#1. My House is Worth!!
There are only two people that ultimately determine what a house is worth – the buyer and the appraiser. To determine a home’s value, many owners add up what they have spent on their house, add what they owe on their house, look on Zillow, or look at what other homes have sold for. Any of these evaluation methods could or could not yield a correct house value, but really it comes down to what the buyer and the appraiser value the home at. Currently we’re in a sellers’ market and we have an influx of retired couples and escapees fleeing large metropolitan markets all moving to smaller rural areas such as ours. This is causing a shortage of homes available for sale in Southern Oregon. Because the demand is so high for the right properties we are seeing the median price of homes increasing by 10% this year and we’re struggling with appraisals coming in at the sale value. If the home appraises lower than the purchase price, there are usually three options – The property is reduced to the appraised price, the buyer and seller split the difference, or the property is sold over appraised price at the original agreed to sales price. The value at which home prices are increasing is somewhat limited by appraisals. If we didn’t have appraisals, real estate values would be increasing by more than 10%. So it is the buyers and the appraisers that have the most influence over pricing.
#2. Banks Will Take a Low-ball Offer
There is a misconception that banks will wheel and deal on their bank owned properties but that is no longer true. During the 2007 – 2012 real estate and lending caused recession, banks dumped hundreds of thousands of homes in the United States. They sold them off using cash auctions at the court house steps, or by selling them below market value. For the most part those times are over. Banks are very disciplined and smart. They know that home values are going up in most US markets and they aren’t in a hurry to sell off their inventory as it’s worth more every day. We are now seeing bank owned properties lingering on the market for months and the banks waiting to get the price they want. Banks never really accepted low-ball offers; they typically came on the market with an aggressive price and lowered it quickly until it sold, or they auctioned off the property to the highest bidder. Of all the bank owned properties sold in the last 6 months, over 50% sold for cash and many sold for over list price. We have had many clients who had to self-learn this; they get frustrated when banks reject their low-ball offers without a counter offer, but this has always been normal operating procedure for a bank. We’re not saying there aren’t some good deals that happen to be bank owned, what we are saying is bank owned homes are no longer the deals they once were and don’t expect an answer from them if you send in a low-ball offer.
#3. I Don’t Want a Home with a HOA
We understand that many buyers don’t want to deal with a Home Owners Association, but almost all newer subdivisions have them. In the past, cities would take responsibility for the streets, sidewalks, street lights and roads within a subdivision, but in today’s world, most cities can’t afford to maintain them so they pass the cost onto the homeowners who create a HOA that collects yearly fees to cover the eventual road and sidewalk repairs. So if you want a home in a subdivision without an HOA, your only choice may be an older 70s or 80s home.
#4 I’m Going to Wait to Buy until Real Estate Prices Go down
Real Estate prices are a matter of supply and demand like all other products and services. We are fortunate that our market appeals to both retirees and escapees moving here from larger metropolitan markets. Currently in the US, there are 10,000 people turning 65 every day and the number of corporations allowing their employees to work from home is also on the increase, so the number of retirees and escapees are increasing. In addition, we have a lot of demand being generated from the 35- 40% of our local population that currently rents. Rental prices have increased drastically in the past few years and we’re seeing an average 2000 square foot home rent for $2,000 month and more in towns like Ashland and Jacksonville. Our demand for rental homes is at an all-time high and our supply is at an all-time low. Add in our historically low interest rates and in many cases it’s cheaper to buy than to rent. We are likely to continue seeing prices increase for the near future, until demand slows down or supply increases but this may take a long while. So prices may go up another 30-40% before they ever level or go down.
#5 I Want to Buy in a Neighborhood Without Renters
Throughout the United States, about 35% of all single family homes are rental homes. Unless there are CC&R’s restricting renters, which is not common in Southern Oregon, a large part of all subdivisions and single family homes are occupied by renters. The percentages of renters are lower for high income subdivisions and higher for low income subdivisions. In our experience, we have not seen a big difference between renters and owners in the way they take care of their homes. We all know examples of both owners and renters that keep their properties immaculate and we all know examples of both owners and renters that fall a little short.
There are many more Real Estate Myths that we will save for another day!
To Rent or to Buy – That is the Question!
To Rent or to Buy – That is the Question!
Rental prices have been increasing since the real estate crash in 2007, but home prices didn’t begin to rebound until 2013. Rental prices are now running at an average of $1 a square foot for a suburban home in Medford and higher in Ashland and Jacksonville or for rural and view homes. With rental prices so high, it is not unusual for tenants to pay $1800 a month or more. The question is, at what point does it becomes cheaper to buy your home instead of renting it. The answer depends on your tax rate, loan rate, current rent you’re paying and the price of the house you want to buy. What follows are the actual numbers showing the cost to Rent vs. Buy on a home in Medford located in Hampton Place.
The tenants are married and they make a little over $50,000 year combined. They rent a home that is a newer 1680 square foot home with a two car garage and their rent is $1660 a month or $19,920 a year.
Cost to rent their home for the next 5 years:
- $99,600 to rent their house for the next 5 years ($1660 month). This assumes their rent will not go up, but they don’t have to pay for any maintenance or pay any property taxes. They are paying for renters insurance.
Cost to buy their rental home or one similar and live there for 5 years:
- $285, 000 is the value of the home. They are pre-approved to put 3% down which is $8,550 down, Borrow $276,450 and have been quoted 4% interest rate.
- -$81,000: 5 years of mortgage payments ($1317.67 month)
- -$16,000: Cost of property taxes and home insurance over 5 years. We are assuming they will go up 3% a year
- -$10,020: Maintenance costs over 5 years ($167 month). This is a national average for maintenance costs but can vary drastically based upon the year of the home.
- +$19,440: Tax savings over five years (15% Fed / 9% State). They get to deduct the interest on their mortgage from their gross income, so this is based on their combined earnings of $50,000 and filing a join return.
- +$26,815: Debt Reduction or the amount of the principal being paid off in 5 years and the reduction in the mortgage owed.
- So it will cost $60,765 to buy the home over 5 years without factoring in appreciation.
Appreciation on the home in 5 years:
- +$51,026 at 5% appreciation. Currently we are experiencing about 10% appreciation but let’s be conservative and do the numbers based on 5% appreciation and 7% appreciation
- +$77,370 at 7% appreciation
Is it more to rent or to buy?
These renters will spend $99,600 over 5 years if they continue to rent, but if they buy, they will spend $60,765 for a savings of $38,835! If you factor in appreciation, they will save $89,861 if there is 5% appreciation, and $116,205 if there is 7% appreciation. This is quite a difference and a huge advantage to buying because you’re paying off the home as you go and paying fewer taxes as you go!
Other financial factors:
We are assuming if they continue to rent that their rental rate will not go up in the next 5 years which may be unlikely, so we may have underestimated their cost if they continue to rent. This is also a scenario for a couple making $50,000 a year combined income. Keep in mind, the more you make the less your home will cost you because the higher your tax bracket, the more you save from the mortgage deduction. If your Federal and State tax rate adds up to 40%, then each $1000 of deductions you have saves you $400 in tax dollars. The great thing about appreciation is that it compounds, so if you leave your appreciation in the house the next year, you have appreciation on the original cost of the house plus last year’s appreciation. The longer you live in the home, the faster your equity builds up as you pay more principal and less interest as time goes on. We see this as a silent savings plan, and have dealt with countless retirees who have retired with the help of the equity in their home.
How do you save your down payment to buy your first home?
Most renters know it’s cheaper to buy the home in the long run, but they don’t know how to save the down payment to get started. It’s never easy to save, and it takes a long time, especially when you’re young, but there are some great loans out there to help home buyers. Here is a recap of the major loans available – two loans require zero down and three loans require 1% – 3.5% down.
- No down payment – 100% Financing
- Stable 30 year fixed loan
- FICO credit score: 620 or greater
- Debt to Income ratio: About 28% available for house payment
- Closing costs can be included in the loan amount
- No manufactured homes
- No down payment – 100% Financing
- No mortgage insurance
- FICO credit score: 600 or greater. Manufactured home 620 or greater
- Debt to Income ratio: Really based on “residual income” but have seen Up to 68% based on size of family
Guild 1% down – 2% gifted to you loan
- 1% down payment required
- Guild Mortgage will gift you 2% down
- FICO credit score: 680 or higher
- Debt to Income: up to 50%
- Must make less than the Median Income in your County:
- $53,500 Jackson County
- $47,800 Josephine County
- 3.5% down payment required
- FICO credit score: 580 or greater
- Use this loan for a single family home or up to a 4-plex
- Debt to Income ratio: Up to 57%
- 3% down payment required
- FICO credit score: 620 or greater
- Debt to Income ratio up to 50%
Medical Doctors and Dentists Loan
- 5% down required
- FICO credit score: 720
- Student loan must be in deferment or forbearance
- Debt to Income ratio 45%
Most of our clients are surprised when they find out how much they qualify for, how many different types of loans are out there, and how much renting may be costing them vs. buying! So it may be time to stop reading this article and see what renting is costing you.
Home Prices Soar, but will it last?
Home prices soared over the last 5 years with the median price of a single family home in Jackson County increasing from $176,000 at the end of 2012 to $282,500 as of August 2017, yielding an increase of over 60%. The increase in the median price of a home is only part of the story as we also saw a 30% increase in the number of homes sold in 2017 compared to 2012. Add these two factors together, and you have a huge boom to our local economy. In 2012 the total dollar amount of single family homes sold was $605 million, and based on our current run rate in 2017, we are likely to see $1.2 billion in home sales. These are pretty big numbers for our local economy!
Price Points of homes sold in Jackson County
2012 2017 (Current run rate)
$1 – $99,999 442 50
$100,000 – $199,999 1247 566
$200,000 – $299,999 681 1196
$300,000 – $399,999 275 732
$400,000 – $499,999 115 368
$500,000 – $599,999 46 206
$600,000 – $699,999 29 78
$700,000 – $799,999 17 35
$800,000 – $899,999 7 21
$900,000 – $999,999 5 8
$1,000,000 -$1,999,999 4 18
$2,000,000 -$2,999,999 2 2
- Total 2870 3280 (Current run rate)
Homes are selling quickly, pending sales are up and the number of homes available on the market has dropped. You can see from the above chart that in 2012 the bulk of home sales accrued in the $100,000 – $300,000 range and in 2017 the bulk came from the $200,000 – $400,000 range showing how much prices have increased. To everyone’s surprise, interest rates have stayed low and are still around 4%. There is a general housing shortage in Jackson County and new home starts aren’t keeping up with the demand. During the housing crisis, from 2007-2013, there were very few homes or apartments built in Jackson County and we’re feeling the crunch now. We have had both population and age growth with lots of millennials now moving out of their parents’ basement and looking for housing. Retirees are back in large numbers and many of them who tried to retire in the late 2000’s had to wait for their equity to return in their homes and their 401K’s to return to pre-recession values. Escapees, those city dwellers escaping commuter traffic, crowds and high costs are also increasing. On the rental front, rental rates are going up yearly and the supply is going down as investors sell off their rental homes to realize their equity, leaving lots of competition for rental homes – especially those priced under $1,500 month.
So will this market last? There are many economic factors that contribute to the real estate market but the top four are, Local Economy, Demand, Interest Rates and Rental Prices.
Local Economy: Jackson County has a population of just over 212,000 with the largest Industries being Healthcare, Agriculture, Lumber, Manufacturing, Service and Tourism. We are currently at our highest employment rate in history with just over 100,000 jobs, which is good considering the large retired population. Our little airport is setting records each month on the number of travelers coming and going. We are continuing to attract more and more tourists because of our interesting combination of Outdoor sports, Culture, and Agricultural diversity. We have seen a huge growth in the Wine, Cannabis, Hops, & Hemp industry and our Culture keeps growing with new live theaters, art galleries and music venues. All of this keeps attracting more tourists, retirees and escapees. Our Medical industry and retirement homes keep expanding but are struggling to keep up with demand.
Supply and Demand: The supply of homes is limited with very low inventory of homes for sale and strong demand for housing coming from three areas, Locals, Retirees, and Escapees.
The local buyer: Our local market is an interesting one. On one hand we worry that as prices go higher, the first time home buyers will be priced out of the market; but on the other hand, rental prices have increased so quickly the financial incentive for buying vs. renting is at an all-time high. In many cases your mortgage payment will be less than your rental payment especially when you factor in the tax savings by writing off your mortgage. This means whether you rent or buy, you will be paying a higher portion of your income towards housing.
Retirees: 10,000 baby boomers a day are turning 65 and that number will continue for the next 19 years, so areas that appeal to retirees will feel the demand for many years to come. Baby Boomers are 26% of the US population so we are heading for a huge population of retirees. We are seeing retirees coming here from all over the country and many of them are checking out three or four different areas to retire. We don’t always win the competition. We recently had a buyer who was retired from Rochester, New York and looked at Medford, Boise & Colorado Springs. Coming from Rochester he found our real estate prices to be high, Boise to be the cheapest but it looks like he’ll end up in Colorado Springs because the combination of weather, outdoor activities and real estate prices. The good news is our neighbor to the south has a population just over 39 million and some of the highest priced real estate. So, in comparison, our home prices look like a deal. In fact, seven out of ten cities with the highest priced real estate are in California. (San Francisco, Redwood City, Cupertino, Los Gatos, Saratoga, Malibu & Newport Beach)
Escapees: We have always seen escapees moving to our valley but it seems like the pace is growing. Escapees are individuals like me who left California, a large crowed and expensive metropolitan area, for a slower, cheaper and better lifestyle. What’s interesting to me is how many clients we have dealt with from other states. This year alone we have helped many clients relocating from California but also from Arizona, Texas, Hawaii, Alaska, South Africa, Ohio, Montana, Nevada, Washington, New York, Minnesota and Idaho.
Interest Rates: Interest rates are critical to the housing industry and play a big part in how much a buyer can afford. We are currently around 4% interest – The Federal Reserve has done a great job of keeping interest rates low to stimulate the economy while not creating inflation. We’re likely to see slow, small increases in the interest rate every year for the next few years which will make it more expensive to buy the same home.
Rental Price: Rental homes are in high demand and rental prices are crazy. A 2,000 square foot home can rent for $2,000 a month and more in Ashland and Jacksonville. In most cases the financial cost of buying is cheaper than renting when you factor in the tax savings of owning.
So, will our current market of increasing home prices and demand continue? The answer is, it’s very likely. Our local economy is at record employment, demand is increasing with the number or retirees and escapees moving here and rental prices are driving tenants to buy. Lastly, interest rates are still lower than they have been in years. These four economic factors are all pointing in one direction, a positive future for Southern Oregon real estate.
NEW 1% DOWN CONVENTIONAL LOAN WITH 2% GIFTED TO YOU!
- Our lender is giving a 2% grant to borrowers that does not need to be repaid
- Loan amounts up to $424,100
- Flexible Underwriting includes: income from non-borrower household members or rental income
- Condos OK
- Must make less than $53,500 if you live in Jackson County
- Must make less than $47,800 if you live in Josephine County
- Minimum 680 FICO Credit Score
- Homeowner education course required
- Not just for first-time home buyers
Call us today for details!
Selling your home is an opportunity to get back what you’ve put into your house – and hopefully more. There are certain things prospective buyers look for in a home to make their purchasing decisions. By making a few simple updates to your property, you can increase your chances of selling at a price point that makes you happy.
Clean Your Home, Inside and Out
A clean home sends the message that the property has been well taken care of, and is ready for move-in as soon as the deal closes. It also gives a good impression during home tours and walk through helping your home stand out in the buyers’ minds. Clean the inside of your home, clearing away clutter and making things look as neat and stylish as possible. Clean the outside as well, because this is the first thing potential buyers will see. Clear the gutters and pressure wash dirty siding.
Make Minor Repairs
You can make your home more appealing to buyers without spending a fortune by investing in minor repairs. Replace cracked windows or patch a leaky roof to boost property value without breaking the bank. Small repairs can go a long way toward making buyers want to make your home their home.
Focus on the Front Entrance
Spend time making your front entryway look its best. This may involve a new coat of paint on your front door, a sharp new welcome mat, planting a few wildflowers, and polishing up your house numbers. Your entryway is important in giving potential buyers a great first impression of your home, and enjoying the view from the curb.
Partner With Real Estate Experts
Sell your home quickly and at the highest possible price with help from the marketers at Expert Properties in Southern Oregon. Our expertise is at your service can help you rest assured your home will sell for what it’s worth. Contact us today for more information.