Introduction:
Being a single mom for so long, being able to buy a house, it was always something I wanted for my daughter. But it was always out of the picture. I was not very good with my money. I was living paycheck to paycheck. She was very nervous about buying a home and she didn't think that we could do it. To buy or not to buy has never been a simple decision. That won't fit in here. I don't think so. And this ever changing housing market isn't making it any easier. With surging mortgage rates, record breaking rents and home prices, a potential economic downturn and other lifestyle considerations. There's so much to factor in. This is an extraordinarily unique market because of the pandemic. And because there was such a run on housing, so you have home prices very high, you also have rents very high,
On average across the 50 largest United States metro areas,
a typical renter pays about 40% less in rent than a first time homeowner. However, that's not the case for everyone. We will be paying close to the same amount, but not have any of the amenities. It just makes more sense to make this move. Prospective homeowners and investors often travel across the country and sometimes even the world seeking more affordable markets.
Right now. A few of those places are Cleveland,
Ohio, Pittsburgh, Pennsylvania and Baltimore, Maryland. It doesn't matter if the market is gonna crash or not, something's gonna happen but we're not sure what maybe it's gonna be back again. Maybe it's not we're gonna keep going doing I was at work, and I get a phone call from Stephanie, and she that.
Current market:
said that they had the evacuate apartment. It didn't register at first. I still get choked up thinking about it. I just raced home and the police tape was over. I didn't know where she was at her and her and the three girls were like just in tears. I'm sorry. I don't like talking about it. Leland and Stephanie Jernigan had to move out of their Cleveland apartment in January 2019. A neighboring apartment had a fire forcing them to stay with family for a few days and then a hotel. Just 10 days after Stephanie gave birth to their daughter, Tatum. She slept in her car seat the first night because we had nowhere to put her. Leland Jernigan always dreamed of
Purchasing a home of his own. But that fire put a wrench on his plans. We had a little over $5,000
saved. We were going to use that to try to get a place a house of our own. I had to utilize a lot of that money to find a place and to buy everything else that we had lost. The house was just totally taken off the table. And as a man, you don't want that for your wife and your kids like you want to be able to provide.
March 16, 2020 I got a phone call from my boss like hey, we're closing up
Meanwhile, Stephanie was on maternity leave and demoted as a result of the pandemic. Within a few months, Leland found a new job. While it pays about $20,000 less than his previous job. The family is finally back on track with their savings. On April 4, Tatum talks all the time about going to the new house going into the new house.
Is it our time yet?
That's what she says. It's not my turn. It's not your turn. You're right. It'll be your turn soon. I cannot wait to see her face when we walk in the door. After about a decade of record low mortgage rates and record high home prices. The United States housing market has slowed down. From January 2022 to January 2023, sales declined by numbers drastically fluctuated throughout 2022. And while it's often been said that buying a home is better than renting, it's not as straightforward right now. In December 2022 in.
Rent vs. buy:
are of course pros and cons for each. Let's start with renting. The pros are that you don't need to worry about repairs and you can pick up and move anytime. Cons include giving your money to someone else, building equity on their investment as opposed to your own. You don't have as much control over how long you can stay and rent can change at any time, if you're not in a rent stabilized home.
You also have no say in renovations, construction that I can attest can be extremely loud, and you're likely limited to how much you can change the space to your liking. Moving on to buying, pros include having the ability to do what you want with the space, you're investing your money in something that will hopefully appreciate, tax incentives, you could stay as long as you would like, more financial predictability as long as you have a fixed interest.
Rate and of course, pride in owning your own home.The cons,
you'll likely be in a smaller space for the same price than if you were renting if you're buying in an urban area and you have a lot more financial responsibilities, including upfront fees such as a down payment and closing costs, not to mention property taxes, likely a mortgage, and condo and maintenance fees depending on the type of home you purchased. The best way to make this decision for yourself is to take a closer look at your finances. You don't buy a house based on the price of the house, you buy it based on the monthly payment. That's going to be principal and
interest and insurance and property taxes.
If thatcalculation works for you and it's not that much of your income, perhaps a third of your income, then it's probably a good bet for you especially if you expect to stay in that home for more than 10 years. You will build equity in the home over the long term renting a house is really just throwing money out. For the Jernigans that calculation looks like this. If they renewed their lease, their rent would go up to $1,700 per month. Plus they pay $340 for storage and $50 per month for renters insurance bringing their monthly expense to $2,090.
New house, their monthly principal and interest.
will be $1,792. Plus mortgage insurance will be $125 and estimated escrow $447, bringing their monthly payment to about $2,365. If you subtract the $1,000 Leland mother's is contributing which is $100 cheaper than what she would be paying in rent, that brings their total monthly expense to $1,365. This move expanding their space threefold and allowing them to take care of Leland's mother will be saving them more than $700 per month. Most will see their housing wealth grow over time is that 20 years is that 30 years, it depends on how long you want to be in the home. If you only expect to be in a market for perhaps five years, it might be better to rent because that's not a long enough term to see real housing wealth grow. So it depends on
what your trajectory is for living somewhere versus how much you want to invest.
What makes sense for you and your family is also going to depend on where you plan on living. In the first two years of this pandemic we saw a run on what we call the Sunbelt, that is areas that are in the South. Also areas like Phoenix and Las Vegas huge sales numbers there a huge run on housing and home prices jumped dramatically. In those markets now we're now seeing them pull back just as strongly as they jumped. And that's because of higher mortgage rates and lower affordability because it's much more expensive to buy there. Now, one interesting market though that has just been off the charts and is still is Miami, we saw tons of people leaving New York City leaving the northeast, even California tech workers moving to Miami, and that still hasn't faded.
Cleveland:
Michael Azzam is the founder of The Azzam group. He's from Cleveland, and has been working in real estate for more than a decade. He quit his job as a registered nurse and has never looked back. When I started, it was really at the bottom of where we are, from a market standpoint, an economic standpoint, and it just our trajectory is just continuously gone up. And
I've seen so much improvement and development in the city.
And we've seen that trending with out of state investors coming in residents looking for more affordability. The pandemic made a significant difference as well, we had never seen this kind of housing market before. Mortgage rates dropped dramatically. And we saw more than a dozen record lows on the So people were able to buy more for their money, that is their monthly payments were lower. And that caused home prices just to
soar faster than really we've ever seen before. As markets started to price themselves out people look to Cleveland as oh, hey, I get to work from home, I can be flexible with where I live, I'm gonna go to a market that I can afford to buy a nice big house.
Years ago, The Azzam Group saw the advantage of flipping homes in Cleveland.
Over the last few years, we've averaged a little over 500 transactions a year back in 2014 and 15. 60 to 70 transactions. We started growing from there, the same house at $40, $50 and $60,000 are selling now for $150, $160, $170,000. So you know, there's a So much opportunity, it's brought people to Cleveland, lot of opportunity. even from outside the United States. I'm Dan Issa I moved from Israel to Cleveland for doing real.
Estate we do around $200 to $300k a year from flipping houses.
Ready to go in Let's rock and roll. Got a lot to do here. We heard about it from friends, group of investors, then we look at it more in internet articles, Facebook groups and everything about investing in Cleveland. It was like one of the cheapest to purchase the houses and like it's the percentage what you get back the profit it's very high. used money from their real estate business and winery in Israel to start a construction business in Cleveland. Then they expanded to real estate. They've taken themselves as a family and said, you know what, we're going to make sure that we're taking advantage of this opportunity, flying all the way from another country. They're here to do some damage in a good way.
How many homes have you flipped?
This is their most recent flip. They purchased this home for $60,000 and put in an additional $60,000. They re-did the floors, bathrooms, kitchen, windows and even the roof. After being on the market for less than a week, multiple families were interested and this home is now under contract for $195,000. $75,000 in profit. Issa says a rehab typically takes about three months from the time they purchased the property to when they're done. That costs about $50,000 on average.
in the beginning of the year, they were looking at about five houses each week. Their goal by the end of 2023 is to flip 12 houses and have 10 rental properties. They currently rent out three of their properties and the fourth they call home.
Do you drink these wines together?
Every day and every night whenever we drink bottle of wine or any alcohol that we produce. They bought this three bed three bath in March 2022 for $195,000 and put $150,000 in for renovations. While they spent a bit more on this property than they do on the homes they flip, Dan's mother Munira says it came out exactly
how they want it. Her favorite part, the kitchen.
When I make the dishes you see how wonderful you see the street you see the car you see the grass you see who's coming. We have open house all the time. We have a lot of friends. They come and visit us every Sunday we sit like here if you see like more than 20 people. We're in love with Cleveland it's awesome. The summertime is beautiful here. The wintertime is cold and nice. So you have all the seasons. And do you know if you wanted to sell this right
Now how much you can get?
The after repair value. It's supposed to be around $550 or $600. rent than buy. That's up from 30 markets from the prior year. In the top 10 metros that favored renting monthly starter homeownership costs were an average of $1,920 higher than rents. And the gap is only getting bigger. In December than $900 on average, whereas in 2021 renters received about half of that. We saw the 30-year fixed go from less than 3% to over 7% in the course of just one year that's very dramatic, and that made that monthly payment more than twice what it was the year before and unaffordable for a lot of folks.
So that's why the housing market really stuck out in the fall.
Interestingly, we did see it bumped back up in January when the 30-year fixed pulled back towards 6%. People really rushed in - we saw pending home sales, which are a measure of signed contracts. That's people out shopping for homes during the month that jumped over 8% in January compared with December, and that was surprising, but it was people saying okay, maybe I've got a chance to get in. If we stayed here we will pay $1700 a month we will pay 300 or As for the five areas in 2022, and 20 areas and 2021 where buying made more financial sense, families saved about $240 on average in both years. And Cleveland was number one on that list in 2021. While the city has since flipped to the other side something for storage. Huge area for my mom a huge bedroom for according to averages, it's not by much.
So how does one decide during a time like this?
The Jernigans purchased us, the girls to have separate bedrooms that are bigger than this home for $285,000. About $100 per square foot. The average rate on the 30-year fixed is 6. 44% as of April 2023. The Jernigans locked in 6. 625% taking their monthly principal and interest to about $1,800. the ones that they have now. The bottom part is all of your grandma's and the top part is all of our bedrooms our bedroom is that big from edge to edge. A huge backyard that Tatum can run around in, a four car garage. Markets in the U. S. in which homeownership offers lower monthly costs include Memphis and Pittsburgh, among others. Nationally, home prices were higher at the beginning of 2023 than they were at the start of 2022. But that's also constantly changing.
Looking ahead:
The spring housing market it is historically the busiest time of the year for housing. And that's because families want to buy their homes close on them in the summer and move so they don't disrupt their children and get them into school in the fall. We are not, however, expecting a busy spring housing market this year simply because mortgage rates have shot up so far again. And because housing inventory is still so low, so will it recover over the summer.
Will it come back in the fall?
It's possible if we get more supply on the market, but unfortunately, sellers are afraid to list in this market. Because they see that home prices are easing up. They don't want to catch a falling knife. They see mortgage rates are higher, and they're just concerned overall that they won't be able to find a house they can afford once they sell the one they have. Despite the fact that renting will likely be cheaper than buying in most areas of the country in 2023,
Rental affordability is expected to remain a key issue.
Low vacancy rates, lagging new construction, and demand are expected to drive rental rates to new highs Over the long term historically, it's always been better to buy a home than rent because you're building equity in that house.
Now have they gone down in the past during the Great Recession?
Of course they have. But again, over the long term housing will grow your wealth. And that's why we see wealth disparities among those who own homes and those who don't. The biggest obstacle we're seeing is most consumers don't know how easy it is to buy. They think that there's so many challenges that are going to be blocking their path to actually getting into homeownership. And what will happen in the future is uncertain. As of now I don't see mortgage rates coming down significantly anytime soon. Although forecasts do have them lower by the end of the year.
Back in 14, 15 and 16 we saw there were pockets of Cleveland with very blighted homes and distressed homes and a lot of those same homes now are updated I mean frankly beautiful now, it's a testament to all the outside investments that have been coming in. Cleveland Clinic has attracted a lot of homebuyers.
We have resident doctors moving in from out of state,
people coming that are working for Progressive, people coming in that are working for Sherwin William. Job force has opened up a lot of growth for our population, but I don't think we're at the tip of the iceberg here. Hi. Hi Grandma. Did you ever think when we lived on
Brightwood that 30 years later, we're gonna be in our own home?
I always knew you would own a home. But I did think that I would be moving in with you.
Market conditions allowing this family to purchase a home will be life changing in more ways than one. The Jernigans say their 14-year-old daughter Raelynn still has PTSD from the As a dad, you want to fix it and you can't. Well, it sounds like you are fixing it. Trying to. This family is achieving a big part of the American Dream, a life event that in a 2022 survey 74% of respondents ranked as the highest gauge of prosperity above having a career, children, and a college degree. Meanwhile, it's a full circle moment for Leland who grew up in East Cleveland, his family on government assistance. I came from a single mother home who struggled to put food on the table and always wanted better for her children. It was more criminals and there were police. I told myself that they will not live in an environment like that. The area that we're moving to is something that you would see and look at and be like I want to get there one day.
