The new home sales report released for April’s annualized rate was 619,000 (!). This is the highest rate since January 2008 and dwarfs all readings of the recovery.. Source / Regional Data: US Census Bureau As summer is in its peak season many are traveling to seek out their next potential place to call home. Whether it’s a planned retirement community or just a great town that welcomes retirees, AARC’s got you covered. Please take time to learn about our Seal of Approval communities.
Registration is open for our upcoming annual conference in beautiful Asheville, NC November 9th – 11th. Come and experience a wonderful opportunity to learn more about The AARC and the many communities, trends, research and many others areas that focuses on “Retiree Attraction: Positioning Your Community for Success!” Click to learn more – We hope to see you there!
Andre’ Nabors Chair, The AARC
Trying to Answer the Eternal Question “Where Will Mortgage Rates Go”
Johnathan Smoke, REALTOR.com / July 21, 2016
Everywhere I go these days, people constantly ask me, “Where are rates headed?” Realtors®, colleagues, friends, and family—everyone wants to know. I am an economist, not a politician, so I can’t dodge the question.
Forecasting mortgage rates has been a fool’s errand for more than three years now. The dominant theme from most economists and forecasters has been that rates have to go higher, driven by expected inflationary factors that never seem to materialize.
Instead, today mortgage rates remain near three-year lows.
I’m only human—and I fully admit when I get things wrong. So, here’s my current take on where we go from here.
Global economic concerns, most recently from the Brexit fallout, have kept our mortgage rates low as investors sought refuge in dollar-denominated assets, U.S. bonds, and U.S. mortgage–backed securities. In addition, our own slowdown in economic growth as a result of lower energy prices and lower exports put on hold the Federal Reserve’s previous plans to raise interest rates early and often this year.
Those two forces gave us lower rates this summer and have kept them low.
Where rates move from here depends on what new global and U.S. economic data reveal about economic growth.
Mortgage rates fell substantially in June as a weak employment report for May took a Fed rate decision off the table for June, and then the U.K.’s vote to secede from the European Union diverted foreign investor money into U.S. treasuries.
But in July, rates have been relatively flat, inching up ever so slightly as more positive economic data emerges and the Fed resumes its talk about rate increases in September or later this year.
August will likely look much like July, so these historically low rates should remain until the end of the summer peak in sales, or at least long enough for any summer buyers or refinancing procrastinators to get locked in.
But September could herald more upward movement, with an employment report due in August on the Friday before Labor Day and then with the Fed meeting Sept. 20–21.
While the Fed is not likely to change interest rate policy next week, when its board of governors meets, it could make comments that telegraph a stronger likelihood of a September move. If that happens, mortgage rates could begin a slow ascent in August, as the mortgage market often anticipates the Fed’s official policy changes.
Even with a policy change in September, we likely won’t see rates move enough to boost the average 30-year conforming rate back above 4% by year’s end.
However, the next upward ticks will likely be in response to economic growth and more inflationary pressures than we have seen so far in the recovery. At the same time, there should be less concern about global recession and uncertainty going forward compared with what we have been facing every year for the past four years.
That could mean that once the 30-year moves above 4%, it’ll keep heading up—it’ll be far more likely to keep going up to 4.5% than back down to 3.5%. And then 5.5% could be within range in two to three years.
Eventually, we will clearly see that these low rates are a historical anomaly. The question is therefore not if, but when we will see rates moving more consistently upward to a more normal range. To me, it seems like we’re edging closer to that inflection point.
Soon, it will be the same as it ever was.
When it comes to retirement, multiple streams of income may be the magic phrase. Perhaps you will have Social Security payments, retirement fund distributions, annuity payments or, if you are really lucky, a pension.
For those looking to beef up their retirement income stream, real estate investing is another option to consider.
But investing in real estate isn’t like writing a check to a mutual fund company. This one requires legwork, maintenance and perhaps a few headaches along the way. Think broken pipes, bad tenants or vacant rental units.
“Rental properties can be an excellent way to balance an investment portfolio, since real estate does not correlate highly with stock market fluctuations. Real estate, if purchased correctly and managed properly, can provide a steady stream of income regardless of economic conditions, and can appreciate in value over time, leaving a nice nest egg for retirement,” says Lukas Krause, CEO of Real Property Management in Salt Lake City.
Growth in renting. The current landscape is still positive for real estate investors. “Now is still a great time to buy rental properties,” says Bill Brown, a Realtor in Oakland, California and president-elect of the the National Association of Realtors.
“Interest rates are still low and rents are still rising in a lot of areas. I do, however, think we are closer to the end of the cycle of dramatic rent increases than we are to the beginning,” he says. “We probably have another two to three years of strong-to-moderate rent growth.”
Here are some steps to get started.
Start saving cash. When you have an adequate down payment, get pre-approved for a bank loan so you can act quickly when a great property becomes available, Krause says.
“Do your financial analysis before placing an offer,” he says. “Confirm likely rental rates, the cost of making the property rent-ready, and work with a real estate agent well versed in investment properties.”
The trick for making real estate investing profitable is making sure the numbers work. Make sure there is a large enough rental income stream to cover the mortgage, insurance, taxes, upgrades, refurbishing between tenants, maintenance and repairs.
“Do your due diligence to see if the actual market rent that can be achieved is at or above current rental rates. Real estate is usually a solid investment and if you do your homework, it can pay off quite well,” Brown says.
One method to assess if an investment property is worth purchasing is to utilize the IRS Income Tax Schedule E. Put the numbers on the tax schedule to see if you can cover expenses with the property’s income stream.
Also, ask the current owners for the previous two years of detailed profit and loss statements and current year-to-date statements, Brown says.
First-time real estate investors may want to start small. Options to consider include a single-family home or a small- two or four-unit apartment building. One drawback for a single-family home is that if the rental is vacant, you will be stuck with a 100 percent vacancy rate. A small apartment building can spread the vacancy risk.
Find a property that is affordable to the buyer and to potential renters, Krause says.
“Properties near the average or median property value – $210,000 – tend to be the least risky and can command a good rental rate. Houses with three bedrooms, two bathrooms in a good neighborhood, in a strong school district and in good shape are the most desirable. Think opportunistically. Be on the lookout all the time, because good deals come and go quickly,” Krause says.
Location, location, location. If you plan to manage the property yourself, which will include showing the unit to potential tenants and being on call for maintenance and repairs, you may want to consider a property near your own home for convenience.
Other considerations are types of neighborhoods. Are you willing to be an aggressive investor looking at property in perhaps undervalued but potentially more risky neighborhoods?
“If you’re conservative, do you want a well-established area that will have a lower rate of return but one that you can consistently count on compared to an area you think is in the path of progress where rents will significantly rise in the next three to five years? A Realtor can help you determine what your goals are and what your comfort level is, and then help you find the right area and property for you,” Brown says.
Last but not least, pick your tenants carefully. “Tenant screening is a critical step that is often discounted. If not managed correctly, a whole host of issues could be created to significantly damage your returns, such as increased risk of tenant default, eviction and litigation. Proper screening will include credit and criminal background checks and referrals from past rental property owners. The Fair Housing Act and local and state regulations also must be considered when setting selection criteria,” Krause says.
Investing in real estate should be considered a longer-term commitment. You can’t exit a real estate investment by clicking the sell button on your brokerage house account screen. Take the time to consider all aspects carefully before jumping in.
NAHB’s 55+ Housing Market Indexes (HMIs) are based on a quarterly survey of NAHB members involved in the 55+ housing market. The survey is designed to monitor conditions in three distinct segments of the market: 55+ single-family, 55+ multifamily condo and 55+ multifamily rental.
The 55+ single-family HMI is based on builder perceptions of new 55+ single-family home sales, both current and expected for the next six months and traffic of prospective buyers. The 55+ multifamily condo HMI is based on the same basic components (present sales, expected sales and traffic) for sales of new multifamily condos. For the 55+ multifamily rental market, the survey provides several measures based on ratings of current and expected production of new units, as well as current and expected demand for existing units.
Builders are asked to rate conditions as “good,” “fair” or “poor” (or, for traffic, “high to very high,” “average” or “low to very low”). The responses are used to create diffusion indexes on scale of 0 to 100, where any number over 50 indicates more builders report positive than negative conditions. For the first two segments of the 55+ market (new single-family and new multifamily condo sales), an overall index is provided, based on a weighted average of the current, future, and traffic components. No overall index is produced from the diverse components of the 55+ multifamily rental market.