Homeownership is at an all time high, with the Census Bureau reporting that 73.7 million Americans -- an increase of more than 1.6 million in a year -- own a home. But can this trend continue?
Interest rate forecast
Most economists are looking for interest rates to rise as we move into 2005. The Federal Reserve has raised rates in 2004 and is expected to continue that trend.
The National Association of Realtors predicts that rates will rise to an average of 6.3 percent in the first quarter, compared to an average of 5.9 percent this year. It is important to remember that even as interest rates tick up slightly, we are still expected to continue to enjoy mortgage interest rates that are at historically low levels.
In addition, the mortgage industry has a variety of products available to soften the increase -- adjustable rates, interest only -- to name a few.
Demographics continue positive trends
The baby boomer generation continues to have a major effect on housing. The boomers, in their 50s, are enjoying healthy incomes and starting to experience the empty nest syndrome. They are thinking about retirement. All three factors are good for housing: boomers are moving up to a larger home, moving into an intown condo or loft now that their children are gone, or moving to the beach, lake or mountains as an investment or as a second home.
Their children, the echo boomers, are coming out of college and getting high-tech, high-paying jobs and are buying their first homes.
The emerging minorities -- Hispanics, Asians, African-Americans -- are all poised to have a major impact on housing.
Homeowner equity remains healthy
Strong rates of new home production, a high level of remodeling activity and steady price appreciation have all contributed to the value of the housing stock. In turn, this trend has pushed home equity to a record level of $8.6 trillion, 12 percent above a year ago, according to the Federal Reserve.
In addition, the Fed's financial obligations ratio for America's homeowners (defined as the ratio of debt payments, auto lease payments, home insurance and property taxes to disposable personal income) was only 15.76 percent in the second quarter.
What does it all mean?
All indications are that 2004 will be a record-setting year for housing. The National Association of Realtors is predicting 6.49 million existing home sales, well above the previous record of 6.10 million. New home sales will add another record 1.15 million units compared to the earlier record set in 2003 of 1.09 million.
These same experts are looking for 2005 to be slightly off compared to these unprecedented numbers. Both new and existing home sales will start to slow in early 2005. But the trends discussed above -- reasonable interest rates and a variety of mortgage products, favorable demographics plus emerging minority homeownership factors and steady price appreciation -- will work together to keep the decrease at about 5 percent below the records of 2004.
All in all, not a bad year ahead.
Jim Schmidt is president of Coldwell Banker Residential Brokerage, the No. 1 residential real estate firm in metro Atlanta. The company includes 27 real estate branches plus specialty divisions - The Condo Store, Builder Developer Services, Commercial and Corporate Relocation. Affiliated companies offer mortgage, title and closing services. Coldwell Banker Residential Brokerage is a member of the NRT family of companies. NRT Inc., the nation's leading residential real estate brokerage company, is a subsidiary of Cendant Corporation (NYSE: CD). For more information, call (404) 705-1500 or visit www.ColdwellBankerAtlanta.com.
But where will your child live when he or she leaves the nest for college? Many campuses require students to live in university housing during their freshman year. After that, they are often on their own.
From fraternity or sorority houses to off-campus apartments or group houses, the choices are many and the costs high. But there is a solution that might be a win-win for both your student and your investment portfolio -- purchase a condo or home in your child's college town.
With interest rates still at historic lows, favorable tax laws and the notion that housing is one of the best investments you can make, this option is looking better and better for some parents. You may be able to lower the cost of housing for your child, help them get off to a good start in terms of building a credit history, give them a sense of responsibility and give you peace of mind that your child is in a safe living environment.
Here are a few questions to consider before making a college-area home purchase for your child.
- Is the area around the college growing? Research the city or town where the school is located to see if it has suitable housing at a reasonable price. Check out prices to see if they are appreciating. Find out whether there is economic growth and other industry in the area. A local real estate professional can give you a clearer understanding of the housing picture.
- Will other family members or friends be attending the same college over the years? While college selection is unpredictable, you can sometimes gauge whether the college is popular with your child's peers or siblings. Buying a home for your child now may become a long-term investment (and savings) if you have other children who may attend the same school. If you choose wisely, you may be able to rent the home after your own children have graduated.
- Can owning a home or condo help with tuition fees? Some out-of-state students can establish residence if their parents purchase a home for them in the college town. This may enable students to pay in-state tuition rather than the more costly out-of-state tuition.
- What about the size of the home or condo? It does matter. You may be inclined to buy a one-bedroom residence because the purchase price is lower. But look at the possibility of a home with several bedrooms and baths. If your child has roommates who pay rent, you may be able to generate income above the mortgage payments, giving you a nice return on the investment now. Additionally, multiple bedroom properties may have a higher resale value, making your investment that much more lucrative.
- How can this affect my child's credit history? Consider including your child's name on the contract and loan. This can have several positive outcomes. For one, there are many first-time homebuyer assistance programs that make it easier for students to qualify for a loan. This will help your child establish a credit record, and it may enable you to get a lower loan rate than you may have had on a comparable investment loan. By putting your child's name on the loan, you are also giving him or her a feeling of pride of ownership.
Everyone's situation is different, and professional advice is required. Be sure to consult with your tax or financial planner before you move forward. College is a place for your children to learn new things and prepare for the future. Buying a home in their college town may be a way for you to do the same.
Jim Schmidt is president of Coldwell Banker Residential Brokerage, the No. 1 residential real estate firm in metro Atlanta. The company includes 27 real estate branches plus specialty divisions - The Condo Store, Builder Developer Services, Commercial and Corporate Relocation. Affiliated companies offer mortgage, title and closing services. Coldwell Banker Residential Brokerage is a member of the NRT family of companies. NRT Inc., the nation's leading residential real estate brokerage company, is a subsidiary of Cendant Corp. For more information, call (404) 705-1500 or visit www.ColdwellBankerAtlanta.com.
Record numbers of baby boomers are buying second homes. In 2002, 460,000 consumers joined the ranks of second-home owners.
According to the National Association of Realtors, one in 10 Americans owns more than one house. More than half of those say they use the second home as their vacation getaway, while 18 percent plan to retire there, 16 percent are diversifying their income and 15 percent plan to earn income from renting it.
Because buying a second home can be a different experience than buying your primary residence, here are some tips and thoughts to consider.
* Location, location, location. Still a real estate mainstay, you need to determine the best place for you. The most popular settings are near bodies of water and mountains, in more rural settings rather than urban. However, a growing trend has long-time suburbanites buying in-town residences as a getaway or investment.
Research locations for climate, affordability and demographics. Also, think about how long you want to travel to get to your second home. Most experts agree that the ideal distance is two to two-and-a-half hours, with four hours being the outside limit if you want to use it as weekend escape.
* Make a list of your interests. Remember, the point is to enjoy life more and spend it with those you love, so identify the pastimes you enjoy -- boating, skiing, golf, hiking, etc. Your second home should give you the chance to spend your leisure time doing the things you like to do.
* Know the income tax laws. Vacation homes used primarily by the owner may be considered personal residences, and individuals may be allowed to deduct mortgage interest of up to $1 million of mortgage debt on two personal residences and up to an additional $100,000 for home equity loans. Additionally, you may be able to rent your second home for up to two weeks and still take advantage of the deductions in property taxes. Consult your tax adviser for answers to all of your questions.
* Timing is everything. Almost all real estate markets, especially vacation/resort markets, have a seasonal slump, when buyers may be scarce and purchase prices lower. Talk to a real estate professional who knows the market and can educate you in making the best decision.
* Make a vacation out of the search. Spend time in the destinations you are looking at to get a feel for the travel time, the culture and amenities. Talk to a real estate professional about possible rentals in the area so you can gain a better sense of what it would be like to live there.
Time and money are two of our most valuable assets. Investing in a second home may be a great way to increase both.
Jim Schmidt is president and CEO of Coldwell Banker Residential Brokerage. His company includes 27 real estate branches plus specialty divisions - The Condo Store, Builder Developer Services, Commercial and Corporate Relocation. Additionally, the firm offers mortgage, title and closing services through its affiliated companies. Coldwell Banker Residential Brokerage is a member of the NRT family of companies.
For more information, call (404) 705-1500 or visit www.ColdwellBankerAtlanta.com