As a home buyer, you braved the real estate buying circus when you bought your first home, and you have a great place to show for it. You’ve trudged through the open houses, experienced exactly how stressful closing can be, and dealt with legions of moving trucks. And still, a part of you wants something more: an escape in the mountains, a beach cottage, or a pied-à-terre in the city. You want to buy a second home.
With current mortgage rates at a historic low, you might be tempted to jump in. But beware; buying real estate as an investment property or second home won’t be the same as your first-time home-buying experience. Here are some differences and advice to keep in mind.
First things first: Can you afford to buy a second home?
If you scored a sweet deal on a mortgage for your primary residence, don’t expect lenders to give you the same offer twice.
“Second-home loans generally require more down payment and a better credit score than owner-occupied home loans,” says John Lazenby, president of the Orlando Regional Realtor Association.
You may have to pay a higher interest rate on a vacation home mortgage than you would for the mortgage on a home you live in year-round, and lenders may look closely at your debt-to-income ratio. Expect a lender to scrutinize your finances more than when buying a single-family primary residence.
“Lenders look carefully to ensure that second-home buyers are financially capable of paying two mortgages,” Lazenby says.
Make sure to review your budget with a second mortgage payment in mind, and make adjustments if necessary after you know what interest rate you will receive. And make sure you can afford the real estate down payment—a healthy emergency fund and cash reserves are essential if an accident or job loss forces you to float two mortgages at once.
Evaluate your goals
Understand exactly how you plan to use the property before you sign on the dotted line.
“Buyers should consider their stage of life and that of their children to ensure they are going to actually use the home for the amount of time that they’re envisioning,” Lazenby says. “A family with young children may find that their use of a second home declines as the kids grow older and become immersed in sports.”
If you’re certain you’ll get enough use and enjoyment out of your new purchase, go for it—but make sure to carefully consider the market.
For most homeowners, a second home shouldn’t be a fixer-upper. Look for homes in high-value areas that will appreciate over time without having to sacrifice every weekend to laborious renovations on your “vacation home.”
Buying in an unfamiliar area? Take a few weekend trips to make sure it’s the right spot for you. In the long term, you’ll want it to be a good investment property, as well as a place to play. Pay close attention to travel times, amenities, and restaurant and recreation availability, otherwise you might spend more time grousing than skiing and sipping wine. And make sure to choose a knowledgeable local real estate agent who will know the local real estate comps and any area idiosyncrasies.
Understand your taxes
You may be familiar with a bevy of home credits and tax breaks for your first home, but not all of them apply to your second.
For instance: You might be planning on using your new home as a vacation rental when you’re out of the area. If that’s the case, you need to calculate the return on your investment property purchase price that you can expect over the course of a year. How much can you charge per night or per week for your rental property? How many weeks will you rent out the property? And what expenses will you incur?
“Property tax rules and possible deductions for second homes used as rentals are complicated and vary widely, depending on both the number of days per year that the owner occupies the home and the owner’s personal income level,” says Lazenby.
A vacation home offers more flexibility to buy based on your potential property tax burden—for instance, if you’re looking to buy in an area of high real estate taxes, consider widening your real estate search to another county, which can save you thousands of dollars. Your real estate agent should be able to help you find property you as a buyer can afford.
Lazenby recommends consulting with a tax professional about tax implications, especially if you’re planning on renting out the house.
A vacation home you use part time and also rent out may be considered rental property for tax purposes, depending on personal-use days as the homeowner, and the number of days you rent it out. If you rent out the vacation property for more than 14 days in a year, you must report the rental income on Schedule E of your individual tax return, and you can deduct the rental portion of expenses such as mortgage interest and property taxes. However, renting out your home as a short-term vacation home for 14 days or less in the year means you cannot deduct rental expenses, but the income from your renters is tax-free.
When a series of tax and mortgage rules was introduced in Canada in 2016 to prevent a housing market bubble, activity slowed down significantly in the years that followed. Given the current circumstances, is it still viable to invest in property?
In a think piece in Macleans, market watcher Romana King said even with fears of a global recession, real estate is still a smart way to invest.
“For investors, the key to making strategically smart decisions is to consider the underlying economic factors that impact your investment,” she said.
King said the housing market could climb out of negative growth forecasts this year. Citing figures from the Canadian Real Estate Association, she said the national sales activity was on target to increase by 5% in 2019 and could expand further by 7.5% in 2020.
“Canada boasts strong population growth, and government budgetary decisions are acting as stimulants for the national housing market, all of which point to a healthy future for Canada’s real estate market,” she said.
Investing in real estate, however, is not without risks. For investors, it is crucial to know some strategies to lessen the potential risks, King said. The first is to be aware of additional debt. Investors must keep an eye on their credit scores and pay bills on time.
“Most investors will require a mortgage to purchase rental real estate. This can alter your debt ratios, which can impact whether or not you get the best mortgage or loan rates. Talk to an advisor before applying for new credit or renewing a current loan,” King said.
Another must-have strategy is budgeting. King said investors need to control how much they spend on maintenance and repairs to ensure that their rental properties are cash-flow positive.
“An investor needs to budget for a contingency fund. If the anticipated monthly rent covers all monthly expenses, including a repair fund, then the property is cash-flow positive, which is fundamental for a good investment,” she said.
Getting insurance could also mitigate the risks of catastrophic events.
“Virtually all insurance policies will cover a catastrophic loss of a building, but as a real estate investor, you must also consider the loss of income due to damage or destruction. A comprehensive rental policy will provide a landlord with income to replace lost rent at fair market value,” she said.
Overall, investors need to treat real estate investing as a business. Citing Edmonton-based investor Jim Yih, King said the key to successful real estate investing is positive cash flow, and not just the purchase price and the potential sale price.
Source; Canadian Real Estate Magazine – by Gerv Tacadena 12 Nov 2019
Making money through cash flow versus capital gains
How do you currently make money? By going to your job every day and collecting a biweekly paycheck in exchange for your work? Most people make money this way, because it’s what they are taught to do by their parents or teachers. Also, it feels like a safe and secure path because it’s the traditional route.
Well, what if I told you that there’s another way? Another path in life that doesn’t require you to trade time for money? A path that allows you to follow your passion, achieve financial freedom, and reach your life goals? Now I’ve piqued your interest, right?
This path is precisely how the rich make their money — and it’s not from an hourly wage or salary. Instead, they make their money from their investments. In fact, the best way to make money is as an investor — but the question I’m often asked is: How do you make that money? If your monthly income as an investor does not come from a job, then where does it come from?
Making Your Money Work for You
If there’s one thing the rich do differently than the poor, it’s that they put their money to work instead of working for their money. What does that mean? Their money isn’t just sitting around in a savings account, accruing little-to-no interest, waiting for a rainy day. Their money is being invested — and delivering a return!
Different investments produce different results. The question is, what results do you want?
There are two primary outcomes an investor invests for:
Investor Income #1: Capital Gains
If you enjoy watching those “fix it up and flip it” TV shows, you’re probably already familiar with the concept of capital games — essentially, it’s the game of buying and selling for a profit.
In real estate, let’s say you buy a single-family house for $100,000. You make some repairs and improvements to the property, and you sell it for $140,000. Your profit is termed “capital gains.” Any time you sell an asset or investment and make money, your profit is capital gains. Of course, there are also capital losses (which occur when you lose money on a sale).
The same concept holds true outside of real estate. If you buy a share of stock for $20, and sell it once the stock price increases to $30, that’s also a capital gains profit.
The Problem with Capital Gains
While there is money to be made through capital gains, it’s also important to note the risks.
First, it’s a formula you have to keep repeating over and over again — you have to keep buying and selling, buying and selling, and buying and selling, or the game and the income stop.
Second, if the real estate market takes a nosedive, “flippers”— people who buy a real estate property and quickly turn around and sell it for a profit, or capital gains — can get caught with inventory they can’t sell.
Before the housing bubble burst in 2008, the mindset for many was that the market would continue to go up. So, when the market reversed and crashed, the properties were no longer worth what the flippers bought them for, and there were no buyers to flip the properties to. This led to a record-breaking number of foreclosures, and people simply walking away from homes.
Most investors today are chasing capital gains in the stock market through stock purchases, mutual funds, and 401(k)s. These investors are hoping and praying the money will be there when they get out. To me, that’s risky.
As long as market prices go up, capital-gains investors win. But when the markets turn down and prices fall — something nobody can predict — capital-gains investors lose. Do you really want that gamble?
Investor Income #2: Cash Flow
Cash flow is realized when you purchase an investment and hold on to it, and every month, quarter, or year that investment returns money to you. Cash-flow investors, unlike capital-gains investors, typically do not want to sell their investments because they want to keep collecting the regular income of cash flow. If you aren’t already familiar with my motto, cash flow is queen!
If you purchase a stock that pays a dividend, then, as long as you own that stock, it will generate money to you in the form of a dividend. That is called cash flow. To cash flow in real estate, you could purchase a single-family house and, instead of fixing it up and selling it, you rent it out. Every month you collect the rent and pay the expenses, including the mortgage. If you bought it at a good price and manage the property well, you will receive a profit, or positive cash flow.
The cash-flow investor is not as concerned as the capital-gains investor whether the markets are up one day or down the next. The cash-flow investor is looking at long-term trends and is not affected by short-term market ups and downs — what a great position to be in!
The Advantage of Cash Flow versus Capital Gains Investing
The best thing about cash flow is that it’s money flowing into your pocket on a continual basis — whether you’re working or not. You could be on the golf course, jet-setting around the world, watching Neflix in your jammies, or building a business, and your money is busy working for you. And generally, cash-flow investing is based on fundamentals that aren’t as susceptible to market swings like capital-gains investments, which means that even in bad times, money still flows into your pockets.
Additionally, cash flow is what is known as passive income, which is the lowest taxed type of income. This is not always the case with capital gains taxes, which vary depending on the type of asset you’ve invested in and how long you’ve owned that asset. In some cases, the taxes can be very high.
EAST STROUDSBURG, Pa., 2018 (Reuters) – School bus driver Michael Payne was renting an apartment on the 30th floor of a New York City high-rise, where the landlord’s idea of fixing broken windows was to cover them with boards.
So when Payne and his wife Gail saw ads in the tabloids for brand-new houses in the Pennsylvania mountains for under $200,000, they saw an escape. The middle-aged couple took out a mortgage on a $168,000, four-bedroom home in a gated community with swimming pools, tennis courts and a clubhouse.
“It was going for the American Dream,” Payne, now 61, said recently as he sat in his living room. “We felt rich.”
Today the powder-blue split-level is worth less than half of what they paid for it 12 years ago at the peak of the nation’s housing bubble.
Located about 80 miles northwest of New York City in Monroe County, Pennsylvania, their home resides in one of the sickest real estate markets in the United States, according to a Reuters analysis of data provided by a leading realty tracking firm. More than one-quarter of homeowners in Monroe County are deeply “underwater,” meaning they still owe more to their lenders than their houses are worth.
The world has moved on from the global financial crisis. Hard-hit areas such as Las Vegas and the Rust Belt cities of Pittsburgh and Cleveland have seen their fortunes improve.
But the Paynes and about 5.1 million other U.S. homeowners are still living with the fallout from the real estate bust that triggered the epic downturn.
As of June 30, nearly one in 10 American homes with mortgages were “seriously” underwater, according to Irvine, California-based ATTOM Data Solutions, meaning that their market values were at least 25 percent lower than the balance remaining on their mortgages.
It is an improvement from 2012, when average prices hit bottom and properties with severe negative equity topped out at 29 percent, or 12.8 million homes. Still, it is double the rate considered healthy by real estate analysts.
“These are the housing markets that the recovery forgot,” said Daren Blomquist, a senior vice president at ATTOM.
Lingering pain from the crash is deep. But it has fallen disproportionately on commuter towns and distant exurbs in the eastern half of the United States, a Reuters analysis of county real estate data shows. Among the hardest hit are bedroom communities in the Midwest, mid-Atlantic and Southeast regions, where income and job growth have been weaker than the national norm.
Developments in outlying communities typically suffer in downturns. But a comeback has been harder this time around, analysts say, because the home-price run-ups were so extreme, and the economies of many of these Midwestern and Eastern metro areas have lagged those of more vibrant areas of the country.
A home is seen in the Penn Estates development where most of the homeowners are underwater on their mortgages in East Straudsburg, Pennsylvania, U.S., June 20, 2018. REUTERS/Mike Segar
“The markets that came roaring back are the coastal markets,” said Mark Zandi, chief economist at Moody’s Analytics. He said land restrictions and sales to international buyers have helped buoy demand in those areas. “In the middle of the country, you have more flat-lined economies. There’s no supply constraints. All of these things have weighed on prices.”
In addition to exurbs, military communities showed high concentrations of underwater homes, the Reuters analysis showed. Five of the Top 10 underwater counties are near military bases and boast large populations of active-duty soldiers and veterans.
Many of these families obtained financing through the U.S. Department of Veterans Affairs. The VA makes it easy for service members to qualify for mortgages, but goes to great lengths to prevent defaults. It is a big reason many military borrowers have held on to their negative-equity homes even as millions of civilians walked away.
A poor credit history can threaten a soldier’s security clearance. And those who default risk never getting another VA loan, said Jackie Haliburton, a Veterans Service Officer in Hoke County, North Carolina, home to part of the giant Fort Bragg military installation and one of the most underwater counties in the country.
“You will keep paying, no matter what, because you want to make sure you can hang on to that benefit,” Haliburton said.
These and other casualties of the real estate meltdown are easy to overlook as homes in much of the country are again fetching record prices.
But in Underwater America, homeowners face painful choices. To sell at current prices would mean accepting huge losses and laying out cash to pay off mortgage debt. Leasing these properties often won’t cover the owners’ monthly costs. Those who default will trash their credit scores for years to come.
Special education teacher Gail Payne noses her Toyota Rav 4 out of the driveway most workdays by 5 a.m. for the two-hour ride to her job in New York City’s Bronx borough.
“I hate the commute, I really, really do,” Payne said. “I’m tired.”
Now 66, she and husband Michael were counting on equity from the sale of their house to fund their retirement in Florida. For now, that remains a dream.
The Paynes’ gated community of Penn Estates, in East Stroudsburg, Pennsylvania, is among scores that sprang up in Monroe County during the housing boom.
Prices looked appealing to city dwellers suffering from urban sticker shock. But newcomers didn’t grasp how irrational things had become: At the peak, prices on some homes ballooned by more than 25 percent within months.
Slideshow (19 Images)
Today, homes that once fetched north of $300,000 now sell for as little as $72,000. But even at those prices, empty houses languish on the market. When the easy credit vanished, so did a huge pool of potential buyers.
Eight hundred miles to the west, in an unincorporated area of Boone County, Illinois, the Candlewick Lake Homeowners Association begins its monthly board meeting with the Pledge of Allegiance and a prayer.
Nearly 40 percent of the 9,800 homes with mortgages in this county about 80 miles northwest of Chicago are underwater, according to the ATTOM data. Some houses that went for $225,000 during the boom are now worth about $85,000, property records show.
By early 2010, unemployment topped 18 percent after a local auto assembly plant laid off hundreds of workers. At Candlewick Lake, so many people walked away from their homes that as many as a third of its houses were vacant, said Karl Johnson, chairman of the Boone County board of supervisors.
“It just got ugly, real ugly, and we are still battling to come back from it,” Johnson said.
While the local job market has recovered, signs of financial strain are still evident at Candlewick Lake.
The community’s roads are beat up. The entryway, meeting center and fence could all use a facelift, residents say. The lake has become a weed-choked “mess,” “a cesspool,” according to residents who spoke out at an association meeting earlier this year. Association manager Theresa Balk says a recent chemical treatment is helping.
Annual homeowner’s dues of $1,136 are being stretched to pay for all the upkeep. But those fees may be a big deterrent for many would-be buyers at Candlewick Lake, said association board member Randy Budreau.
“A gated community like this, with our rules and fees, it may be just less attractive now to the general public,” he said.
Source: Reuters.com – Reporting by Michelle Conlin and Robin Respaut; Editing by Marla Dickerson SEPTEMBER 14, 2018
New York City’s reputation as one of Earth’s most expensive—and daunting—real estate markets is well-earned, thank you very much: $1.8 million studio apartments? Check. Full-cash offers everywhere you look? Check. Freakishly competitive open houses? You bet. Welcome to the big time—with the prices and killer views to match. It’s little wonder that housing is top of mind for just about all of the nearly 8.4 million folks who call the Center of the Universe home.
Everyone, it seems, is angling to hit the NYC trifecta: a decent space in a good neighborhood at an affordable price. That’s why it’s so important to get a handle of what’s going to be the next big neighborhood, before it explodes in popularity and prices get out of reach.
To find out which neighborhoods in this bellwether, nationally scrutinized market are seeing the biggest price climbs—and the biggest falls—we teamed up with real estate appraiser Jonathan Miller, co-founder of Miller Samuel. He compared the median home sale prices in all of New York City’s neighborhoods throughout the five boroughs in 2017 and 2018. We included only the neighborhoods with at least 25 sales in both years.
What we found is a city going through churn, much of it due to the flurry of luxury development in some areas that traditionally have had older—and more affordable—homes. Prices go up, an area gets saturated, the luxury stock sells out, then prices go back down. Rinse and repeat. Meanwhile, the megadevelopment causes people to search out nearby areas that might be cheaper.
It’s the NYC circle of life, and it’s accelerating.
“Developers have left no stone unturned and developed wherever they could,” says Miller. “They went everywhere there was an opportunity. And that caused a lot of price fluctuations, especially in more modestly priced neighborhoods that saw a lot of new, high-end development introduced.”
But New York City hasn’t been immune to national trends. The overall market is slowing throughout all of its five boroughs of Manhattan, Brooklyn, Queens, the Bronx, and “can’t-get-no-respect” Staten Island. The city has been particularly affected by the national tax changes that make it more expensive to own a home in pricier parts of the country, says Miller.
More fun still: This month, New York state’s new mansion tax went into effect, upping the amount of taxes on properties $2 million and up. Sales had been down earlier in the year, but the prospect of giving more to Uncle Sam resulted in a rush of higher-priced home sales. Going forward, the number of sales is expected to fall back down again. Phew … Dramamine, please.
High price tags are pushing many New Yorkers farther out into cheaper communities such as the Bronx, which doesn’t have the hipster cred or water views of Brooklyn. But dollars can stretch way further there.
“A large shift or decline [in a New York neighborhood] is generally not a reflection of weakness,” says Miller. “It’s more of a reflection of … now it’s back to business.”
So which neighborhoods are seeing the largest real estate price spikes? And which expensive communities are getting (a bit) more affordable?
Annual median price increase: 122.7% Median 2018 home price: $612,500
When folks think of the Bronx, the mix of grand Tudors, Georgian Revival estates, and midcentury modern homes and lovely winding streets in suburban Fieldston are rarely what come to mind. Homeowners in this privately owned enclave of tony Riverdale pay property taxes and fees to their property owners association, which maintains the streets and sewers and pays for its own security patrol.
Prices are surging because word has gotten out: Buyers are increasingly drawn to its seductive combo of urban and suburban living. The historically designated community is near top private schools, which include the Horace Mann School and Riverdale Country School. It’s also only steps away from the Hudson River and the 28-acre green oasis of Wave Hill Public Gardens in the northwest swath of the Bronx.
“In Fieldston, you are part of the city but you have the real suburban feeling,” says Chintan Trivedi, a licensed real estate broker with Re/Max In the City. “Here you’re getting a real home, a backyard and a private community.
“For a good house with a larger backyard, a complete renovation, and maybe a pool, you can expect to pay $1.5 million to $2.5 million,” he says. But there are six-bedroom homes listed in the $1 million range. Just tryto get that in Manhattan. (Spoiler: You can’t!)
Annual median price increase: 41.2% Median 2018 home price: $275,000
Just south of Fieldston are the middle-class communities of Kingsbridge and University Heights, where buyers can score deals for a fraction of the price. But the lack of homes for sale and little turnover are causing prices to heat up. And investors are buying up whatever lots and houses they can for new development or rehabbing.
“The Bronx is the new Queens in the sense that there’s been an expansion of demand moving out from Manhattan as consumers search for affordability,” says Miller.
The neighborhood’s become popular with 20- and 30-somethings looking for a reasonably priced community with an urban vibe. Hilly Kingsbridge is filled with century-old, single-family houses and midrise co-op and apartment buildings as well as plenty of shopping, parks, and public transit.
These buyers “are[part of] the new generation that’s learning that real estate should be part of their planning,” says Trivedi. “They want to feel like they’re in Manhattan—a place where they can still go right downstairs and get a smoothie.”
Annual median price increase: 38.7% Median 2018 home price: $1,535,000
Over the past couple of decades, lower Manhattan’s East Village has shed its image as a sketchy, open-air drug market to become a sought-after place known for lively bars, great restaurants, and a defiantly boho vibe—as well as a slew of new, high-priced developments, causing prices to jump. They’re going up everywhere you look.
Annual median price increase: 36.1% Median 2018 home price: $1,226,750
Like the East Village, Prospect Heights has been rapidly gentrifying. Professionals, families, and a few stray hipsters are drawn to its charming rows of stunningly restored early 19th-century, multistory brownstones on tree-lined streets. The neighborhood is near several main subway lines and in close proximity to the 526-acre Prospect Park and the Brooklyn Botanic Garden. It also borders Barclays Center, home to the NBA’s Brooklyn Nets (and soon the team’s new dynamic duo, superstars Kevin Durant and Kyrie Irving).
In recent years, Prospect Heights has become popular with folks priced out of neighboring Park Slope, a community long popular with upper-middle-class families. They gravitate to the brownstones as well as the new high-rises and the used bookstore, artisanal bakeries, and constant stream of new restaurants.
Not surprisingly, the Prospect Heights neighborhood has attracted a slew of developers putting up luxury condo and apartment buildings wherever they can. Those high-end housing developments are skewing the neighborhood’s median prices up to new heights.
This isn’t the kind of place where you’ll find buzzed-about restaurants—you’re more likely to stumble upon a dollar store than a bougie boutique. It’s a more down-to-earth community, populated by old-school Brooklynites, hipsters, as well as Pakistani, Orthodox and Hasidic Jew, Mexican, Chinese, and Latin American immigrant groups.
Annual median price increase: -40.7% Median 2018 home price: $915,500
Once grim downtown Brooklyn has been booming in recent years. It’s become home to a slew of glassy, luxury high-rises. So why are prices in such a vibrant area plummeting?
Well, now there’s a glut of new construction, giving buyers more negotiating power as buildings compete against one another to lure residents. Plus, builders are putting up towers with some smaller, less expensive units. But in NYC, less expensive is relative. Buyers might save themselves a couple hundred thousand on a million-plus-dollar condo.
But many of the condos here, some designed by famous architects, come with just about every amenity imaginable, including sun decks, hot tubs, dog runs, saltwater pools, and even music studios. This two-bedroom, 1.5-bathroom abode in a 57-floor building is going for $2,040,000.
Some believe developers overshot their market.
“Developers there created a mountain of homogenous product,” says agent Blumstein with the Corcoran Group. Buildings in the area “were built on the thought that people are demanding amenities. But the old-school, prewar neighborhood vibe is what’s in.”
Annual median price increase: -39.3% Median 2018 home price: $3,200,000
Even many lifelong New Yorkers have never heard of the Civic Center neighborhood in lower Manhattan. The tiny community encompasses City Hall and courthouses as well as some high-rise co-op, condo, and apartment buildings. It’s just west of ultradesirable Tribeca, where prices are sky-high, and just below Chinatown, guaranteeing plenty of good Asian eats.
Prices are down because the wave of development has pretty much played itself out, says Miller. Many of the older brick and limestone, midrise office buildings had been gut-rehabbed and turned into pricey condos. That led to a spike in prices. Now that those units have been bought, the real estate for sale is a mix of lower- and higher-end properties.
It’s “run its course,” says Miller of the wave of development in Civic Center.
Annual median price increase: -30.2% Median 2018 home price: $450,000
Like Civic Center, Javits Center as a neighborhood isn’t very well-known—but that’s likely to change. Named for the sprawling convention center on the west side of Manhattan where the community is located, it’s wedged between trendy Hell’s Kitchen and Chelsea and abuts Hudson Yards.
Even nonlocals have probably heard of Hudson Yards, Manhattan’s newest neighborhood, built on a formerly desolate stretch of disused train tracks. It’s a glam (and critics say overly generic) development of ultrahigh-priced condo and rental towers overlooking the Hudson River, complete with its own weird tourist attraction, the beehive-like Vessel. The Javits Center’s proximity to this buzzy development will likely have an impact on sales with prices shooting up.
But in the meantime, prices fell because there simply isn’t much of the first wave of luxury real estate left on the market. Now what’s selling is less expensive, older condos.
That’s likely to change as sales heat up in Hudson Yards.
“Sales [in Hudson Yards] will help to increase values in the surrounding area,” says New York real estate agent Matt Crouteau. The place “was designed so people don’t have to leave.” Ever.
Annual median price increase: -30% Median 2018 home price: $997,500
Just south of the Civic Center is the Financial District, home to Wall Street and the World Trade Center on the tip of Manhattan. Like all of the other neighborhoods on this list, FiDi (as it’s called) experienced a spike in development, then a market saturation.
“It’s not that prices are collapsing,” says Miller. “The early wave of high-end new development drove prices higher. … After that activity cooled, the prices for the neighborhood are less than what they were.”
But there are still plenty of new units to choose from, including this three-bedroom, four-bathroom condo going for $5,300,000. The unit features granite countertops, a waterfall island, high ceilings, and floor-to-ceiling windows. On the lower side of the spectrum, buyers can snag this studio with plenty of closet space for $480,000.
The neighborhood is home to a few cobblestone streets, giving it an old-world charm, as well as the South Street Seaport, a tourist fave.
Annual median price increase: -29.6% Median 2018 home price: $1,550,000
Thank the long-awaited Second Avenue Subway line for prices falling in the upper portion of the Upper East Side, from about 96th to 110th streets. Developers flooded the neighborhood putting up buildings near the new train extension, which opened in 2017 after being discussed, planned, and replanned for nearly a century. They believed—rightly so—that this least fashionable part of the Upper East Side would become far more desirable thanks to its close proximity to the new train line.
“That’s essentially East Harlem, which has benefited from a significant amount of new development,” says Miller. Now development is mostly over and there’s fewer sales.
“You’re not seeing the same amount of high-end [sales], because there’s not as much new housing being introduced,” he explains.
The Upper East Side/East Harlem now has a mix of sleek towers, brownstones, low-rise brick buildings and townhomes, and apartment and public housing developments. This new one-bedroom, one-bath condo clocking in at just 609 square feet, which is near the new subway line, is on the market for $786,161.
Seven years after the U.S. housing market bottomed in February 2012, the market has staged a dramatic recovery. U.S. housing prices are now about 11 percent higher than their 2006 peak, according to the latest S&P/Case-Shiller U.S. National Home Price Index data.
While that surge in home prices is great for homeowners, it’s made it difficult for homebuyers, particularly younger buyers in large cities where the real estate market is hottest.
To make matters worse, rising interest rates have pushed mortgage rates higher than they’ve been in years, creating yet another obstacle for buyers. HSH.com recently compiled a list of the most- and least-affordable U.S. metro housing markets. The list incorporates median housing prices, interest, taxes and insurance payments and is ranked by the salary a homebuyer would need to afford the average home in each market.
On a national level, the salary needed to comfortably afford a home is $61,453, according to HSH.com. That estimate is based on an average mortgage rate of 4.9 percent on a median home price of $257,600. That average home price is up 3.95 percent from a year ago. The average monthly mortgage payment is around $1,433.
Least Affordable Markets
Of course, some markets are much pricier than the national average. The following are the top five most expensive housing markets:
San Jose, California
Median home price: $1.25 million
Year-over-year change: -1.5 percent
Monthly payment: $5,946
Salary required: $254,835
San Francisco, California
Median home price: $952,200
Year-over-year change: +3.5 percent
Monthly payment: $4,642
Salary required: $198,978
San Diego, California
Median home price: $626,000
Year-over-year change: +2.6 percent
Monthly payment: $3,071
Salary required: $131,640
Los Angeles, California
Median home price: $576,100
Year-over-year change: +4.1 percent
Monthly payment: $2,873
Salary required: $123,156
Median home price: $460,300
Year-over-year change: +2.6 percent
Monthly payment: $2,491
Salary required: $106,789
Most Affordable Markets
If these numbers are enough to make the average American earner dizzy, there are also plenty of metro housing markets around the country that are much more affordable. The following are the five most affordable cities to buy a house, according to HSH.com:
Median home price: $141,625
Year-over-year change: +4.9 percent
Monthly payment: $878
Salary required: $36,659
Median home price: $150,100
Year-over-year change: +6.9 percent
Monthly payment: $943
Salary required: $40,437
Oklahoma City, Oklahoma
Median home price: $161,000
Year-over-year change: +5.3 percent
Monthly payment: $964
Salary required: $41,335
Median home price: $174,000
Year-over-year change: +4.3 percent
Monthly payment: $966
Salary required: $41,400
Median home price: $185,200
Year-over-year change: +7.4 percent
Monthly payment: $986
Salary required: $42,288
Millennials Getting Burned
In addition to paying higher prices for homes, a recent survey by Bankrate suggests that millennials are being too hasty about jumping into the market. One in three millennials under the age of 35 own a home, but 63 percent of those young homeowners admitted to having regrets about the home they purchased.
The biggest source of buyer’s remorse for millennial homeowners is underestimating the amount of hidden costs associated with owning a home. Insurance costs, property taxes and closing costs can add up to between 2 and 5 percent of the total value of the home, but many buyers don’t consider these fees when shopping for homes.
Homeowners should also set aside at least 1 percent of the value of the home each year for repairs and maintenance, according to HGTV.
In addition to paying too much, nearly 1-in-5 (18 percent) of millennial homeowners regret not buying a larger house.
Although Canadians and Americans share the same continent, live across from one another on the world’s longest undefended border and speak, mainly, the same language, there is one undeniable geographical advantage that the United States possesses in abundance: year-round warm weather locales.
This has led many Canadians to think about buying a property in a U.S. hot spot.
The bad news for those buying now includes the precipitous dive in the loonie compared with the U.S. greenback and a rise in home prices in the United States since the market bottom of 2010-11.
With affordability tilting away from Canadian buyers of U.S. property, it has made the traditional all-cash purchase (the way four-fifths of Canadians have paid in the past) less attractive and made taking out a mortgage to finance a purchase a much more desirable option, says Alain Forget, director of sales and business development with RBC Bank, a subsidiary of the Royal Bank of Canada.
“It is not a great time for Canadians to pay cash for a U.S. home,” says Mr. Forget, who is based in Fort Lauderdale, Fla.
“In the past, many Canadians have used cash to buy their U.S. home. However that means using the equity in your Canadian home, cashing out investments or using your savings. With any of these options you’ll have to exchange your Canadian dollars for U.S. dollars, significantly reducing the cash you have to buy your U.S. home.”
Obtaining financing for a purchase with a mortgage means that buyers are not exchanging weak loonies for expensive greenbacks. Mortgages are also attractive given the low interest-rate environment and a Canadian dollar that will remain weak “at least through 2017.”
For Canadians seeking a mortgage in the United States, there are a number of key differences to consider.
– It takes longer. It can take just a few days to apply for and obtain a mortgage in Canada. In the United States, it might take 45 to 60 days to complete the process.
– More documents are required. Getting a U.S. mortgage requires different documentation than in Canada because of different regulatory requirements. For most U.S. mortgages, more than 10 documents are required compared to less than five in Canada, according to RBC.
– There are more fees. Buyers can expect to pay 3 to 5 per cent in fees because of third-party expenses such as property appraisal, titles and certain insurance requirements.
– Interest is calculated differently. U.S. fixed-rate mortgages are compounded monthly whereas in Canada they can be compounded semi-annually for a fixed-rate mortgage and monthly or at the payment frequency for a variable-rate mortgage.
– Down payments are bigger. A down payment of at least 20 per cent of the value of the home is now the U.S. standard. It can fluctuate, however, based on whether the home is a primary residence, second home or an investment property.
– Amortization is longer. Now extinct in Canada, the 30-year mortgage is alive and well in the United States, with the option of locking in rates over that span, a situation all but unheard of in Canada.
“U.S. mortgage products provide much longer rate terms including up to 30 years at very low rates,” says Miles Zimbaluk, director of business development with Canada to Arizona, an organization that helps Canadians who are visiting or living in the Southwest state.
“In Canada, you can obtain a 25-year term rate but rates are much higher, persuading people to nearly always choose one- to five-year term rates.”
He notes that the Canadian buyers are in the main getting younger, which means that more of them are likely to be seeking mortgages rather than putting down cash for purchases.
“We still see a lot of retiree snowbirds buying in Arizona but we are also seeing a lot of younger buyers,” says the mortgage broker, whose company assists Canadian buyers to get in touch with realtors, mortgage lenders and brokers.
“Many are buying vacation homes younger in life either as an investment to take advantage of the still lower priced U.S. real estate, or because they can use the property today and work remotely and enjoy more time abroad before retirement.”
Calgary-based executive Evelyn Studer, who owns three properties in Phoenix, paid cash in every case, although for her most recent purchase, she was turned down for a U.S. mortgage because it was a rental property. “But I could get a mortgage or home equity line of credit on the one house I will be using” as her residence in that state.
So she obtained a U.S. home equity line of credit, which she used to build a pool and make other improvements to her property.
“That was actually a very simple process and not much different than getting a home equity line of credit here in Canada. They just needed a letter of guarantee from my company regarding my present employment amount and title, my last two years tax returns and some financial information on my assets and liabilities.”
Source: Globe and Mail PAUL BRENT Special to The Globe and Mail Published Friday, Mar. 18, 2016