Why Do People Actually Buy a Home?

It seems that every time we talk about real estate today the conversation immediately goes to the financial aspects of buying a home. Where are prices headed? Where are interest rates headed? Should I wait to try and get a ‘better buy’? Should I wait until I can get a ‘steal’?

The odd thing about all these questions is that survey after survey keeps telling us that price is not the reason families actually buy a home. When money is considered at all, it is in light of not paying rent to a landlord. Let’s look at two recent surveys as examples:

National Housing Survey

The top five reasons given in the survey for buying a home, in order, are:

-It means having a good place to raise children and provide them with a good education
-You have a physical structure where you and your family feel safe
-It allows you to have more space for your family
-It gives you control of what you do with your living space (renovations and updates)
-Paying rent is not a good investment

The Myers Research and Strategic Services Survey

The top five reasons given in the survey for buying a home, in order, are:

-Home ownership provides a stable and safe environment for children and other family members
-Home ownership means the money you spend on housing goes towards building equity, rather than to a landlord
-Home ownership creates the opportunity to pay off a mortgage and own your home by the time you retire
-Home ownership creates the opportunity to live in a neighborhood that you enjoy
-Home ownership allows you the right to decorate, modify and renovate your home as you see fit

Bottom Line

Price dominates conversation when we talk about buying a home. However, when it comes down to it, we actually buy for the same reasons our parents and grandparents did – we want a better lifestyle for ourselves and our families.

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91 Widening Aims to Ease OC, IE Commute

An upcoming 91 freeway widening project is expected to make life easier for Orange County and Inland Empire commuters.

The $84 million project – scheduled to begin construction the first of August – will add one general-purpose lane for six miles in each direction between the 55 and the 241. Crews will widen the bridge for Imperial Highway and the Weir Canyon Road undercrossing in both directions.

On Monday, transportation officials gathered outside the Orange County Transportation Authority's 91 Expressway offices – bordering the 91 – to break ground on the project that's expected to be completed by September 2012.

"It touches you in the heart when you get on this freeway at 5:30 or 6 o'clock in the morning and you see a line of lights going all the way out towards Riverside. ... Think of the folks living in our neighboring county coming to Orange County and work and sit in that traffic spending an hour, an hour and a half," said Anaheim Mayor Tom Tait at the ceremony.

"Bottom line of this project is ... it gets people home to their family sooner," Tait said.

Officials at the ceremony said this stretch of the freeway is not only one of the most important in Orange County, but it's considered one of the most congested in the nation.

This freeway is also thought as a lifeline for Orange and Riverside counties as it is the only corridor connecting the two counties.

Officials said this section of the 91 carries an average of up to 174,000 vehicles in the eastbound direction with about 160,000 vehicles that travel the westbound portion of that freeway.

By 2014, officials expect that traffic volumes will grow to an average of 158,000 to 190,000 daily.

Information Provided By The Orange County Register

Motorists feel the traffic congestion during the week in both the morning and afternoon peak periods, during the holidays and weekends.

"This freeway has linked the two counties for decades and while the congestion of the freeway has caused lots of frustration, this freeway has created all kinds of opportunities," said Karen Spiegel, a Corona councilwoman.

Spiegel said the 91 is not only crucial for Riverside County residents who commute from their home to their jobs in Irvine or Anaheim Hills but also allows them to keep in contact with their families in the O.C.

"When a family seeks to buy a larger home less expensive than Orange County, they come to Corona and the 91 freeway allows them to do so but still stay connected to family and friends in Orange County and LA County," Spiegel said.

Funds for the widening project come from the State Transportation Improvement Program and the Corridor Mobility Improvement Account.

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5 Real Estate Headlines You'll See in the Next Six Months

Making predictions can be the ‘kiss-of-death’ for a blog. Even if we get four out of five correct (80%), there are those in the industry who will kill us on the one we got wrong. We believe strongly that when making a real estate decision for you and your family you must look forward and take into consideration how the housing market may change.

For this reason, we are willing to take on the possible wrath of our counterparts by sticking out our necks and predicting these will be the major real estate news stories from now until the end of the year.

Interest Rates Rise

Many, including us, have been surprised that rates have not risen already. However, the next several months are going to see three distinct changes that will propel rates upward.

1. As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate.

2. In many higher priced markets, rolling back Conforming Loan Limits means that rates for the mortgages on these properties will resort back to the rates on private jumbo loans. The FHFA informed us that last year, the difference between mortgage rates for jumbo loans and jumbo-conforming mortgages has varied between about ½ and ¾ of a percentage point.

3. As the economy gets better (and we believe it will), the pressure to keep rates low to stimulate growth will abate.

Some Loan Requirements Tighten but More Can Now Get a Loan

Lending institutions have already started to introduce stricter mortgage guidelines. Whether the Quality Residential Mortgage (QRM) requirements are instituted as originally proposed or eased somewhat, there is no doubt that guidelines will continue to tighten as we work through the year. However, we believe the private sector will again start introducing alternative mortgage financing but at a greater expense to the consumer. You WILL be able to get a mortgage. It will just cost you more.

Housing Sales Increase

Contracted sales have shown consistent improvement over the last six months and we feel this will continue and actually begin gaining even greater momentum. We believe there is a ‘pent-up’ buying demand caused by the volatility of the market over the last several years. When interest rates start to move upward and alternative financing becomes more available, these buyers will start to jump off the fence. We believe there will be a major upswing in sales over the next six months.

Distressed Properties Increase Markedly

More people are paying their mortgage on time and that is great news for housing in the long term. However, the numbers of distressed properties currently in the foreclosure process is still very swollen. These properties will begin coming to the market in the second half of the year as short sales and foreclosures. The numbers will be staggering in some areas.

Prices Continue to Soften in Most Markets

The current housing inventory for sale and the distressed properties about to come on the market will vastly outnumber the increased supply of purchasers we will see over the next six months. There will be more houses for sale then there will be buyers purchasing them. That oversupply will continue to put downward pressure on prices through the rest of this year and into 2012.

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Chapman Forecast: Economic Recovery Will Continue

Another day, another economic forecast –- but this one is pretty rosy, so pay attention. A day after UCLA’s Anderson School of Management predicted that the state’s housing market would slow the recovery in the state, economists from Chapman’s A. Gary Anderson Center for Economic Research released a forecast saying that low home prices, coupled with a strengthening job market, could help California's economy.

Payroll employment in the state will grow 1.6% this year, and 2.1% next year, forecasters say, with job strength in professional and business services, education and health services and leisure and hospitality. Gas prices will remain at current rates through next year, which means newly employed consumers will have more spending money. Taxable sales in the state will grow 5.9% this year, and 6.3% next year, they say.

With more money in their pockets, Californians will also be motivated to buy homes as prices continue to fall –- unless tight lending standards make it too tough for them to get loans.

Home prices in California will fall 4.4% this year, and an additional 0.7% next year, according to the Chapman forecast. And though there are a number of underwater and stressed properties in the state, fewer new stressed properties will come onto the market next year.

Housing prices in the nation will continue to drop as well, in part because there are more than 2 million homes in foreclosure in the nation. Forecasters say prices will drop 2.7% this year and a further 1.4% in 2012. But there are positive signs as well. New households should absorb some of the vacant units. Rental vacancies are also falling –- but as prices rise, renters may choose to buy homes instead.

Although people’s homes are worth less, many had gains in the stock market over the past year that made up for those losses. Household net worth declined by $680 billion because of housing prices dipping, but increased by $3 trillion because of stock market gains.

Nationally, as the dollar continues to slip in value, exports will increase. That will lead to gains in the gross domestic product of 2.7% this year and 3.6% next year. Job growth will also stay positive, adding 3.4 million jobs between now and the end of 2012, pushing the unemployment rate to 7.5%.

Forecasters say that although temporary shocks to the economy -- such as the earthquake in Japan and spiking gasoline prices -- may have led to slow growth this quarter, the recovery will still continue, and even accelerate.

"Going into 2012, there are a number of positive fundamentals that point to strengthening economic forces," the forecast concludes.

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Should You Buy or Rent in this Market?

Families are trying to determine whether or not now is the time to buy a home. Some are advising these families to sit out the current real estate market and instead rent for the next year or two. We do not agree with this advice. Homeownership means a lot to a family. We also realize that the financial aspects of purchasing a home today can be a concern. The challenge is any advice given by someone in the real estate community is immediately dismissed as self-serving.

For this reason, we want to give you the advice of three entities not involved in real estate sales:

Citigroup

“When we examine the relationships between mortgage payments and income and mortgage payments and rent, we see that these relationships have also reverted back to or below equilibrium points. In some cases, particularly when mortgage payments are compared to the cost of renting, home prices actually appear cheap.”

JP Morgan

“JPMorgan analysts said ‘the continuation of falling rental vacancies and rising rental demand will make home buying increasingly attractive, especially as rental prices increase.”

Business School professors Eli Beracha and Ken H. Johnson

“Fundamental drivers now appear to be in place that favor homeownership over renting in the near term future…

The second finding might seem unwise to many given the recent crash in the real estate markets around the country. However, rent-to-price ratios now seem to be in place along with other fundamental drivers that favor ownership over renting…

Conditions (historically low mortgage rates and relatively low rent-to-price ratios) now seem in place to favor future purchases.”

Bottom Line

Is it better to rent or buy? According to those quoted above, it seems it may be becoming a no-brainer.

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