Time to Buy a House, Maybe Two...
Interest Rates Can't Get Any Cheaper
This has been one crazy year... and we're only one month into spring!
The DOW and the S&P have both hit record highs this month — and every man, woman, and child has flooded into equities. Trees don't grow to the moon, so it's tough to pull the trigger on most stocks while they're sitting at these levels.
Gold and silver have been absolutely creamed over the last few weeks, spooking even the most ardent gold bugs into shedding some of their holdings. And Treasury bonds are still sitting at a useless 1.7%.
What's left to do?
Buy a house, maybe two.
Mortgage rates have dropped to the floor. Freddie Mac released their updated mortgage rates this week, and boy are they low: A 15-year fixed rate mortgage has dropped to an astounding 2.61%, and the traditional 30-year fixed also shed a few points, falling to 3.4%.
To put that in perspective, the 15-year fixed mortgage is now cheaper than a one-year adjustable rate mortgage (ARM). It will cost you less to lock in a fixed loan for 15 years than it would to take out a mortgage that could go ballistic in one year.
These rates simply cannot get much lower...
This phenomenon has only happened twice before — at the start of the post-bubble downturn in 2000 and again in 2008 — which tells me it's high time to take another look at housing...
And aside from low interest rates, there are a number of good reasons to invest in a house right now. Today I'll give you three.
Reason 1: Rising Prices
After the horrific housing meltdown in 2008, most people were (understandably) repelled by the idea of jumping back into housing, as home prices fell off a cliff. And they stagnated for a couple years...
But now almost all estimates point upwards.
Chief Economist Frank E. Nothaft from Freddie Mac laid out the case:
"Existing home sales averaged an annualized pace of 4.94 million over the first three months of this year, the most since the fourth quarter of 2009," Nothaft said in a statement.
"More impressively, new home sales topped 424,000 during the first quarter, which was the strongest since the third quarter of 2008.”
Of course, we take everything Freddie Mac says with a grain of salt, but the numbers do seem to back up their enthusiasm.
In addition, consumer confidence is high. A new Fannie Mae survey found 48% of consumers believe prices will rise over the next year. That number jumps to 69% for those interested in buying a house. Both figures are all-time highs.
Reason 2: Rental Opportunities
One way of cashing in on this housing market is to rent.
Now, I know full well becoming a landlord may sound like a total nightmare: frantic late-night phone calls to fix busted hot water heaters, dropping in to find tenants treating your home like college springbreakers, constantly hounding renters for late... It seems like one never-ending headache.
But it doesn't have to be that way.
In fact, there's a fool-proof way to collect rent in a timely and stress-free manner — by renting your home out to Housing Development's (HUD) Section 8 program:
Prompt Payments. If the biggest fear for renters is delinquent payments, then Section 8 has you covered. The government essentially acts at your personal leasing agent, delivering payments on time and usually through a simple direct deposit account.
Emergency Coverage. Even if your tenet is fired or undergoes some medical hardships, they are covered. Shae Bynes at Good Faith Investing has “had a tenant go on an unpaid leave of absence from work for four months due to health issues…if this tenant wasn’t on Section 8, she likely would’ve been evicted unfortunately due to non-payment of rent (and we’d be faced with a short term vacancy). Instead, HUD picked up 100% of the rental payment until the tenant could get back to her job." I think we can all agree that's good coverage by any measure.
Higher Rent. HUD's rental rents are inflated compared to comparable rentals in the same area. And in many cases, you can get the same rental rates you would for a home twice your home's value in the same area.
Learn more about and find out if you qualify for the HUD program here.
Reason 3: Inflation Protection
While landlords typically raise rent each year to keep up with inflation, if you lock in a solid fixed rate, you'll never have to worry about it. Your rent will stay the same through the life of your loan.
The only reason you'd pay more is if and when you want to pay down your principal.
By taking out a mortgage, you've managed to basically freeze inflation for perhaps your biggest asset/expense.
What If I Already Own My Home?
If you're not looking to buy a house for yourself, it may still be wise to explore your options for buying a house to rent.
Homeowners lacking the capital for a new home might look to refinance. I just scheduled an appointment myself that should knock a healthy chunk out of my monthly payments.
If, on the other hand, you have been sitting on capital... now may be the time to deploy it.
As Leslie Appleton-Young, chief economist for the California Association of Realtors, told Bankrate: "This is a once-in-a-generation opportunity to buy real estate. I emphasize that double bold and underline."
The best and most overlooked way of profiting from these record low rates is to buy depressed housing.
To sweeten an already appealing investment, the government offers some little-known incentives that could boost your purchasing power and save you thousands on closing costs and down payments...
My colleague Nick Hodge has compiled a report on the matter that spells out exactly how to take advantage of this over-looked government dictum. He provides step-by-step instructions on how to get started and even gives you contacts to speak with in your area.
More information is available here.
Jimmy Mengel for Outsider Club
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