There’s been discussion in recent years about renting being a better investment than buying a home. Analysts have emphasized that homeowners need to take the perspective that owning a home is more about quality of life than the road to riches. But that’s like saying don’t invest in stocks when prices are low, which is a very short-term view. We’ve been taught to buy low and sell high, and that means even when the real estate market takes a turn for the worse, we need to steel ourselves, hang in there and trust in the long-term return.
It appears the residential market is poised to reward us for that long-term view. Maybe it didn’t make sense to sell your house when prices were dropping, but buying was and continues to be a very good way to build equity for the future. And with mortgage rates still at record lows, homebuyers today can position themselves for some very high returns on their investment in the future.
Jobs to Increase Prices
While improvement on the unemployment front is slow and generally disappointing, there is some comfort in knowing that lower home prices are more influenced by this economic factor rather than pure demographics. With a massive population of baby boomers in or on the cusp of retirement, there’s been concern that overbuilding over the last 30 years to accommodate this population increase would result in mass vacancies as the generation diminishes. However, the recession has helped curbed housing starts and the formation of new households – creating pent-up demand that may well explode when jobs return.
Young college graduates have been forced to move back in with mom and dad, mid-career layoffs have turned elderly parents into landlords, and a proliferation of fixed-income seniors have moved in with their adult children. This constriction of new and previous household formations has lowered demand for housing, thus reducing prices further. Traditionally, the average number of households fluctuated based on demographics, but now we can take heart in knowing that the current excess supply of vacant homes is at least partially due to pent-up demand, and we won’t have to wait for demographics to catch up with supply.
New Rules Proposed for “Investment Statements”
You might call it your mortgage bill, but the Consumer Financial Protection Bureau (CFPB) wants your monthly mortgage statement to look and act more like an investment statement – so you can monitor and manage this asset more closely. A few rules recently proposed by the CFPB include:
· Servicers would have to send regular bills to homeowners each billing cycle that spell out payments by principal, interest, fees and escrow; the amount of and due date of the next payment; and warnings about fees.
· Servicers would have to alert homeowners with adjustable rate mortgages that their interest rates are about to change as early as 7 months before the changes kick in.
· Servicers would have to credit homeowners’ mortgage accounts the day payment is received.
Home ownership has long been considered not only a good investment, but also the key to building significant wealth over a lifetime. As you approach retirement, there are many ways you can position this investment asset to help secure your lifestyle. Please give us a call if you’d like to discuss these options.
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