Scottsdale homeowners are enjoying higher home values and are using their equity to take cash out of their properties by refinancing. Surprisingly, however, they are doing it conservatively –– more than any other time in recent history. A closer look reveals why that may be the case.
"Take Only What You Need" – Scottsdale Homeowners
In earlier times, such as the years leading up to the housing crash in 2008, homeowners regularly used their properties like ATM machines, taking as much cash out as their lenders would legally allow. With values inflated and equity almost non-existent, the amount they refinanced for was high compared to the home's worth. That and other actions led to millions of American homeowners being "upside down" or "underwater" on their mortgages. Ultimately more than 7 million homes ended up in foreclosure.
Since then, lending practices have been shored up dramatically to safeguard against the same thing happening again. In addition, today's borrowers are considerably more risk conscious – and are slower to add debt they don't need. Homeowners are still borrowing against their equity, with 42% of refinances in 2015 being for the purpose of taking cash out, not just refinancing to get a lower interest rate.
For most recent refinances, the average cash-out amount was slightly more than $60,000 and the average LTV ratio was 67%, the lowest level in history. The total amount of equity received through refinances in 2015 topped the $64 billion mark, the highest amount for any 12-month period since 2008-2009. Despite the record amount, homeowners showed remarkable fiscal restraint by not tapping into the remaining equity.
Economists say consumers are saving more now than they did during the years immediately after the housing crash. According to the Commerce Department, the savings rate in December 2015 climbed to the highest level in over three years. In addition, the borrowers refinancing to get cash enjoyed an average credit score of 748 – high for homeowners seeking refinances. This reinforces the position of mortgage lenders being risk-averse, but it's also a sign borrowers are taking only what they need. Simply put, they're leaving money on the table.
While Scottsdale homeowners still have most of their equity intact, they seem to be just fine with that. The memories of financial crises like the housing crash or even the Great Depression has had a lasting, memorable effect on a generation who vows not to go through it again. Plus, since interest rates on savings accounts have been so low, many baby boomers are staring at retirement wondering how they'll manage. Other workers of all ages have learned to look at their finances more cautiously. They've seen high unemployment, and they know the horrors of losing a home to foreclosure.
As a result, Scottsdale homeowners in today's economy take out only what they need when they refinance or get home equity loans. They begin paying it back almost immediately every month. For home equity loans, some banks require amortized payments, but not all do.
Borrowers typically are using their cash equity for home improvements, college tuition and rising health care costs. This is in stark contrast to the borrowers of just a decade ago, when home equity was used to purchase luxury items like boats, RVs, vacations and other extravagances.
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The Scottsdale home selling arena can be an unsavory and downright scary place sometimes. Especially if you discover your home has issues that could have been avoided before you bought it. While most home sellers and their agents are respectable and above-board, there are those who aren't. Here are four problems some sellers often try to hide from unsuspecting buyers.
Hidden Problems in Scottsdale Home Selling
Judging a book by its cover is often dangerous. Sometimes a house which appears to be well-maintained can be hiding pests such as carpenter ants, cockroaches and termites that can do damage –– extensive damage. Experts say damages to a home by these and other wood-boring insects can be in the tens of thousands of dollars. One pest control company reports a home that cost $1 million to repair. To head off the headache and heartache, it's best to have a pest inspection before you close on your home. While it's possible a homeowner offering his house in the Scottsdale home selling arena may not be aware the problem exists, it's unlikely. So, get an inspection by a reputable pest control firm for peace of mind.
Water or structural damage
A leaky roof or a problem with a home's foundation can lead to a large outlay of cash to repair. Prior to making an offer on a home you want to buy, do your own personal inspection. Walk through the property and be on the lookout for abnormal foundation cracks, undue settlement issues, unsightly mold or musty odors. Inspect the walls and ceilings for dark spots, damages or recently repaired or repainted areas. That could be a sign there's a problem and the seller tried to repair or otherwise cover it up. Naturally, should you decide to make an offer on the home, you should have a thorough home inspection performed by a licensed home inspector.
Depending on where you live, sellers aren't required by law to disclose "emotional defects" associated with their home. Emotional defects are events that may have occurred in the house or on the property such as a murder, a death, a suicide or an alleged haunting. If that's important to you and if your state doesn't require disclosure, visit a website such as DiedinHouse.com to search the home's history. It may answer questions about houses on the Scottsdale home selling market.
Aging, energy inefficient home systems
Often the seller may not know the age of the home's HVAC systems or water heater. If that's the case, just ask your home inspection company for assistance. If the seller is trying to hide the age of the systems — or any problems that may accompany them, a home inspector will probably be able to determine the truth.
Lastly, common sense dictates that if you want more information on a home, just inquire about it from the neighbors. They usually have knowledge that may be informative and helpful, especially if you suspect any issues with a house in the Scottsdale home selling marketplace.
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If you’re renting in the Scottsdale housing market, now hear this: it isn’t easy to buy a house. It may be easier to stay put. That’s because home price gains are picking up, while rents are leveling off — despite the fact they’ve skyrocketed in recent years. Some economists predict that by the end of this year, rents could actually rise at a slower pace than income levels in many real estate markets throughout the U.S.
Zillow Weighs in on Scottsdale Housing
According to Zillow, the annual rent appreciation rate is forecasted to rise by 1.1% by December 2016. This would represent a decrease of 4.5% in the same appreciation rate for the year ending December 2015.
With home sales prices rising at what has been termed by some economists as “unhealthy and unsustainable,” rents aren’t expected to approach that rate of growth. The rising home prices are the result of fewer listings — a shrinking supply –– and increasing demand. In December 2015, the supply of homes on the market was the lowest in ten years. In addition, annual home sales price gains — meaning the average year-over-year increase in home value –– rose to 5.3%.
Scottsdale housing experts say the hot markets will continue to enjoy brisk activity during 2016. However, rents aren’t expected to rise as fast as they have in the recent past.
Despite the slowdown in rental appreciation, renters will continue to see gradual rent increases. They will just be less dramatic than the increases in the last several years. Strong growth in multifamily apartment dwellings in recent years has helped boost the supply of rental units in major metropolitan urban markets. The trade-off, however, is that developers have been slow to do the same thing in the smaller suburban markets. Renters in those markets seem to be struggling the most with short supply and higher rents. Rental property developers have shied away from settling for lower rents. They prefer to charge top dollar in order to recoup the high cost of construction — especially in the Scottsdale housing market where available land is expensive.
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Growth in the Scottsdale economy was sluggish during the last quarter of 2015, contributing to the overall U.S. economy which ended with a 0.7% annual rate. Economists say the slowdown was due, in part, to cautious consumer spending, reduction in businesses making investments and stagnant exports to other parts of the world.
Scottsdale Economy: What's Ahead?
While the fourth quarter results weren't altogether unexpected, they have raised concerns about the future. Still, most economic experts expect a return to more positive results by the end of this quarter.
Government forecasts had predicted 2% annual growth in the gross domestic product (GDP) for the third quarter of 2015. Instead, the economy grew less than half of the anticipated rate, representing the lowest expansion since the first quarter of last year.
Government economists say the disappointing fourth quarter results are temporary and expect GDP growth to return to a rate of 2.5% to 3% by the middle of 2016. Those expectations are based on improved consumer spending and continued job growth. Consumer spending during the last quarter of 2015 dipped to an annual growth rate of 2.2%, down from a 3% rate the previous quarter. Somewhat alarming was the reduction of spending on both durable goods, like automobiles, and nondurable goods, such as clothing. Given the holiday gift-giving season the results were surprising.
Since consumer spending makes up roughly two-thirds of all economic activity, most analysts are looking to strengthening employment growth to bolster the first quarter of 2016. There are concerns that global issues such as China's shaky economy and falling oil and stock prices will continue to adversely impact the U.S.
In addition to consumer spending, a sharp drop in exported goods also contributed to the weakness of the last quarter. A stronger U.S. dollar has increased the price of goods, but made them less competitive in overseas trade markets. Business investment spending also had a negative impact. Falling from a 5.3% annual growth rate to 1.8%, spending on structures mirrored a drastic drop in oil and gas drilling and exploration.
On a brighter note, new home construction enjoyed an 8.1% annual growth rate. That will provide needed housing inventory for spring home shopping in the Scottsdale economy.
The overall growth of the economy in 2015 was 2.4%, equal to the growth of the previous year. Economists predict 2016 will see growth in the 2% range. While some say it's possible we'll see a recession this year, most agree it won't happen.
The Federal Reserve in its most recent meeting issued a cautious look at the U.S. economy. They left interest rates unchanged after having raised short-term rates in December. That could be an indication the Fed is rethinking the planned rate hikes this year. The weakness of economic growth, lower inflation and global economic impact may have gotten the Fed's attention.
Another bright spot was employment growth. The economy added roughly 284,000 jobs per month during the last quarter of 2015, bringing the year end unemployment rate at a low 5%. This, of course, is important because with more Americans working, more are considering purchasing their first home or upgrading to a larger one.
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