by Phillip B. Burum, DR Horton,
President, Building Industry Association (BIA) Baldy View Chapter
For homebuyers looking to attain the American Dream of homeownership or homeowners looking to refinance their homes for a more desirable mortgage rate and/or additional cash, 2019 is shaping up to be an excellent year to be a homeowner.
Because the home is, for most Americans, the greatest creator of personal wealth and the biggest and best investment they will ever make - one of the most important investment terms homeowners and homebuyers alike should know is ‘appreciation’. Webster’s defines appreciation as “an increase in value” – more accurately in this context, an increase in the financial value of a property.
The most recent Case-Shiller U.S. National Home Price Index reported by S&P Dow Jones Indices delivered some good news earlier this year when it reported that “(n)ational home prices rose faster at a seasonally adjusted annual growth rate in October than in September”. The report went on to say that home values rose at a seasonally adjusted annual growth rate of “6.1 percent in October”.
CoreLogic, the Irvine-based global property information, analytics and data-enabled solutions provider in January released The CoreLogic Home Price Index (HPI) for November 2018, saying home prices “rose both year over year and month over month” and “increased nationally by 5.1 percent year over year from November 2017”. The CoreLogic HPI Forecast - a projection of home prices calculated using the CoreLogic HPI and other economic variables - “indicated that home prices will increase by 4.8 percent on a year-over-year basis from November 2018 to November 2019”.
The firm reported the median home price in San Bernardino County as $325,000 – the most affordable of all of the Southern California counties. To add some perspective, five years ago this month the median price for a home in San Bernardino County was $218,000. That equates to an appreciation in median value of over 10 percent per year.
As I noted in this column a year ago “from 1971 through 2017, the average home value has appreciated by over four percent per year. That appreciation is on the entire value of your home, not just the equity you have invested. What that means to the homeowner is that their equity investment can be expected to produce a 20 percent annual rate of return over the life of ownership”. In the median value appreciation scenario above, a twenty percent equity investment into a median priced home five years ago would have resulted in a 35 percent annual rate of return.
The appreciation of the value of the home, the ability to leverage that value into additional financial transactions and the many tax incentives offered by the government are just some of the many long-term financial benefits that make owning a home one of the best possible investment opportunities Americans can make.
Add this to the fact that we are still enjoying historically low mortgage rates. To offer some perspective, 25 years ago, mortgage rates were averaging about 9.5 percent for a fixed – rate mortgage (FRM) or 7.6 percent for an adjustable – rate mortgage (ARM). Those rates were about twice what they are today.
Because today San Bernardino County offers variety of homes for sale in all price ranges here with historic affordability levels and low interest rates, the American Dream of homeownership is within reach of more households than it has been for nearly two decades.
You have heard it before and you will continue to hear it from me; the only day better than today to buy a new home was yesterday. Stop trying to predict the market and buy at precisely the right moment. Hoping for a two percent negotiated discount or dreaming for a major adjustment in the home valuations won’t help you long term. If history has taught us anything, home values will rise, and mortgage rates will follow suit. Do the math, then find a home that you love and take the leap. It is time to get off the sidelines and start building personal wealth.
The BIA Baldy View Chapter seeks to advance the opportunity to attain the American Dream of home ownership. For additional information on home buying or the benefits of homeownership, go to www.biabuild.com on the web.
*****
