Discussing how much you need to make to buy a home, foreclosure starts and mortgage delinquencies, home remodeling is booming, the racial wealth gap and owning a home plus more!
How Much Do You Need to Make to Buy a Home in Your State?
I just wrote an article about housing supply and affordability which lead to discussing the price of a home compared to the cost of a home. The take away is that the cost of owning a home is much lower than in the past.
Still, you must think about how much you can afford and how much you need to earn to buy a home in your area. Also, you have to consider the cost of living where you live!
A recent study by GOBankingRates looked at how much you would need to make to buy a median-priced home in each of the 50 states, and Washington, D.C. Check out this map showing their results:
As you can see, you only need to earn $45,000 according to the study to buy a median-priced home in South Carolina. Of course, there are many other variables such as your , the home’s price, your credit, the type of mortgage you are using, how much you are putting down, etc.
Still, you can see that you do not have to make a ton of money to afford a home in South Carolina. Especially in Anderson County…
But you must decide what is truly affordable for you. You need to decide on what is the maximum monthly housing payment that you can safely afford.
Before you buy a home, it’s important to find out if you can afford the monthly mortgage payment. To do this, some financial experts recommend your housing costs — primarily your mortgage payments — shouldn’t consume more than 30 percent of your monthly income.
I would advise you against spending 30% of your monthly income on your housing costs. You do not want to be house poor!
In the same article I wrote earlier this week, I shared that people only needed to spend 15.7% of their income to buy a home in the 4th quarter of 2017. This is much lower than the 21% that has been the percentage of income to buy a home historically.
Again, this means the cost of a home is very affordable today compared to the past!
Foreclosure Starts and Mortgage Delinquencies Improve
From Black Knight:
Total U.S. loan delinquency rate (loans 30 or more days past due, but not in foreclosure): 3.73%
Month-over-month change: -13.24%
Year-over-year change: 3.09%
Total U.S. foreclosure pre-sale inventory rate: 0.63%
Month-over-month change: -3.21%
Year-over-year change: -29.29%
Total U.S. foreclosure starts: 52,100
Month-over-month change: 11.56%
Year-over-year change: -13.60%
Monthly prepayment rate (SMM): 0.88%
Month-over-month change: 22.04%
Year-over-year change: -9.08%
Foreclosure sales as % of 90+: 1.70%
Month-over-month change: 21.25%
Year-over-year change: -25.79%
Number of properties that are 30 or more days past due, but not in foreclosure: 1,912,000
Month-over-month change: -286,000
Year-over-year change: 81,000
Number of properties that are 90 or more days past due, but not in foreclosure: 632,000
Month-over-month change: -65,000
Year-over-year change: 43,000
Number of properties in foreclosure pre-sale inventory: 321,000
Month-over-month change: -10,000
Year-over-year change: -127,000
Number of properties that are 30 or more days past due or in foreclosure: 2,232,000
Month-over-month change: -296,000
Year-over-year change: -47,000
Great news but remember this is talking about the entire US. As I always say, you must work with a local experienced Realtor to determine exactly what is happening in your market!
The Conference Board Leading Economic Index for the U.S. Increased
From The Conference Board:
The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.3 percent in March, following a 0.7 percent increase in February, and a 0.8 percent increase in January.
Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board, said:
The U.S. LEI increased in March, and while the monthly gain is slower than in previous months, its six-month growth rate increased further and points to continued solid growth in the U.S. economy for the rest of the year. The strengths among the components of the leading index have been very widespread over the last six months. However, labor market components made negative contributions in March and bear watching in the near future.
Excellent news but this does not take into account the possibility of a trade war derailing the economy in the coming year. Consider this snippet from Business Insider:
Officials from the Federal Reserve, International Monetary Fund, and World Trade Organization have all mentioned the recent rash of protectionist policy and rhetoric, particularly from the US, in terse public statements over the past few weeks.
The groups seem to have one message for the president: Be careful.
We have to take these warnings both seriously and with a grain of salt. Sadly, we must always wonder if there is an ulterior motive for criticizing any policy changes that will affect businesses or large multinational corporations.
I have read several studies that prove that tariffs do not help as much as they hurt. And we have already seen that the tariffs on Canadian lumber has hurt home builders at a time that is especially critical for the housing market.
Remodeling Strong and Expected to Remain Calm for Rest of 2018
There were several positive reports about remodeling this week. First up, let’s consider the news from the NAHB:
The National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI) posted a reading of 57 in the first quarter of 2018, down three points from the previous quarter and back to the same level as the third quarter of 2017. The RMI has been above 50—indicating that more remodelers report market activity is higher compared to the prior quarter than report it is lower—since the second quarter of 2013. The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity.
NAHB Remodelers Chair Joanne Theunissen said:
An RMI reading over 50 shows that consumers still remain engaged in home improvement. However, higher prices for labor and materials like lumber continue to cause delays in project starts and higher overall project costs.
Sounds pretty positive other than the rising costs for materials and wages. Theunissen does not specifically mention the Canadian tariffs as the cause for rising lumber costs…
Moving on, the Harvard Joint Center for Housing Studies said:
The robust pace of spending on home renovations and repairs is expected to stay strong over the coming quarters, according to our latest Leading Indicator of Remodeling Activity (LIRA). The LIRA projects that annual growth in homeowner remodeling expenditure will remain above 7 percent throughout the year and into the first quarter of 2019.
Strengthening employment conditions and rising home values are encouraging homeowners to make greater investments in their homes. Upward trends in retail sales of building materials and the growing number of remodeling permits indicate that homeowners are doing more—and larger—improvement projects.
Another good report for remodeling. Some of the increase in remodeling is due to owners deciding to stay instead of selling.
With the low inventory of homes for sale, many home owners are choosing to remodel or add on to their current home. Many owners fear that their home will sell before they find their next home.
With the still low mortgage rates and the current seller’s market, many owners may be missing a great opportunity to “trade up” to a larger, nicer home.
Black Mortgage Applicants Denied at More Than Twice the Rate of Whites
Nationwide, the share of applicants denied for a conventional mortgage loan fell to 9.8 percent in 2016, according to a Zillow analysis of loan data from the federal Home Mortgage Disclosure Act (HMDA). Since peaking in 2007 on the eve of the housing bust, the overall denial rate has fallen in each of the past nine years compared to the year prior and currently stands at its lowest level since at least 1994.
But despite that progress, white and Asian borrowers remain much less likely to be denied a conventional loan than their black or Hispanic peers. In 2016, 20.9 percent of black borrowers and 15.5 percent of Hispanic borrowers were turned down for a conventional loan; at the same time, just 8.1 percent of white and 10.4 percent of Asian applicants were denied a conventional loan.
The picture is similar for loans backed by the Federal Housing Administration (FHA), which tends to focus its lending programs on borrowers with lower income and/or lower credit scores – FHA denial rates overall are down, but remain much higher for borrowers of color than for white borrowers. In 2016, 18.6 percent, 15.3 percent and 14.8 percent of black, Asian and Hispanic borrowers, respectively, were denied for an FHA-backed loan. At the same time, just 11 percent of white FHA applicants were denied.
Owning a home helps to build wealth and gives owners a stable set monthly housing cost when using a fixed rate mortgage. Could the lower level of home ownership among blacks be adding to income inequality?
Would increasing the home ownership rate for blacks help the income inequality problem? Not really according to a recent study:
Homeownership and wealth are clearly correlated, but it is a severe misstatement to claim that if blacks owned homes at the same rate as whites the racial wealth gap would be closed. To be sure, a sizeable difference in ownership rates exists, as well as a dramatic difference in home equity across black and white homeowners.
I know we should not think that correlation is the same as causation. The writers of this paper are saying that the differences in wealth were present BEFORE buying a home.
Without sufficient wealth in the first place, households have limited means to invest in homeownership. Wealth, after all, begets more wealth.
Common sense tells us that you have to be able to buy a home to enjoy the wealth building effect of home ownership. And if you do not have the means to buy a home, then owning a home is obviously out of your reach.
But would increasing the level of black home owners help income inequality? There are many other benefits to owning a home besides just wealth building that must also be considered.
This report does discuss many 9 other myths about the racial wealth gap in America. It is a problem that needs to be solved.
Exactly how it an interesting question and I wish I had an easy solution. I am not sure I agree 100% with all of this study but it is a good read.