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"The safe way to double your money is to fold it over once and put it in your pocket."
- Frank Hubbard
Featured In This Issue
Special Days and Events
Home Equity, Like Real Estate, is Local
Protect your home from termite damage
Cooking Corner
Special Days and Events
August 1st – Friendship Day
August 4th – U.S. Coast Guard Day
August 26th – Women's Equality Day
The birth flower for August is the Lily. The birth stone for August is Peridot.
Home Equity, Like Real Estate, is Local
by Danielle Hale, Research Economist
For the third year in a row, NAR Research has looked at the equity a homeowner might have in a home owned for 5, 10, 15, and 20 years if it were purchased at the median price. This analysis allows us to learn about the effect of price patterns in many metro areas on homeowner equity over longer periods of time. Examining longer periods of time is important because typical buyers expect to own their home for 7 to 15 years, depending on the buyer's age. Among all buyers, the typical tenure in a home is 10 years. While this is the first year in which our analysis looks at the effect of falling home prices on equity in a wide-spread manner at the 5 year time frame, over a 10 year period (the typical expected time of ownership), the equity situation for our experimental buyers is much more sanguine.
Equity and Wealth – The National Picture
Homeowner equity is a substantial component of household wealth. The Federal Reserve's Survey of Consumer Finances, which is conducted every three years, provides a snapshot of household income and net worth along with basic demographics and detailed information on where households keep the wealth they have accumulated. The most recent survey (conducted in 2007) reflects the situation before home price declines and the tumbling equities market hit household balance sheets. At that time, the median net worth of homeowners was well over $200,000 compared to the median net worth of $5,000 for renters. Furthermore, $200,000 was the median value of owners' homes.
Federal Reserve researchers also conducted a thought experiment to determine how market declines might have impacted the mean and median households through October 2008. Building on the Fed's data, NAR Research estimated the impact for renter and homeowner households through calendar year 2008. The result suggests that despite declines in equity and housing markets, the typical U.S. homeowner ended 2008 with a net worth many orders of magnitude greater than that for the typical renter.
The Local Picture – and Assumptions
The equity calculations at the metro level are based on the following assumptions.
- Homeowners had 100 percent financing for the purchase price of the home (i.e. did not make any down payment). This would tend to underestimate the amount of equity earlier home purchasers have accumulated. According to the most recent NAR Profile of Home Buyers and Sellers, in 2003, 39 percent of first-time home buyers put 10 percent or more down. While the amount of downpayments trended down throughout the decade (in 2007 and 2008, 45 and 34 percent of first-time home buyers, respectively, financed 100 percent of the home purchase price), the 2009 data show that only 20 percent of first-time home buyers financed 100 percent of their home purchase.
- Homeowners have not tapped into any of the equity in a home with lines of credit. This is likely to overstate the amount of equity currently available to home owners, but does not affect the consideration of how much equity could have been built up.
- Home buyers financed their home purchase with a 30-year fixed rate mortgage, that the loan was fully amortized (buyers pay both principle and interest over the 30-year period), and that home buyers have not refinanced since the initial purchase. If buyers took out interest-only or balloon loans, the calculations overestimate equity in a home. This assumption may lead to an underestimation of home owner equity if buyers took advantage of the opportunity to refinance and did not pull cash out at that time.
- All equity gains are expressed in nominal dollars.
Latest Results
Despite the national scope of the housing downturn, our look into the latest equity picture reminds us that real estate is incredibly local. For instance, 87 metropolitan areas have had positive price appreciation over a five-year period. In the top 13 areas, a median buyer could have accumulated more than $50,000 in equity over the last five years. Among the 67 areas that have had negative price appreciation, if a buyer had put zero down on a regular 30-year fixed-rate mortgage and paid it regularly upon purchasing a median priced home, equity would remain in 25 areas.
It's important to note, however, the impact of the recent housing crisis in many metro areas where those "price corrections" were devastating. Owners would be more than $50,000 "underwater" in 11 of those metros, all of which are in the "boom and bust" states of California, Nevada, and Florida.
Over the last 10 years, the price and equity picture is much brighter. Median buyers in the top 29 metro areas could have accumulated at least $100,000 or more in equity. Interestingly, 4 of the 6 California cities that have had the biggest equity losses over the last 5 years are among the biggest gainers over a 10-year horizon. Only 12 of 154 metro areas had negative price growth over this 10 year period, and only 7 areas-concentrated in the "rustbelt" states of Ohio and Michigan-experienced a decline substantial enough to leave a median buyer underwater.
Over an even longer term, we see positive equity build-up in all areas. For example, in 75 of the 154 areas in this experiment a buyer who bought at the median price 20 years ago could have over $100,000 in equity in her home. In an additional 67 areas, the buyer could have more than $50,000 in equity. (Individual metro reports are available on our web site.)
Not Just an Investment – a Home
Of course financial considerations are not the only factors that matter to owners. There are substantial non-financial benefits to buying a home-owners have a stable place to live and the bulk of their monthly housing costs, principal and interest, will not go up. Homeowners are also more likely to invest in their community by participation in membership and community organizations. REALTORS® help buyers and sellers by navigating the local market and also by increasing awareness of these long-term financial and non-financial benefits to home ownership.
Into the Recovery
How has the recovery of the stock market and a sluggish housing market affected owners and renters? For the first time ever, the Federal Reserve resurveyed the 2007 participants in 2009 to directly measure how the crisis and recession affected their finances. These results are expected in late 2010. NAR Research will again analyze this information when it becomes available.
Reprinted from REALTOR® Magazine July 2010 with permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright 2010. All rights reserved.
Protect your home from termite damage
As Americans head outside to tend to their lawns and repair their houses, it's just as important to consider what might be happening out of sight, deep inside the home.
Termites, which are found in every state except Alaska, live in colonies that eat continuously. These wood-destroying pests eat homes from the inside out, making their presence difficult to detect. Termites annually cause more than $5 billion in damage, and the destruction termites cause is not normally covered by homeowners insurance, leaving owners to pay an average of $3,000 in out-of-pocket costs for repairs, according to Terminix.
"In most cases, it's easy to tell when a house is in need of repair. Either the paint is chipping or the roof is leaking. But that's not usually the case with termite activity," says Paul Curtis, a Terminix entomologist. "Because termites are often active in the least visible areas of a home, it can be difficult for the homeowner to tell whether they have a termite problem or not."
Usually, homeowners will only be able to tell they have a termite infestation during swarm season. That's when winged, reproductive termites leave their colonies and establish new ones.
A swarm can be identified by the large number of flying termites and by the discarded wings they often leave near doors and windows.
"Termites do not discriminate. They eat wooden framing, support beams and the wood flooring inside your home the same way they would a tree in the forest," Curtis says.
While swarming only takes place during certain times of the year, termite colonies never stop eating, even to rest or sleep. Unless evidence of a swarm is discovered, or damage is severe enough to be noticed, a trained professional will most likely be required to identify the presence of termites within a home.
Although eliminating termites requires the help of a trained professional, homeowners can take the following proactive steps to make their homes less inviting to these wood-destroying pests:
- Fix the roof or plumbing leaks. The moisture from these allows termites to survive above ground.
- Clean and repair gutters. Gutters that do not drain properly can allow water to accumulate near the foundation.
- Eliminate wood-to-soil contact. Any wood that simultaneously touches the soil and the home can provide termites with direct access to the structure.
- Keep mulch or soil from being piled against the home's siding. Soil or mulch allowed to pile up against the home can hide termite activity.
- Avoid storing items in the crawlspace. Pieces of scrap lumber, boxes or even books can serve as a food source for termites.
- Maintain adequate ventilation in crawlspaces. Termites prefer moist conditions. Eliminating moisture can help make the environment less suitable to them.
- Use a mesh screen on all windows, doors and ventilation openings. Screening will help prevent winged termites from entering the home.
- Schedule an annual inspection with a trained professional. Prompt treatment and regular inspections can save thousands of dollars in damage repair.
Courtesy of ARA Content
 Cooking Corner
Frozen Strawberry Cheesecake
Courtesy FoodNetwork.com
1/2 gallon good-quality strawberry ice cream
1 1/2 cups fine graham cracker crumbs
6 tablespoons melted butter
1/4 cup plus 2 tablespoons sugar
1 store-bought cheesecake (8 or 9 inch), room temperature
1 pint strawberries, hulled and cut into pieces
1/2 lemon, juiced
Set the ice cream out at room temperature to soften for about 30 minutes. Meanwhile, use a fork to mix together the graham cracker crumbs, butter, and 1/4 cup sugar in a bowl. Press this mixture over the bottom and sides of a 9-inch springform pan with your fingers; then press all over with the flat bottom of a glass to get the crust really well pressed together and compact. Set aside.
When the ice cream has softened, cream it in a mixer with a paddle attachment (or by hand in a bowl with a wooden spoon) until soft and creamy, but not melted. Break the cheesecake into pieces and beat or fold it into the ice cream. Pour the mixture into the prepared springform pan and smooth the top. Put that in the freezer to set.
Now combine the strawberries, the remaining 2 tablespoons sugar, and the lemon juice in non-reactive saucepan and warm over medium heat just until the strawberries begin to break down and give off their juice, 3 to 5 minutes. Stick that into the refrigerator to chill.
When you're ready to serve, remove the sides of the springform pan and put the frozen cheesecake on a cake plate. Spoon the strawberries over the top and serve.
Hope you've enjoyed August’s Newsletter. Please call or send an e-mail if you have any questions about buying, selling, or investing in real estate. |
