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Renting vs. Buying: The Net Worth Gap You Need To See

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Trying to decide between renting or buying a home?

One key factor that could help you choose is just how much homeownership can grow your net worth.

Every three years, the Federal Reserve Board shares a report called the Survey of Consumer Finances (SCF). It shows how much wealth homeowners and renters have – and the difference is significant.

On average, a homeowner’s net worth is nearly 40 times higher than a renter’s. Check out the graph below to see the difference for yourself:

 
 

Why Homeowner Wealth Is So High

In the previous version of that report, the average homeowner’s net worth was about $255,000, while the average renter’s was just $6,300. That’s still a big gap. But in the most recent update, the spread got even bigger as homeowner wealth grew even more (see graph below):

 
 

As the SCF report says:

“. . . the 2019-2022 growth in median net worth was the largest three-year increase over the history of the modern SCF, more than double the next-largest one on record.”

One big reason why homeowner wealth shot up is home equity.

Equity is the difference between your home’s value and what you owe on your mortgage. You gain equity by paying down your mortgage and when your home’s value goes up.

Over the past few years, home prices have gone up a lot. That’s because there weren’t enough available homes for all the people who wanted one. This supply-demand imbalance pushed home prices up – and that translated into faster equity gains and even more net worth for homeowners.

If you’re still torn between whether to rent or buy, here’s what you should know. While inventory has grown this year, in most places, there’s still not enough to go around. That’s why expert forecasts show prices are expected to go up again next year nationally. It’ll just be at a more moderate pace.

While that’s not the sky-high appreciation we saw during the pandemic, it still means potential equity gains for you if you buy now. As Ksenia Potapov, Economist at First American, explains:

“Despite the risk of volatility in the housing market, homeownership remains an important driver of wealth accumulation and the largest source of total wealth among most households.”

But prices and inventory are going to vary by area. So, lean on a local real estate agent. They’ll be able to give you the local trends and speak to the other financial and lifestyle benefits that come with owning a home. That crucial information will help you decide the best move for you right now. As Bankrate explains:

“Deciding between renting and buying a home isn’t just about cost — the decision also involves long-term financial strategies and personal circumstances. If you’re on the fence about which is right for you, it may be helpful to speak with a local real estate agent who knows your market well. An experienced agent can help you weigh your options and make a more informed decision.”

Bottom Line

If you’re not sure if you should rent or buy, keep in mind that if you can make the numbers work, owning a home can really grow your wealth over time.

And if homeownership feels out of reach, connect with a local real estate agent and lender. They can help you explore programs that may make buying possible.

Read more at KeepingCurrentMatters.com

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When To Sell Your House: 6 Surefire Signs Now Is the Time

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When to sell your house is not always the easiest question to answer.

Most people don’t plan on living in their first (or second or maybe even third) home forever, but knowing when the time is right to put your home on the market can be tricky.

In fact, selling a home can feel kind of like breaking up with a longtime partner. Deep down, you knew you wouldn’t be with that person forever—but ending things can be way easier said than done.

Sometimes life changes force the issue and bring a decision to a head: There’s little reason for self-doubt or angst if you’re relocating to another state for a job or you know your newborn twins won’t fit in your one-bedroom bungalow. But without a pressing reason staring you in the face, it can be hard to know when to sell your house.

So, how do you know when it’s time to let go? Here’s what the professionals have to say.

1. You’re feeling cramped, and you can’t add on

Your family might not be growing, but that doesn’t mean your lifestyle still fits in your current house.

If you’ve started working from home, for example, or you’ve adopted an extended family of indoor cats—or maybe you’ve just never gotten over your dream of having a sewing room—your house might be too small.

But before you jump to conclusions, see if paring down your possessions works to free up some space.

Another option might be to finish an attic or basement, add another room, or even add a whole story to your home. But, of course, that won’t work for everyone.

To decide which route to take, check your local building laws and get estimates from two or three contractors. It also wouldn’t hurt to check with your real estate professional. Sometimes adding on won’t increase the value of a home, and you don’t want to make big-time improvements that will bring only a small-time return on your investment.

2. You have too much space

On the other hand, perhaps you’re feeling overwhelmed by vacant rooms and silence. (Hello, empty nesters!)

If you are rattling around a too-large home, it may be time to downsize.

Saying goodbye to a family home can be difficult, but you should consider how feasible it is to stay. If yardwork and house upkeep are getting to be a little too much, or soaring utility bills are cramping your style, it might make more sense to move.

3. You’re over the neighborhood

Maybe you can no longer deal with the rigid rules of your homeowners association, or perhaps your neighbors turned their house into a rental for frat guys. Whatever the reason, neighborhood dynamics can change dramatically over time.

And sometimes, you can change. Maybe the 40-minute commute to work didn’t seem like such a big deal the first few years, but now you’re dreading it every day. Or your kids are getting older, which can be a big problem if you’re not in the right location.

4. Remodeling won’t offer a return on your investment

Giving your kitchen or bathroom a face-lift can make your house feel like new again, which might be all you need to decide you want to stay put for years. But that doesn’t mean it’s a financially sound decision.

If your home is already similar in style and condition of some of the priciest homes in the neighborhood, remodeling might be a bad idea, and you should consider selling instead.

5. When to sell your house? When you can afford to sell

Sure, you’re going to make money when you actually sell your house, but as the adage goes, it takes money to make money. So seller beware: You probably won’t be sitting around and waiting for the dollars to roll in.

Most sellers need to make some minor improvements such as painting, landscaping, or updating flooring to get a good price on their home. Those costs will come out of your pocket at first, so it’s a good idea to have a cushion before you start.

6. You’re ready to compete

If you’re living in a seller’s market, you might be enticed to offload your home before things cool off. But don’t forget—once you sell, you’ll probably be a buyer, too.

If you’re going to get out there, you should make sure you’re ready to compete.

Read more at Realtor.com

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How to Create a Cozy Wintertime Bedroom

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When wintertime brings cooler temperatures and earlier bedtimes, there’s only one thing a homeowner can do: Amp up the cozy factor in your bedrooms by bringing in warm color palettes, layered bedding, textured elements and mood lighting to bring comfort to those long nights.

Interior designers say bedrooms often are the most neglected spaces in a home as people focus on kitchens or family rooms for decor and furnishings. But in the winter, there is no better space to snuggle up, watch your favorite show or pick up that book you’ve been meaning to read than the bedroom of your dreams.

“The bedroom should be a destination,” says Corey Damen Jenkins, a New York by way of Detroit interior designer and founder of Corey Damen Jenkins & Associates. “I’m very passionate about the bedroom because we as humans need to take better care of ourselves, and that starts with a room you use every day, like the bedroom.”

2024 Bedroom Trends

When it comes to budget, adding more layers and interest to a bedroom is one of the most cost-effective and long-term improvements to make in a home, Jenkins says. Whether it is a fluffy blanket, a new lamp, a high-quality mattress or a leather reading chair, all of these elements can be found by shopping an estate sale store or upcycling a family heirloom.

Jenkins says 2024 trends include bringing in color, comfort and individuality into the bedroom – and that includes the main, the kids’ rooms as well as guest spaces. The pandemic taught homeowners the importance of creating restful retreats but, as people invite guests back into their homes, also providing a warm and welcoming area for overnight stays.

And if you’re not quite ready to embrace maximalist style and vibrant colors in your own bedroom, you can try it out in a guest space or children’s room, Jenkins says. Use two different nightstands that you inherited from your parents. Add a faux fur throw. Upgrade a mattress to an upscale brand like Stearns & Foster with a quality bed frame. It all goes together if you love it, he says.

“I call it eclectic exuberance,” Jenkins says. “It’s more about the mix than the match.”

Cozy Bedroom Ideas

Here are some tips and tricks for making any bedroom feel like a cocoon where you can rest until springtime comes back around.

Think about your textiles. Marzia Dainelli is the CEO and interior designer at Dainelli Studio in Milan, Italy. She recommends homeowners bring in flannel or thick cotton for their sheets and related textiles for the winter. “Adding soft plaids or decorating pillows of different sizes also can enhance both the comfort and aesthetics of the room,” she says.

Bring in luxury. Dean Tomihama, vice president of creative design for fine linen company Sferra in New York, says homeowners should double down on luxury fabrics. “Sateen sheets are dense in weight and are ideal for cooler temperatures,” Tomihama says. “Winter is a great season to introduce a throw blanket, especially in a chunky weave.”

Pump up your pillows. “Throw in a plush pillow bash in all shapes and sizes,” says Alice Moszczynski, a New York-based interior designer for Planner 5D. “Not only do they bring comfort to the party, but they also add a touch of luxury. Velvet or faux fur pillows? This is the perfect season for them. A great option is the Restoration Hardware cashmere throws and the velvet brushstroke collection for pillows.” Jenkins recommends leaving the piles of pillow for a guest room while simplifying what is in the main with maybe two primary pillows with a decorative sham and lumbar pillow at the front.

Accessorize your nightstand. Jenkins says he brings beauty to his personal bedroom with what he selects to sit next to his bed. There, you’ll find potted eucalyptus, one of his favorite books such as the “Wizard of Oz,” antique perfume bottles with new scents as well as a goblet for water. “The bedroom should be where you immerse yourself in beauty,” Jenkins says.

Use nature as a guide. Mother Nature plays a pivotal role in establishing a comforting vibe in a primary bedroom. “Earthy tones, reminiscent of the outdoors, have a calming effect,” says Jenon Bailie, merchandising and design director at Room & Board. “The goals are to make this space feel cozy and comfy to destress from our hectic days and give yourself the best chance for a restful, relaxing night’s sleep.”

Boost color. Trina Rogers, a color consultant and owner of Five Star Painting in Temple, Texas, recommends hues such as greige, light pink, creamy gold, rich purple and earthy green for the primary and guest bedrooms. She says the winter is a great time to paint because the dry climate allows paint to dry faster and homeowners can enjoy their new spaces quickly. She loves a gold tone because it is more subtle than a sunny yellow. “In the evening, the warm tones of gold will bring balance to the room’s lower light levels,” Rogers says. “In the morning, as the sun rises, it will gently bring out more of the yellow tones, leaving your bedroom washed in a soft glow.”

Set up a book nook. Bailie recommends setting up a dedicated space for reading and journaling in the bedroom, as it is an ideal space for unwinding after work. “Carving out a spot for reading encourages a tranquil escape and somewhat of a sanctuary for you to curl up for a good book,” she says.

Add aromatherapy. Moszczynski says essential oils or scented diffusers are spicy additions to any bedroom setting. “Imagine enveloping yourself in the comforting embrace of fragrances like cinnamon, vanilla or cedar – each has its unique ability to transform your room in a haven,” Moszczynski says.

Include cheery lighting. Adding more lighting near the bed is a great way to create visual warmth, Bailie says. “Lighting has a strong impact on a room,” she says. “In the darker months when natural light is scarce, having more light at your fingertips ensures that the bedroom remains a well-lit and inviting space.”

Fire it up. Bring in a fireplace or electric heater to add an extra layer of comfort, Moszczynski says. “There’s something inherently comforting about the presence of a fireplace,” she says. “The warm glow and gentle crackling create an ambiance that invites relaxation and intimacy.”

Read more at USNews.com

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Average age of first-time homebuyers is 38, an all-time high. Here’s what that says about the real estate market

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First-time homebuyers in the U.S. are getting older.

The median first-time homebuyer has reached an all-time high age of 38 years old, three years older than in July 2023, according to the National Association of Realtors’ 2024 Profile of Home Buyers and Sellers report. This summer, the NAR polled 5,390 buyers who purchased a primary residence between July 2023 and June 2024.

In the 1980s, the typical first-time buyer was in their late 20s.

“The first-time homebuyer who can enter into today’s market is older, has a higher income [and] is wealthier,” said Jessica Lautz, deputy chief economist at NAR, pointing out that higher home prices require bigger down payments.

Additionally, the share of first-time homebuyers on the market decreased over the past year from 32% to 24%, the lowest since NAR began collecting data in 1981.

Factors including the nationwide housing shortage, competition against wealthier buyers and high rent prices make it more difficult for younger adults to buy their first home, according to experts.

‘The biggest issue of housing today’

The housing shortage in the U.S. is “the biggest issue of housing today,” said Orphe Divounguy, senior economist at Zillow.

As of mid-2023, there is a housing shortage of four million homes, according to the NAR. Construction of new homes has been slow in recent years, and more buyers are competing for available homes, pushing up prices.

“We do need affordable housing,” said Jonathan Scott, co-host of the HGTV series “Property Brothers.” “It’s going to affect all of us if we don’t start acting now.”

During a recent CNBC Your Money event, Scott said a sustained housing shortage could dramatically influence first-time buyers over the long run. “Give it another 20 years and literally no young person will be able to afford to purchase a home, period,” Scott said.

Building activity has somewhat improved. Single-family housing starts in the U.S., a measure of new homes that began construction, grew to 1,027,000 in September, according to U.S. Census data. That is a 2.7% jump from August.

Yet, “we are still in a very, very constrained market,” said Selma Hepp, chief economist at CoreLogic. “Because of fewer homes on the market, you have more pressure on home prices.”

In August, the cost of a typical starter home was $250,000, up from $240,000 a year prior, according to Redfin.

‘The winners in today’s housing market’

The housing market is dominated by repeat homebuyers and sellers, or those who have owned and sold homes more than once. Prior homeownership gives them access to home equity to tap, in some cases enough to buy homes outright.

About a quarter, or 26%, of homebuyers paid cash for their home, an all-time high for cash buyers, the NAR found.

U.S. homeowners with mortgages have a net homeowner equity of more than $17.6 trillion in the second quarter of 2024, according to CoreLogic. Home equity increased in the second quarter of this year by $1.3 trillion, an 8.0% growth from a year prior.

Baby boomers and retirees are “the winners in today’s housing market,” said Lautz. The typical repeat homebuyer is now 61 years old, and sellers are typically 63, per the NAR report.

“When we look at the average homebuyer, for older buyers, they have about $300,000 in home equity versus younger millennial buyers,” Hepp said.

‘We’re seeing renters staying renters for longer’

Other factors such as high rent costs and elevated debt-to-income ratios make it hard for would-be buyers to save for a home, experts say. 

Rent prices increased faster than tenants’ wages during the Covid-19 pandemic. In 2022, rent growth peaked at 16% at an annual basis, Divounguy said. That same year, wage growth peaked at 9.3%, according to data from Indeed.

The price jump meant the typical renter spent about 31% of their income on rent. About half of renter households were “cost burdened,” meaning they spent more than 30% of their income on housing.

“We’re seeing renters staying renters for longer because affordability has been so squeezed,” he said.

High rent prices not only affect your ability to save money to buy a home, but it can also affect your ability to pay down any existing debt, Lautz said.

For instance, if a potential buyer has outstanding student loans, their monthly rent cost could make it harder for them to make larger payments toward their debt balance, she said.

That in turn influences your debt-to-income ratio, or how much money you’re paying every month toward debt. That is an important factor when qualifying for a mortgage. Essentially, lenders consider the DTI to see if a borrower can sustain a mortgage payment on top of existing loan obligations.

“All of these things snowball, especially in an inflationary environment,” Lautz said.

Read more at CNBC.com

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What To Look For From This Week’s Fed Meeting

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You may be hearing a lot of talk about the Federal Reserve (the Fed) and how their actions will impact the housing market right now. Here’s why.

The Fed meets again this week to decide the next step with the Federal Funds Rate. That’s how much it costs banks to borrow from each other. Now, that’s not the same thing as setting mortgage rates, but mortgage rates can be influenced through this process. And if you’re thinking about buying or selling a home, you may be wondering about the downstream impact and when mortgage rates will come down.

Here’s a quick rundown of what you need to know to help you anticipate what’ll happen next. The Fed’s decisions are guided by these three key economic indicators:

  1. The Direction of Inflation

  2. How Many Jobs the Economy Is Adding

  3. The Unemployment Rate

Let’s take a look at each one.

1. The Direction of Inflation

You’ve likely noticed prices for everyday goods and services seem to be higher each time you make a purchase at the store. That’s because of inflation – and the Fed wants to see that number come back down so it’s closer to their 2% target.

Right now, it’s still higher than that. But despite a little volatility, inflation has generally been moving in the right direction. It gradually came down over the past two years, and is holding fairly steady right now (see graph below):

 
 

The path of inflation – though still not at their target rate – is a big part of the reason why the Fed will likely lower the Fed Funds Rate again this week to make borrowing less expensive, while still ensuring the economy continues to grow.

2. How Many Jobs the Economy Is Adding

The Fed is also keeping an eye on how many new jobs are added to the economy each month. They want job growth to slow down a bit before they cut the Federal Funds Rate further. When fewer jobs are created, it shows the economy is still doing well, but gradually cooling off—exactly what they’re aiming for. And that’s what’s happening right now. Reuters says:

“Any doubts the Federal Reserve will go ahead with an interest-rate cut . . . fell away on Friday after a government report showed U.S. employers added fewer workers in October than in any month since December 2020.”

Employers are still hiring, but just not as many positions right now. This shows the job market is starting to slow down after running hot for a while, which is what the Fed wants to see.

3. The Unemployment Rate

The unemployment rate shows the percentage of people who want jobs but can’t find them. A low unemployment rate means most people are working, which is great. However, it can push inflation higher because more people working means more spending—and that makes prices go up.

Many economists consider any unemployment rate below 5% to be as close to full employment as is realistically possible. In the most recent report, unemployment is sitting at 4.1% (see graph below):

 
 

Unemployment this low shows the labor market is still strong even as fewer jobs were added to the economy. That’s the balance the Fed is looking for.

What Does This Mean Going Forward?

Overall, the economy is headed in the direction the Fed wants to see – and that’s why experts say they will likely cut the Federal Funds Rate by a quarter of a percentage point this week, according to the CME FedWatch Tool.

If that expectation ends up being correct, that could pave the way for mortgage rates to come down too. But that doesn’t mean they’ll fall immediately. It will take some time. Remember, the Fed doesn’t determine mortgage rates. Forecasts show mortgage rates will ease more gradually over the course of the next year as long as these economic indicators continue to move in the right direction and the Fed can continue their Federal Funds rate cuts through 2025.

But a change in any one of the factors mentioned here could cause a shift in the market and in the Fed’s actions in the days and months ahead. So, brace for some volatility, and for mortgage rates to respond along the way. As Ralph McLaughlin, Senior Economist at Realtor.com, notes:

“The trajectory of rates over the coming months will be largely dependent on three key factors: (1) the performance of the labor market, (2) the outcome of the presidential election, and (3) any possible reemergence of inflationary pressure. While volatility has been the theme of mortgage rates over the past several months, we expect stability to reemerge towards the end of November and into early December.”

Bottom Line

While the Fed’s actions play a part, economic data and market conditions are what really drive mortgage rates. As we move through the rest of 2024 and 2025, expect rates to stabilize or decline gradually, offering more certainty in what has been a volatile market. 

Read more at KeepingCurrentMatters.com

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