We call this our “curveball” account. It’s an emergency fund for use when life throws us curveballs – large medical bills, a job loss or reduction in income, major home repairs, that kind of thing.

3. Make a plan for big-ticket items.

My husband and I agreed that we would use one family credit card for large purchases, such as airline tickets and hotel stays. We still have our separate credit cards – it’s wise to keep your own credit cards to maintain your credit score and credit history. Using them once or twice a year should be sufficient. And don’t close those cards because it will affect your overall credit score.

Implementing the system

1. Draw up a budget for fixed and variable expenses.

Add up how much you need in each category. This will be your guideline for how much should be in each of your checking accounts.

Fixed expenses might include:

  • Rent or mortgage payment
  • Property taxes
  • Utilities (gas, electric, water, etc.)
  • Home, auto and umbrella insurance
  • Life, disability and long-term-care insurance premiums
  • Health insurance premiums (if not taken out of your paycheck)
  • Cable TV, Internet, phone and cellphone
  • Gym or yoga memberships
  • Debt payments (credit cards, student loans, car loans, personal loans, etc.)
  • Savings (yes, this is an expense – pay yourself first!)

Variable expenses might include:

  • Groceries
  • Eating out
  • Gas
  • Clothing/shoes
  • Personal services (haircuts, doctor visit copays, etc.)
  • Entertainment

2. Distribute money to the accounts.

When your paycheck comes in, allocate the designated amounts into each checking account based on the budget you created. The sum earmarked for the curveball account can go there directly.

3. Pay fixed costs directly.

All bills are paid automatically from our fixed-expenses account. We do not have to write any checks, and no debit card is necessary. This account has a cushion of a few hundred extra dollars in case a bill shows up unexpectedly or before we have a chance to replenish the account.

4. Pay variable expenses from the second account.

This account should have a debit card, which you can use for purchases.

5. Link the curveball account to either checking account.

If an emergency arises, you can transfer funds within 24 to 48 hours. You can then access the money with a check or debit card.

Realizing the benefits

Once I implemented this system, the process of tracking expenses wasn’t so cumbersome anymore. Separating expenses into fixed and variable categories meant I didn’t have to worry constantly about checking account balances. Having fewer transactions in each account also made it easier to see the bigger picture of our spending.

The chart below depicts the flow of money.

Money Flow Chart2

* After taxes and pre-tax retirement plan contributions.Chart courtesy of MainStreet Financial Planning

Every family’s finances are different, of course. Feel free to customize my system as necessary. The point is to get – and keep – a grasp on the flow of your money. If you know exactly what’s coming in and going out, you can’t be surprised by debt.

Source: Planner shares system for managing money – Business Insider

5 Predictions for the Housing Market in 2016 – NerdWallet

5 Predictions for the Housing Market in 2016 – NerdWallet

One thing that seems more and more clear to me is that so goes millennials so goes the nation in next decade. If millennials decide not to buy houses there is going to be a large wealth shift – we will become even more of a renter society. So, a stable housing market that young people want to participate in matters. A lot of people are outraged by our nation, and world’s growing wealth gap (and in many ways rightfully so), but not participating in ownership of housing could be one of the greatest factors in the next great wealth shift. A lot of numbers show that young people do want to own their own stuff, and have a more self-sustaining lifestyle in a lot of ways. I’m just very curious which direction my peers and I are going to trend towards in regards to housing.

Grady Carter
Realtor®, GRI
Metro Brokers of Oklahoma
Lic. #160723

5 Predictions for the Housing Market in 2016

  February 5, 2016  Home Search, Mortgages

You can trust that we maintain strict editorial integrity in our writing and assessments; however, we receive compensation when you click on links to products from our partners and get approved. Here’s how we make money.

5-predictions-for-housing-market-in-2016

A New Year brings new opportunities, and that’s certainly true if you’re looking to sell or buy a home in 2016. What exactly does the year ahead have in store for housing?

Industry experts point to a lot of promising signs — moderate increases in prices and sales, the creation of more households, and an improving job market — for the national housing picture in 2016. But the gains won’t look like they have over the past two years, and we’ll see more local housing markets stabilizing in the near future. And that’s a good thing.

After the deluge of damaging foreclosures and short sales that flooded U.S. cities during the downturn, a number of housing markets have recovered in a big way in recent years, to the relief of homeowners and economic analysts alike. In 2013, there were 5.09 million existing-home sales nationally, according to the National Association of Realtors. In 2014, sales dropped by 3.1% to 4.93 million. Although final figures for 2015 are not yet available, NAR predicted existing-home sales would close out the year at 5.3 million — nearly 7% higher than the previous year.

With NAR forecasting existing-home sales to rise by 3% to 5.45 million in 2016, experts say we’ll start seeing more balance return to the housing market in the near future.

Here’s a closer look at five key housing predictions for 2016:

1. Rising rates will squeeze first-time homebuyers most

The Fed’s move to increase interest rates in December reflects the major strides the U.S. economy has made as it emerges from the Great Recession. Higher rates (though they haven’t happened yet), along with rising prices and limited supply, will make it harder for some to afford a new home. The good news: Long-term mortgage rates will see only a gradual increase this year and will remain relatively low compared with what they were before the downturn.

Thirty-year fixed-rate mortgages, which averaged under 4% for most of 2015, will average 4.4% this year, according to Freddie Mac. Meanwhile, housing data firm CoreLogic, in its latest U.S. Economic Outlook report, predicts mortgage rates will increase roughly half a percentage point in 2016 over 2015.

If you’re a first-time homebuyer or you earn a lower income and haven’t had a raise lately, the rate increase might make it harder for you to afford a home. For the most part, though, a slight rate bump isn’t cause for panic and is unlikely to sideline most potential homebuyers, says Christian Redfearn, an associate professor of real estate at the University of Southern California.

Increasing mortgage rates will clamp down on refinancing activity as fewer homeowners will have enough incentives to refinance their current mortgages, according to CoreLogic. As a result, the firm is forecasting refinance originations to decrease by one-third this year.

2. Sales will rise, but modestly

Even though mortgage rates are rising, home sales will still be up about 3% this year as existing homeowners jump into the selling pool, according to a forecast from the National Association of Realtors.

After years of depressed prices, many homeowners have regained much of the equity they lost in the downturn, so they may seek to cash in on that value and sell in 2016 to move up to their next home, NAR President Tom Salomone says. In some markets, though, prices have increased too quickly, causing a bumpy recovery that’s priced out some potential homebuyers, he says.

“We don’t want these big peaks and valleys we’ve seen since the downturn,” Salomone says. “Steady, sustainable growth is what we’re after.”

As the economy continues to grow and more jobs are added, potential homebuyers with strong credit will be more willing to jump into the market too, Salomone says.

3. House prices will increase, too, but not at 2015 levels

Another trend that sellers in particular will appreciate: Home prices will rise again this year by 4% to 5% as demand increases faster than supply, according to CoreLogic. Although the increase in home prices will outpace inflation, it’s less than the 6% increase seen in 2015.

The more measured growth of home sales and prices is good news for the millions of younger Americans who are on the cusp of homeownership. However, experts agree that a shortage of housing inventory and new construction, which leads to bidding wars and competitive market conditions, will fuel higher home prices until more sellers enter the market or more homes are built.

“We haven’t built enough housing for a long time,” Redfearn says.

4. Housing demand will be up

The improving job market has been a boon for new household formations, a term that refers to configurations of people who live together under one roof, be it you and a few roommates, a married couple, a nuclear family of four, or just you. This increase will continue in 2016, with more than 1.25 million new households expected to be formed.

Millennials — all 83.1 million of them — now outnumber baby boomers and comprise more than a quarter of the U.S. population, according to the Census Bureau. Many of them are moving out of their parents’ homes, getting married or having children. As they do, these young Americans will create higher housing demand, particularly for rental homes.

This new surge in demand is expected to spur more construction of single-family homes and multifamily apartment buildings, but not at the pace needed to keep up with new households. NAR forecasts 1.3 million single-family housing starts this year, but the country needs 1.5 million to keep pace with demand.

Freddie Mac predicts total housing starts will increase 16% from 2015 to 2016, but it’s still not enough. That’s why more people are turning to the rental market, which is faced with a similar crunch.

5. Rents will also rise

Construction of multifamily homes will increase this year, but there’s still a shortage of rental homes for the millions who need them. Rental vacancy rates are at or near their lowest level in 30 years, according to the CoreLogic report. Accordingly, rents in 2016 will continue to rise faster than inflation, CoreLogic predicts.

With rents climbing, it’s no wonder so many millennials struggle to afford a down payment. For starters, 41% of them are saddled with student loans that frequently run into the tens of thousands, according to NAR. Plus, wages are growing slowly or not at all as rents and other living costs get steeper. It’s a combination of challenges that makes it hard to save for a down payment on a home, experts say.

Homeownership rates will dip slightly again this year as the number of new households that rent exceeds the number of new homebuyers. However, 94% of renters under 34 surveyed by NAR say they still want to buy a home in the future, and that bodes well for a more balanced market in the years to come, Salomone says.

The bottom line

The housing market has come a long way since the Great Recession, but the recovery has been uneven, and some areas still have a long way to go.

A sustainable housing market, Salomone says, is one that’s fair for both buyers and sellers. All the signs we’ve mentioned point to a more balanced road ahead for housing, but it’ll take a little more time to get there.

Where 15 Can Beat 30 – What Kind of Loan Should I Get?

Where 15 Can Beat 30 – What Kind of Loan Should I Get?

With rates changing (if you don’t know about this it’s ok, but they are…) have you wondered how that might affect the loan that you should consider taking out for your home? Well, here is a very wonky article that can help you dive into this under discussed, and very important topic. It might be a good idea to play around with a mortgage calculator to see what the difference might be for you.

-Grady

 

The Federal Reserve Board is on track to raise interest rates as soon as today. It’s a move that will mean higher mortgage rates, higher monthly payments, and reduced purchasing power for new borrowers. Homebuyers, who haven’t seen an interest rate increase in nearly 10 years, may be tempted by lower-rate 15-year mortgages.

Where 15 Can Beat 30

A 15-year mortgage is a smart choice for households in housing markets where price increases have been modest, but a tougher call for households in hotter markets.

The Federal Reserve Board is on track to raise interest rates as soon as today. It’s a move that will mean higher mortgage rates, higher monthly payments, and reduced purchasing power for new borrowers. Homebuyers, who haven’t seen an interest rate increase in nearly 10 years, may be tempted by lower-rate 15-year mortgages. But do the advantages of a 15-year mortgage outweigh the costs? The answer depends partly on where you live.

We’ve crunched the numbers for the largest U.S. metros, and found that:

  • With the median US household income, a 30-year mortgage allows homebuyers to purchase 46% more house, but a 15-year mortgage provides triple the paid equity in just 5 years.
  • Homebuyers in areas where prices have a history of rising will benefit greatly from faster equity-building with a 15-year mortgage.
  • Buyers in areas with historically slow growing to flat housing prices will benefit less from shorter-term mortgages and potentially more from the borrowing power of a 30-year loan.

The Tradeoffs Between 30- and 15-year Mortgages

In general, 30-year mortgages have three advantages:

  • Monthly payments are lower
  • Borrowing power is higher
  • Tax benefits are greater

The primary advantage of a 30-year mortgage is lower monthly payments. On the median valued U.S. home, a 30-year mortgage comes with a payment that is $320, or 27%, lower than a 15-year mortgage. Lower payments also mean that a borrower’s debt-to-income (DTI) ratio is lower than a 15–year loan. This allows middle class buyers (a household earning the U.S. median income) to borrow $77,000, or 46%, more with a 30-year mortgage than a 15-year. Last, borrowers with a 30-year mortgage can write off nearly $68,000 more than a 15-year mortgage via the mortgage-interest deduction on their federal income taxes.

Trulia 15v30

A 15-year mortgage has three advantages over a 30-year mortgage:

  • Equity builds faster
  • Interest rates are lower
  • Loan term is shorter

The primary advantage of a 15-year mortgage is that a larger share of each monthly payment goes towards paying off the loan principal. After five years (the number of years the average young household moves), equity gained from paying off the loan balance is more than $39,000, or three-times greater with a 15-year mortgage on the median value home. In addition, the 15-year rate is 3.36%, compared with 4.12% for a 30-year note. And over the loan term, borrowers with 15-year mortgages pay just under $40,000 in interest with a 15-year compared to over $107,000 with a 30-year on the median value home.

In Bargain Markets, 15-year Mortgages Are A Homebuyer’s Best Bet For Equity

Home equity can come from three sources: down payment, principal reduction, and home value appreciation. This means that in markets with slow appreciation, a larger share of equity will come from homeowners paying down the loan balance when compared to home value appreciation. In such markets, 15-year loans offer a relatively faster route to building equity.

Trulia_15yrmortgage_LineGraph

We’ve identified the 10 markets in the country where, after five years of ownership, homeowners will have the most equity from principal reduction relative to home price appreciation. At the top of the list are markets exclusively in the Bargain Belt (Midwest and Southeast). In each of these markets, 15-year mortgages can provide over twice the equity relative to home price appreciation. For example, homeowners in Dayton, Ohio, can earn $22,018 in equity from mortgage payments with a 15-year mortgage, which is 2.37-times greater than the $9,295 gained from price appreciation. With a 30-year mortgage, payments would net households just $7,393. Clearly, household in these markets would gain much more equity by paying down their mortgage principle with a 15-year loan than from home value appreciation.

Markets where Principal Repayment is Key to Equity Growth
# U.S. Metro 5-year Equity from Principal Repayment, 15-year 5-year Equity from Principal Repayment, 30-Year 5-year Equity from Home Value Appreciation 5-year Principal Repayment Relative to Appreciation, 15-year* 5-year Principal Repayment Relative to Appreciation, 30-year
1 Dayton, OH $22,018 $7,393 $9,295 2.37 0.80
2 Cleveland, OH $26,906 $9,034 $11,960 2.25 0.76
3 Toledo, OH $21,193 $7,116 $9,667 2.19 0.74
4 Akron, OH $26,993 $9,063 $12,420 2.17 0.73
5 Rochester, NY $27,704 $9,302 $12,862 2.15 0.72
6 Detroit, MI $13,171 $4,422 $6,180 2.13 0.72
7 Greensboro-High Point, NC $24,924 $8,369 $11,778 2.12 0.71
8 Lake County-Kenosha County, IL-WI $43,508 $14,608 $20,620 2.11 0.71
9 Memphis, TN $23,289 $7,819 $11,093 2.10 0.70
10 Winston-Salem, NC $26,544 $8,912 $12,668 2.10 0.70

In Pricey Markets, 15-year Mortgages Are A Tougher Call

In markets with strong home price appreciation, deciding between a 15-year and 30-year mortgage is a tougher call. Like bargain markets, 15-year loans provide more equity from principal repayment than from appreciation. The difference, however, is much smaller. In pricey San Francisco and San Jose, Calif., 15-year mortgages provide just 1.35 times more equity from principal payoff than appreciation. Still, the difference in equity from principal repayment is great between a 30-year and a 15-year mortgage. For example, households in Orange County would stand to gain nearly $100,000 more in equity after 5 years by choosing a 15-year mortgage.

Markets where Appreciation Drives Equity Growth
# U.S. Metro 5-year Equity from Principal Repayment, 15-year 5-year Equity from Principal Repayment, 30-Year 5-year Equity from Home Value Appreciation 5-year Principal Repayment Relative to Appreciation, 15-year 5-year Principal Repayment Relative to Appreciation, 30-year
1 San Francisco, CA $247,382 $83,061 $184,397 1.34 0.45
2 San Jose, CA $203,060 $68,179 $150,088 1.35 0.45
3 Orange County, CA $139,362 $46,792 $96,300 1.45 0.49
4 Los Angeles, CA $112,946 $37,922 $76,446 1.48 0.50
5 Oakland, CA $136,768 $45,921 $92,323 1.48 0.50
6 San Diego, CA $106,895 $35,891 $72,083 1.48 0.50
7 Ventura County, CA $111,904 $37,573 $73,109 1.53 0.51
8 Boston, MA $90,176 $30,277 $58,567 1.54 0.52
9 Austin, TX $50,860 $17,077 $32,778 1.55 0.52
10 Charleston, SC $44,599 $14,975 $28,684 1.55 0.52

Even though 15-year mortgages provide more equity through loan repayment than appreciation, they also come at the expense of borrowing power. In high-priced markets, the difference in nominal terms can be substantial. For example, middle class families in San Francisco (households making the median income of $104,000 per year) could purchase a $628,000 home with a 30-year mortgage but only a $430,000 home with a 15-year. This makes house hunting hard when the median priced home costs more than $1 million. As a results, this could be the difference between buying their dream-home or a starter for some households.

To show why households in expensive housing markets have a much tougher decision, we’ve put together a scatterplot of median home values for each of the 100 largest U.S. metros and matched it with the relative amount of equity a household can gain from payments on a 15-year mortgage. As you can see, households in cheaper markets (bottom axis) stand to gain relatively more equity (left axis) from paying down their mortgage with a 15-year note than through home value appreciation when compared to pricier markets. For example, households in affordable Cleveland, which has a median home value of $123,000, can reap 2.25 times the equity from loan repayment than appreciation. In San Francisco, the land of million dollar homes, the added value is only 1.34 times the equity.

Trulia scatter 30v15

The takeaway: 15-year mortgages are a great option for those wanting to build equity, regardless of how expensive or how fast growing a market is. However, in places with historically low appreciation, 15-year mortgages are a much better deal for building equity because it’s about the only way to do so though paying of the loan balance. On the other hand, in areas with historically high price appreciation that also happen to be expensive, households need to consider the tradeoffs between the borrowing power of 30-year mortgages, expected equity from home price appreciation, and whether or not they will use equity from their existing home as a down payment on their next one.

Methodology

To compare 30- and 15-year mortgages, we estimate the amount of equity a household would gain from both appreciation and from paying off the principal after 5-years of homeownership of the median valued home. We estimate this separately for each of the 100 largest U.S. metros, and use an annualized 20-year Federal Housing Finance Administration (FHFA) house price growth rate to project home values 5 years into the future. Last, we compare the nominal and relative amount of equity a household would gain by choosing either a 30- or 15-year mortgage and comparing that to the expected gain in equity from home value appreciation.

Source: Where 15 Can Beat 30 – Trulia’s Blog

 

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