The Time to Buy or Refinance Is NOW
Editor's note: Home mortgage rates have recently hit all-time lows... And on Wednesday, the Federal Reserve just projected it will keep interest rates at or near zero through at least 2022 – meaning this trend in cheap loans is likely to continue.
In today's Masters Series essay, True Wealth editor Dr. Steve Sjuggerud explains precisely why today's low-rate environment marks a great time to buy a home or refinance your current mortgage... and what you should take into consideration when making the decision.
Steve also details two states in particular that are seeing a flood of real estate activity, and why you might want to consider looking at real estate investments in these areas today.
Today's essay is a combination of pieces that originally appeared in the August 27, 2019 and January 23, 2020 editions of our free DailyWealth e-letter. They may include some outdated numbers, but Steve's lessons are as timeless and valuable as ever.
The Time to Buy or Refinance Is NOW
"How are things, Jeff?" I asked my friend recently. "I bet business is good with these low interest rates."
I've known Jeff for many years. He also happens to be a local mortgage banker. We were both eating dinner at the same restaurant.
"Business is great," he answered. "I just locked in a 30-year mortgage today for a client – at a rate of 3.375%."
"3.375%!" I said. "Lucky client."
To see just how crazy this is, you need to understand one thing. That number is about the all-time record low for a mortgage rate in U.S. history. Seriously...
Looking back at the last century, the best mortgage rate you could have gotten for a house was just under 5% – back in the late 1940s.
In this century, mortgage rates bottomed out in 2012 and 2016 at around the same 3.375% level Jeff locked in for his client.
In short, mortgage rates today are as good as they get. And that means the time to act is now.
So what should you do? In this case, you should do the obvious thing... refinance your house right now.
Better yet, consider buying a house...
You're probably thinking, "Are you kidding, Steve? Don't you know that house prices are way up?"
Sure, I do. The median existing home price in the U.S. is about $286,000 today. That's an all-time high... even higher than what we saw at the peak of the housing bubble a dozen years ago.
Take a look at this chart. It uses the 10-month moving average to show us the trend in housing prices. And as I said, the actual median home price today is even higher...
We all know prices are up. But here's the important thing: The price of an investment isn't the only thing to consider.
Ultimately, what you need to consider is value, not price. You need to answer the question, "What am I getting for my money?"
When you start thinking seriously about value, housing "affordability" is the ultimate measure in the housing market. This is a combination of three things: the house price, the mortgage rate, and the household income.
Household income doesn't change a whole lot over time. So interest rates and house prices are what affect housing affordability the most.
House prices are at an all-time peak. But thanks to ultra-low mortgage rates, housing in the U.S. is still incredibly affordable. Take a look...
This chart distills the three pieces that make up affordability into one simple number. A reading of 100 means a typical person can afford a typical house in the U.S. A reading of 150 means he could afford 150% of the typical home price. So higher numbers (low on the chart) mean housing is more affordable.
As you can see, the market isn't as cheap as it was in 2012, when both house prices and interest rates were incredibly low. But remember, my friend Jeff is writing mortgages at the lowest rates in U.S. history.
Again, don't look at the price by itself... Look at the value. The value in housing today is all about interest rates. They're near record lows... And that's giving us our extraordinary opportunity today.
So please, talk with your bank. Or go online. Do what it takes to at least find out how much money you could save by refinancing today. (Make sure you ask about how long it takes before you "pay off" the closing costs... That basically tells you when refinancing starts to be profitable for you. And if it's in five years or fewer, it's a no-brainer.)
But, my friend... refinancing is the least you can do. I urge you to go further...
I urge you to consider buying U.S. residential real estate.
I am practicing what I preach here... I recently bought another house in Florida to update and rent out!
I get it. The deals in property aren't as great as they were in 2012. But we have near-record-low mortgage rates... And that means housing is still a great value today.
Take advantage of this opportunity! Consider refinancing – right now. And consider buying U.S. residential real estate – right now.
The Exodus to Florida (and Texas) Is ON
Warm winters. No state income tax. What's not to like?
Let's add to that...
What about $194,000?
That's the median price of the homes that sold in Jacksonville, Florida – the closest major city to me.
So again... Warm winters. No state income tax. And home prices that are probably cheaper than where you live now.
It's no wonder folks in high-tax states are flocking to Florida. It has been a big win for housing prices. And it explains why the boom isn't over yet.
Let me explain...
Think about this: You get twice as much house in Jacksonville today as you get in Chicago, Illinois. No kidding.
The median price per square foot in Chicago is twice that of Jacksonville. (Keep in mind I'm not pushing Jacksonville specifically... It's just what I'm familiar with.)
If I was sitting in Chicago today – in mid-January – I would think, "Oooh, Florida... Those warm winters, no taxes, and low house prices sure look appealing right now!"
It turns out, over the last eight years, 75,386 Illinois residents actually made that leap. That's right... more than 75,000 people LEFT their cold, expensive, high-tax home state – and moved to Florida.
Here's where it gets interesting... The average income of those departing Illinois taxpayers was $135,540. Those who stayed averaged less than $79,000. So the story is pretty simple: Illinois' best taxpayers are bringing their money to Florida.
Florida isn't the only state getting tax refugees. Texas is right up there, too...
While 75,000 Illinois residents moved to Florida, roughly 69,800 Illinois residents moved to Texas. Warm winters, lower taxes, and cheap home prices did it. (Texas houses are priced even lower than Florida houses.)
All told, Illinois has lost about 866,000 residents over nine years, with Florida as the top destination.
But it's not just Illinois... 912,000 Californians have moved out. And 1.4 million New Yorkers have fled.
Where are the Californians and the New Yorkers going?
It turns out, the Californians are moving to Texas. And the New Yorkers are moving to Florida. (We can pick the transplants out immediately here in town... We say "Floor-duh." The New Yorkers say "FLAAAR-uh-DAH.")
Here in Florida, the local folks don't get it. They think the transplants are buying at the top.
In the Jacksonville area, home prices are up 80% from their bottom. Folks here think that prices have gone up too much... that the peak has to be near.
This is one rare case where the local investors have it wrong, and the "foreigners" have it right.
The latest report from the Northeast Florida Association of Realtors ("NEFAR") tells me everything I need to know... Prices are up, but there are no signs of a top here yet. Here are some of the main takeaways...
- Housing is extremely affordable (at 140 on the Housing Affordability Index, which means typical folks can afford 140% of a typical home).
- The supply of homes available is extremely low. It would only take about three months for the current inventory of homes to sell at the current pace – which means there's price upside ahead.
- Housing starts are also still below historic averages... So there's still not enough supply coming in yet to meet demand.
- Only 14% of houses sell above list price, so it's not a "hot" market.
I'd bet that many parts of Florida and Texas are like my local area. The locals are "anchored" in the old house prices... But they will never see those prices again. All they see is how much prices have gone up. They don't see how much value is around them – right here, right now.
We have a "perception versus reality" mismatch, which is something I absolutely love to see as an investor. That's how you can find the best opportunities before everyone else catches on.
I've been heavily invested in Florida real estate for nearly a decade to take advantage of this trend. And if you're able to do the same, I encourage you take advantage as well.
The simple truth is that housing has boomed in areas like Florida and Texas... But it ain't over yet.
Good investing,
Steve
Editor's note: Most folks know Steve for his work on stocks. But the majority of his personal investable net worth is actually OUTSIDE of the stock market.
And, right now, he says the timing is perfect for you to do the same... That's why, for the first time ever – at 8 p.m. Eastern time on Wednesday, June 24 – Steve is going public with ALL of his real estate secrets.
He'll show you the real estate process he has personally used to make himself and his family millions... He'll walk you through his own real estate investments... including homes he and his wife bought and flipped... tax certificates that paid him 18%... raw timberland – and everything in between.
And during this event, Steve will even show you a brand-new kind of investment opportunity that has been off-limits to ordinary investors until recently. He'll also be joined by a panel of real estate experts, including a former winner of reality TV show The Apprentice.
The ideas they'll talk about are ones that Stansberry Research has NEVER covered in 20 years! Sign up here for this brand-new special broadcast to make sure you don't miss it.