Seattle is the Top Market for Residential Investors

Among large U.S. cities (more than 300,000 people) Seattle is the best residential market in the country, followed by Nashville, Denver, Aurora and Colorado Springs, Colo., according to a recent WalletHub report. The firm determined the “best” U.S. residential markets based on their prospects for long-term growth, equity and profit for investors.

To determine the best real estate markets, WalletHub compared 300 cities across two key dimensions, namely the health of the real estate market, including affordability and the economic environment. Within those two broad dimensions, the company used 21 relevant metrics, each on a 100-point scale, with a score of 100 representing the healthiest housing market.

For cities with 150,000 and 300,000 people, McKinney, Texas (a suburb of Dallas) was No. 1, followed by Cary, N.C.; Gilbert, Ariz.; Grand Rapids, Mich.; and Fort Collins, Colo.

And for cities of fewer than 150,000 people, the best residential markets, according to WalletHub, were Frisco, Allen, and Richardson, all in Texas, followed by Bellevue, Wash.

Real estate market metrics included home-price appreciation, average number of days till a house is sold, share of underwater houses, foreclosure rate and the city’s ratio of rent price to sale price. Broader economic metrics included population growth, job growth, unemployment and underemployment rates, and median credit scores.

~WalletHub

Five Steps to Take Before Buying a Home

When you’re considering buying your first home, you’re probably full of excitement about achieving the American dream. Unfortunately, this dream could turn into a nightmare if you haven’t made sure that you’re financially ready for the costs of becoming a homeowner. Before you call a realtor, take these five steps to get all your ducks in a row.

1. Calculate what you can comfortably spend

The last thing you want to do is make yourself “house poor” by spending more of your income on a home purchase than you should. The “affordability standard” for housing is that you should spend no more than 30% of your income on housing costs (including insurance and property taxes), while many mortgage lenders prefer that your housing cost is no greater than 28% of your income.

Your outstanding debts can also impact the amount you can spend on a home. Most lenders want a total debt-to-income ratio — including your mortgage payments and other debts — to be around 36% or less, although you can still get a standard mortgage with a ratio as high as 43%.

This means if your income is $50,000, you could reasonably afford about $1,170 per month for your total housing costs if you stuck to the 28% rule — assuming you didn’t have a substantial amount of other debt that would push your total monthly payments above the recommended 36% of income. If we also assume you can pay 20% down and qualify for an interest rate of 4%, then you could potentially afford a home price of up to $250,000. That may or may not be a realistic price in your area, and you may want to aim lower if you have other sizable debts.

2. Save a down payment of 20%

In our example above, we factored in having a 20% down payment when calculating the price of the home you could afford. Paying at least 20% of the value of the home up front is vital, because it allows you to avoid private mortgage insurance (PMI). PMI insures your lender in the event that you’re unable to make payments and the lender must foreclose on you. On a $200,000 loan, PMI could cost you $100 a month or more, depending on how much you paid up front — and you could be paying it for several years.

You’re stuck with PMI until you pay your loan down to 78% or less of the home’s original value. Once you prove to your lender that you’ve reached that milestone, your lender is required to drop the PMI requirement. .

If you don’t have a down payment, not only will you waste thousands of dollars on PMI and additional interest payments, but you’ll also put yourself at substantial risk. When you make a 20% down payment on a home, the value of the house would have to fall more than 20% for the home to be worth less than you owe on it. If you only make a tiny down payment, however, even a slight downturn in the market could mean you’re underwater — i.e., your home is worth less than you still owe the bank. This makes it difficult or impossible to sell unless you can bring cash to the real estate closing for the difference between what your house sells for and what you still owe.

3. Save an emergency fund of three to six months’ worth of living expenses

When you’re a homeowner, you are responsible for everything that goes wrong in your house. Instead of calling a landlord when the furnace breaks or the pipes freeze, you have to call — and pay for — a repair man. If the problems are costly to fix, or can’t be fixed, you’re the one on the hook. If you don’t have money set aside to cover maintenance, repairs, and replacements, then you’ll have to use credit. You don’t want to be paying interest on your new fridge for the next 10 years, so make sure you have an emergency fund to cover the many costs of being a homeowner.

Not only can an emergency fund help you pay for surprise repairs, but it can also ensure that you don’t lose your home in the event that an illness, job loss, or other crisis puts a major strain on your household finances. If you cannot pay your mortgage because your income has taken a hit, you could be foreclosed on, lose your house, and end up with ruined credit. You don’t want this to happen, so save up enough money to pay the mortgage for several months in case something goes wrong.

4. Get pre-approved for a mortgage loan

When you have your financial house in order, it’s time to prove to the bank that you’re ready for the responsibility of taking on a mortgage. You want to get pre-approved by your chosen financial institution before you start shopping for a home. Getting pre-approved means you’ll have a clear idea of what the bank will lend you so you don’t shop outside of your price range. You’ll also be taken much more seriously by real estate agents and any potential sellers to whom you make an offer. Some sellers won’t even consider offers from someone who isn’t pre-approved, because there’s no way to know whether the financing will be available to complete the sale.

If you want your bids to be competitive and you want to know you’re shopping for houses that are priced right, provide your financial information to the bank before you start house shopping and get a pre-approval letter to take with you.

5. Find a buyer’s agent

Although you can technically buy a house without an agent, it’s usually a bad idea to try it — especially if it’s your first home. An agent can help you spot red flags that should send you running away from a prospective home. Agents know the market and can help you make a reasonable offer so you don’t overpay, and they can also guide you through the steps of the buying process, like getting a home inspection.

You’ll want to be sure you find a buyer’s agent, rather than letting the seller’s agent represent both you and the seller. A buyer’s agent is focused only on your interests and has lots of experience helping homebuyers find the house of their dreams. If you’ve already made sure you’re financially ready before calling a realtor, your agent can help you make the buying process low-stress and successful.

~Motley Fool

Seattle Among Top U.S. Cities for Sellers to Get Greatest Return on Investment

The problem for homeowners who decide to sell in a hot real estate market like Seattle, is that it turns you into a buyer in a very competitive environment. But for those who do decide to cash in, perhaps because they’re leaving the area for someplace cheaper, there’s big money to be gained in Seattle and other cities across the West.

A new analysis by Zillow found that sellers who had held onto their home for a little bit of time are seeing huge returns on their investment. Oakland and Portland lead the way, followed by San Jose, Calif., Denver, Los Angeles, Sacramento, Calif., and Seattle.

Zillow reports that the typical seller in Oakland in 2016 sold their home for an average of $590,000 after living in it for just over seven years. That’s an increase of 78 percent more than what they initially paid. In Portland, the typical 2016 seller sold for about $145,000 more than what they paid nine years earlier, a 65 percent gain.

Seattle sellers, bowing to dollar signs and the influx of well-paid technology workers looking to purchase in the area, gained 53.1 percent or $185,000 on a 2016 sale for a home in which they lived for an average of about nine years.

“The housing market can change a lot in 10 years, and you see that reflected in this top 10 list,” Zillow Chief Economist Dr. Svenja Gudell said in a news release. “Buying a home is one of the biggest financial decisions people will make in their lifetime, and it really paid off for sellers in these cities. Every city on this list has been growing extremely fast over the past decade, with the majority passing peak home value hit during the housing bubble. It’s extremely difficult to time the market, but if you’re a longtime homeowner in one of these cities, you could potentially see a great return on your investment.”

That ROI potential doesn’t appear to be slowing, especially in Seattle where home values rose 15.5 percent year over year. That figure makes the city the fastest growing on Zillow’s top 10 list, followed by Boston and Sacramento.

~Kurt Schlosser, GeekWire

U.S. Home Prices Surged in June, Led by Seattle

(AP Photo/Elise Amendola, File)

U.S. home prices climbed higher in June with gains that are eclipsing income growth – creating affordability pressures for would-be buyers.

The Standard & Poor’s CoreLogic Case-Shiller 20-city home price index rose 5.7 percent in June, according to a Tuesday report. The separate national average rose as well, putting it 4.3 points above its housing bubble-era peak in July 2006.

The price increases are different from the bubble period, when subprime mortgages led to a housing bust. There is a shortage of properties for sale, causing the prices to steadily rise at more than double the pace of average hourly earnings. Buyers are also relying on historically low mortgage rates to ease the affordability pressures. Cheaper borrowing costs have kept buyer demand strong despite the price increases.

“Given current economic conditions and the tight housing market, an immediate reversal in home price trends appears unlikely,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.

The largest price gain over the past year occurred in the Seattle metro area with a 13.4 percent increase year-over-year. Portland, Oregon and Dallas recorded sizable price growth.

But other metro areas are seeing a more tempered increase in home values.

Prices rose less than 4 percent in the more expensive New York City and Washington, DC markets. They increased just 2.9 percent in Cleveland and 3.2 percent in Chicago.

The National Association of Realtors said last week that the number of existing homes listed for sale has plummeted 9 percent over the past 12 months to 1.92 million. Because buyers are competing for fewer homes, the Realtor’s median sales price has surged 6.2 percent to $258,300.

Supporting demand have been relatively low mortgage rates.

The average 30-year fixed rate mortgage was 3.86 percent last week, according to mortgage buyer Freddie Mac. Average rates have declined in recent months, in line with Treasury bond yields, as uncertainty has surrounded President Donald Trump’s tax and infrastructure policies and their ability to stimulate faster economic growth.

~Josh Boak, Associated Press