Real Estate Math: How Much Do I Need To Save For A Down Payment On A House?

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By Tara Mastroeni | Forbes.com

If you’ve been thinking of buying a house, you probably know that you should start saving up toward a down payment. However, if you’ve ever asked yourself how much you should be saving, you’re not alone. I’ve broken down the math for you below. Use these equations – and calculators – provided to figure out your savings goal.

Find out how much you can afford to pay in housing costs each month

Conventional wisdom states that housing expenses should never exceed 28% of your total monthly income. Using that figure, if you make $5,000 per month, that would translate to a monthly housing payment – which should include additional costs like taxes, mortgage insurance, and HOA fees – of $1,400 per month.

To find your amount, the math would look like this:

Your monthly take home pay x 0.28 = Your ideal monthly housing payment

Learn how much house you can afford

Once you have your ideal monthly housing payment in hand, you can use that to find out how much house you can afford. To do this, you’ll also need some additional information. You’ll also need a projected annual interest rate and the number of monthly payments you’ll make over the life of the loan

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The formula for this is as follows:

Loan amount = (Monthly payment/(Annual interest rate/12) ) x (1 – (1/(annual interest rate/12)*number of monthly loan payments)

The math here can get pretty complicated so I suggest using this calculator to do the legwork instead.

Continuing with the example above, that $1,4000 monthly payment over a 30-year loan with an interest rate of 5% would average out to a loan amount of $260,794.26. For the purposes of this article, I’ll round it to $260,000.

Zero in on your down payment amount

These days, you need to be prepared to make a down payment of at least 3.5% – 5%. However, if you aim higher and save up a down payment between 10% and 20%, you’ll have access to better interest rates, which could save you money over the life of the loan.

No matter how much you decide to save, the math will look like the following:

Your total loan amount x down payment percentage = down payment amount

In the example above, if I used my $260,000 loan amount and wanted to make a 20% down payment, it would look like:

$260,000 x 0.20 = $52,000

The answer you get is equal to the amount that you should aim to save up to put towards a down payment.

Luxury Home Market in U.S. Remains Chilly in Mid 2019


By Michael Gerrity

Despite a modest rebound in prices in Q2

Property broker Redfin is reporting this week that the average U.S. sales price for luxury homes nationwide increased 1 percent year over year to $1.64 million in the second quarter of 2019. This marks a modest return to the trend of rising luxury home prices, which was interrupted by a 1.7 percent decline in the first quarter of this year.

For this analysis, Redfin tracked home sales in more than 1,000 cities across the U.S. (not including New York City) and defined a home as luxury if it’s among the 5 percent most expensive homes sold in the quarter. In the other 95 percent of the market, home prices increased 3.2 percent year over year to an average of $322,000 in the first quarter, a continuation of seven straight years of increases.

Sales of homes priced at or above $1.5 million declined 4.6 percent year over year last quarter. That’s the third consecutive quarter of dropping sales in the category, though the decline was much smaller than the 13.8 percent dip last quarter. Sales of homes priced under $1.5 million dropped 6.7 percent year over year.

Supply of homes priced at or above $1.5 million increased 18.7 percent in the second quarter, the fifth straight quarter of rising luxury inventory and the biggest increase in two years. Supply of homes priced under $1.5 million increased just 2.1 percent annually.

The minor gain in prices, along with dipping sales and a significant increase in supply, suggests that demand for luxury homes is tepid, especially compared to the past few years.

“Luxury home sales have been relatively soft since early 2018 when the tax code overhaul made it so that people with big mortgages and those living in high-tax states and counties couldn’t deduct as much from their annual tax bill,” said Redfin chief economist Daryl Fairweather. “But wealthy Americans who would otherwise be considering a multi-million dollar home purchase may now be a bit spooked that the economic expansion they’ve been enjoying for the past decade could soon be nearing its end.” 

“Business owners and people with large investments are paying close attention to the escalating trade war and other uncertainties in global markets,”

Fairweather explained. “Despite the fact that the economy at home is continuing to grow, these and other signs that a recession could be looming are likely causing well-heeled homebuyers to feel extra cautious about a big purchase or investment. The Fed’s rate cut is unlikely to have a big impact on the course of the economy and especially on the luxury housing market, where buyers are the least rate-sensitive. As a result, I expect to see continued caution in the high-end market as the future of the economy becomes more clear to those whose wealth is most closely tied to it.”

Luxury homes are selling slightly faster than they were last year. The typical luxury home that sold in the second quarter went under contract in 68 days, down slightly from 71 days a year before. That’s the fastest luxury homes have sold in at least a decade. The typical non-luxury home that sold during the same time period went under contract seven days faster than a year earlier, in 56 days.

Just 1.3 percent of homes priced in the top 5 percent sold above list price in the second quarter, down from 1.6 percent a year earlier. That’s a much smaller share of homes sold above list price than the other 95 percent of homes; among those, 23.4 percent sold above list price in the second quarter.

Biggest price gains

Two Las Vegas suburbs are among the cities with the biggest increases in luxury home prices in the second quarter. In Paradise, Nevada, where home prices in the top 5 percent of homes increased 46.8 percent year over year, more than any other city, the average luxury home sold for $1,079,000. In Henderson, Nevada, seventh on this quarter’s list, the average luxury home sold for $1,223,000, up 16.4 percent from the year before.

Cities in Florida, including Fort Lauderdale, St. Petersburg and Tampa, also experienced some of the biggest increases in luxury home prices. Though it’s typical for Florida cities to be among the regions with the biggest increases in the category, this is the first time since the third quarter of 2017 a Florida city hasn’t topped the list.

Biggest price declines

Seattle, Washington, D.C., Honolulu and San Jose–some of the most expensive real estate markets in the U.S.–are among the cities where luxury home prices have dropped the most. In Seattle, home prices for the top 5 percent of the market declined 14.4 percent to roughly $2.2 million in the second quarter, and in San Jose prices in the same category dipped 8.2 percent to $2.37 million.

“Part of the reason prices for luxury homes in Seattle are dropping this year is because it experienced a bigger market boom in all price ranges (especially the high-end market) in the last six years than most other cities, with Amazon and other tech firms bringing folks into the area quickly with high salaries. A bigger rise tends to lead to a bigger fall, and luxury is usually one of the first markets to feel the crunch,” said local Redfin agent Tamar Baber. “Now that the market has cooled down a bit, high-end buyers are scrutinizing their home purchases very carefully. Some of them feel the country could be headed toward a recession and aren’t willing to spend $2 million, $3 million or $4 million on a home right now unless it meets their exact specifications. Luxury sellers are slowly adjusting their pricing accordingly.”


Source: World Property Journal




How LA’s health craze birthed modernist design


In 1969, a banner year for counterculture, the casual use of the term “hippies” in a letter penned by Dr. Philip Lovell seemed appropriate for the time. But this correspondence between Lovell, an LA-based health-food evangelist and self-proclaimed naturopath, and Richard Neutra, a pioneering modernist architect, offers fascinating insight into a relationship that would eventually reshape Southern California architecture.

“Richard, you and RMS [Rudolph M. Schindler, another modernist architect of the era] were the ‘Hippies,’ the protestors of those years in the field of architecture,” Lovell wrote to the architect of his famous home, known as the Lovell Health House, a concrete-and-steel structure built into the hills near Griffith Park in the late 1920s, when the area was still wild.

The Lovell Health House launched Neutra’s career—he described it as going from a starvation diet to a career—and helped create a template for sleek, streamlined homes. The look was liberally borrowed by the Case Study homes that would create a pattern library for midcentury modern residential design.

It also, as the name implies, was rooted in California’s longstanding role as a center for health, wellness, nutritional fads, and sunshine, as Lyra Kilston recounts in her excellent new book Sun SeekersThe in-depth look at how early 20th century wellness trends converged upon Los Angeles holds up the Lovell Health House as a reflection of both the physical and social landscape. Lovell, a nutritional advocate and newspaper columnist who embraced raw foods and sunbathing, simply wanted his new home to reflect his beliefs.

“His radical ideas about health dictated that these buildings developed the way they did,” Kilston tells Curbed. “The architect was brilliant and did plenty of incredible things, but in this case, he catered to a particular client’s interests. We have to thank LA for being the kind of place where a wacky health nut could make enough money to commission a house like this.”

One of Neutra’s apprentices named this style “raw food architecture” (critic Esther McCoy would put a sharp spin on the turn of phrase, saying that “the ‘raw-food architecture’ of the ‘20s became the caviar by mid-century”). Neutra’s design was as stripped-down and nature-oriented as a tall, tanned doctor pushing the benefits of a vegan diet.

Kilston’s book deftly connects the myriad threads between European health fads, early modernist architecture, and the synthesis of both in the high-end homes that began to stack up on Los Angeles hillsides.

In the late 19th century, Europe was a hive of research activity into the benefits of fresh air, exercise, and recouperative healing, ideas that quickly began traversing the Atlantic. There are direct connections between the sanitarium designs of Europe and New York, and what would later happen in California, according to Kilston.

In 1903, Carl Schulz established the first Naturopathic Institute in Los Angeles. It was an early milestone in the modern wellness movement, which found Southern California, and its ideal climate to be a rich breeding ground for ideas and cures.

“If you believed this stuff, it only makes sense you’d seek out a place that didn’t have winter,” she says. “If you thought crowded European cities were disease-causing, this would be the place.”

At the same time, Neutra, who had studied the nascent modernist design ideas of Bauhausmembers such as Walter Gropius, was enamored with modern architecture. Before he came to Los Angeles, he worked for the Chicago firm of Holabird and Roche, learning about new advances in steel skyscrapers and modern construction techniques. The sleek, industrial look coming to the fore in the architecture world would marry perfectly with the kind of stripped-down lifestyle being nurtured in the California sun.

As Kilston says, while the building itself is an established part of modern architecture’s family tree, the influence of the client often gets overlooked.

The creative collaboration between architect and client took advantage of all these converging trends. Lovell, who wrote a column for the Los Angeles Times Sunday magazine called “Care of the Body,” had become a local legend in a burgeoning scene filled with natural food restaurants and health spas, as he planned his new home.

Neutra’s design for the house, set into a chaparral hillside, would fuse Lovell’s ideas on health with his modernist vision: abundant windows for sunbathing, a kitchen optimized for a raw-food diet, a pool for soaking, and a yard planted with fruit-bearing avocado trees. The main interior stairway included a mounted set of headlights from a Model T Ford; a machine for healthy living.

In its bid to evoke a robust, sinewy body, the Health House pioneered new construction techniques. Neutra used a then-novel steel frame, reportedly for the first time in a residential building, and filled in the gaps with sprayed concrete, or gunite, applied by shooting it through a tube. A model of simplicity, the entire design would be included in the landmark Museum of Modern Art’s 1932 “Modern Architecture” exhibit, which would go on to define the style.

The light, airy skeleton was not only aesthetically pleasing, but lifestyle-enhancing, as laid out in correspondence from Lovell that’s quoted in Sun Seekers:

“There are plenty of opportunities throughout the house for nude sun baths privately taken for each member. Many of the windows are of the latest invention of glass, admitting ultra-violet light. The bathrooms are completely equipped with hydrotherapy equipment, including such things as sitz baths, multiple marathon showers, and the latest type of sanitary fixtures… The ventilation, sunshine, and light ideas are exceedingly modern… every inside bedroom has its accompanying sleeping porch so that sleeping can be done outdoors.”

Read today, it sounds like a celebration of the vaunted indoor-outdoor lifestyle.

As Neutra wrote, decades before the era when midcentury modern became a buzzword, “The climate of California, at least in those halcyon days before the citrus groves and bean fields were crowded out by freeways, parking lots, and subdivisions, was conducive to the germination of a fundamentally fresh form of architectural growth.”

While, like all utopian visions, the vision of a healthier, happier, hillside California would be ruined with sprawl and overdevelopment, the Health House established a template that has been repeatedly invoked, accurately or not. As Kilston writes in her book, “In the new era of antibiotics, the medicinal aura of a healthful, sun-trapping house was translated into other symbols: leisure, pleasure, wealth, the good life. The Hollywood Hills were soon dotted with flat-roofed modern homes whose walls of glass, turquoise pools, and austere patios hung over the glittering spread of the city below.”

While the Health House, which celebrates its 90th anniversary this December, has made a few cameos in popular culture—most famously stepping in as the home of Pierce Morehouse Patchett in the 1997 film L.A. Confidentialand more recently featured in Mike Mills’ Beginners—a core group of fans continues to support its future preservation. But its ongoing maintenance challenges mean the house is perhaps best known as an ideal imperfectly repeated. That home’s reality transposed against the image-saturated, myth-making city from whence it was born perhaps makes it even more quintessentially Californian.

Source: Curbed LA

Author: Patrick Sisson

Is it Better to Buy or Rent in LA


With home prices in Los Angeles nearly as high as they’ve ever been and rents hovering at levels many residents can’t afford, Angelenos wondering whether to rent or buy aren’t faced with an easy choice.

Each option comes with its own advantages and disadvantages, and one—buying—requires a financial commitment quite a few people are simply unable to make.

Assuming you’ve got some savings lying around, which option makes the most sense from a financial perspective?

“There’s no right or wrong answer,” says Eric Sussman, adjunct professor of real estate and accounting at UCLA. “But you’d better be thoughtful about it.”

Tools from Zillow and the New York Times offer some guidance on this question. The Zillow calculator determines the break-even point, when buying a house becomes cheaper than renting due to equity gained by the homeowner since the purchase.

More simply put, as you pay off more of your home, you have access to more of its total value when you decide to sell. Assuming rent and mortgage payments are equal, then buying will save you money if the amount you end up with when selling is more than you would have been able to make by putting your down payment into an investment fund and continuing to write checks to your landlord each month.

If you were to buy a median-priced home in Los Angeles County (around $605,000), rather than pay for a $2,000-per-month apartment, it would take five years and three months to hit the break-even point when buying pays off over renting. But buying a pricier residence or signing a cheaper lease can change the calculation dramatically.

Under the same scenario, it only takes just two years and seven months to break even if your monthly rental payments are $3,000. On the other hand, if your choice is a $605,000 home or a $1,500-per-month apartment, buying will never be cheaper than renting.

Of course, these examples assume buyers are ready to make a 20 percent down payment. For a $605,000 home, that’s more than $120,000.

“How many people have $120,000 lying around?” Sussman asks. That’s one reason why he says the question of whether it’s better to buy or rent depends on a host of other factors, including how much buyers have saved up and whether they are willing to make such a large financial commitment.

It is possible to get a mortgage without putting 20 percent down, but a lower down payment generally means higher monthly costs. That’s because most banks will require you to pay for private mortgage insurance until you build up to 20 percent equity in your home. Like rental payments, those costs also do not add to the equity you have in your home.

A low down payment can also impact the financial viability of a purchase, since buyers have less equity from the get-go. With a 5 or 10 percent down payment, a drop in home prices is more likely to leave homeowners stuck owing as much or more than their house is worth.

“It doesn’t take a lot to put a hole in your balloon,” Sussman says.

For some people, the chance to buy with lower up-front costs might be worth the risk, especially if they’re already stuck with high rental payments. The New York Timescalculator helps to assess whether your rent is high enough that it makes more sense to buy.

Assuming that you plan to stay for at least five years, the calculator finds that buying a median-priced home in Los Angeles is the way to go if you’d be paying more than $2,425 in rent for something similar.

That calculation would look much different if mortgage interest rates were higher. According to Freddie Mac, interest rates for a conventional home loan now stand at 3.84 percent, well shy of the 4.5 percent or higher many analysts were predicting at the start of the year. Using the higher rate, the New York Times calculator finds renting makes more sense up to $2,617 per month.

Interest rates are one of the key variables that can affect the overall cost of buying at a given time. A high interest rate means costlier mortgage payments, which add up over time.

Right now, interest rates are low, and homes are taking a bit longer to sell than they did this time last year, according to data published by the California Association of Realtors. Prices are also climbing at a more modest pace; LA’s median sale price rose 3 percent between May 2018 and May 2019, according to CoreLogic. That’s significantly lower than the 8.4 percent increase seen a year earlier.

Those factors point to a market that’s shifting toward buyers—though prices are still high enough that the number of people capable of buying is discouragingly small.

Sussman stresses that the decision to rent or buy depends entirely on what people are looking for in a home and how long they’d like to stay there.

“For the right person, if your financial wherewithal is solid, and if you’re going to be in the house for more than five years, go ahead and buy,” he says. “Prices will be higher 10 years from now than they are today.”

Source: Curbed La

Author: Elijah Chiland

Decorator Show Houses are Designed to Sell


The first time Thu Lesher toured her future home, she couldn’t see past its dated look, with heavy furniture and draperies. She changed her mind two years later, when the antebellum home became the Charleston Symphony Orchestra League’s 2014 Designer Show House and received a sweeping face-lift, with fresh wall paint, custom-made curtains and new light fixtures.

In June of that year, Dr. Lesher, a professor at the College of Charleston, and her husband, Aaron Lesher, a pediatric surgeon, bought the six-bedroom property for $1.3 million.

“It was absolutely transformed,” she says. “I needed someone to show me the potential of the house.”

At show houses across the country each year, interior designers work their magic on a lucky home (often a different designer for each room). Designers shoulder the cost, with no charge to the homeowner, to get exposure for their work. Visitors pay an admission fee to tour the show house, with the proceeds usually benefiting a local charity. Removable items and decor used in the renovation are often removed after the show, although fixed items (wallpaper, paint) usually remain. Some homes are for sale. If the property is listed, sellers wager that foot traffic, media buzz and visual upgrades can expedite and improve a sale.

“This is staging on steroids,” says Margaret von Werssowetz, an agent with Handsome Properties in Charleston who is selling this year’s Charleston Show House, a 1903 Victorian listed for $1.65 million.

At least 25% of the show houses in the 47-year history of the Kips Bay Decorator Show House event in New York City have sold within 12 months of the exhibit, says Daniel Quintero, executive director of the Kips Bay Boys & Girls Club, the event’s beneficiary. This year’s show house, a stately, 12-bedroom, eight-bathroom Upper East Side townhouse currently listed for $29 million, has been decked out with crown molding and fireplaces, hand-painted murals and crystal-encrusted chandeliers.

The annual Decorator Show House in Wichita Falls, Texas, benefiting the Wichita Falls Faith Mission, which operates two local homeless shelters, has sold during or soon after the event nine times in its 11-year-history, according to Frances Anne Manning, director of development at the charitable organization. “Attracting buyers through this prestigious event and showing them a house decorated in this way can help them feel that it’s a high-end home worth the price,” says Allison Gray, a real-estate agent in Wichita Falls, located between Dallas and Oklahoma City.

In 2014, a five-bedroom near Midwestern State University had been for sale for two years before becoming that year’s show house. Wichita Falls locals Britt and Kristi Milstead, who have three children, bought the 3,800-square-foot-property for $240,000 four months after the event. Real estate website Zillow now values it at $306,000.

The show house improvements had made it attractive enough to buy, says Mr. Milstead, 47, but it needed more work. Floors had to be refinished, and kitchen and bathrooms required updating.

But the Milsteads liked the living room, which show house designers had painted a light mint green with a darker green trim that was continued in the formal dining room. There, it was paired with wallpaper that had a medallion pattern.

“Being a show house helped sell that house,” says Mr. Milstead, director of sales at a television station. ”It provided touches that needed to be done and that the seller wasn’t willing to make.”

In Topeka, Kansas, a 7,300-square-foot home was listed but not attracting any buyers when, in the spring of 2014, it became the Designers’ Show House for Child Care Aware of Eastern Kansas, a nonprofit helping parents with child care and education.

Local designers installed new kitchen cabinets, removed dated foliage-inspired wallpaper and repainted walls in a neutral palette. The house’s listing touted its fresh renovation and prominence as a show house.

Kristina and John Dietrick bought the five-bedroom property four months after the show house event for $514,000. Today, Zillow estimates it is worth around $581,000. Without the upgrades, they would have balked.

 “It would have been too much work,” says Ms. Dietrick, owner of a human resources outsourcing firm. “The cool thing with a designer show house is that they do the heavy lifting.”

Ms. Dietrick, 50, recalls liking 80% of the show house designs. She removed all of the window treatments, painted over stencil art on the dining room ceiling, and changed the kitchen cabinets from brown to a black that she felt would look better with the appliances and quartz countertops.

“The kitchen cabinetry had a rustic look, while the rest of the house had more of a sleek, modern look,” she remembers.

In the 2014 Charleston Show House, the Leshers kept only burgundy-colored drapes in the study and bright pink valences with a matching pale pink bamboo wallpaper in the master bedroom. First to go after the show house ended: purple walls and ceilings.

“The color of the year was purple—it was everywhere,” recalls Dr. Lesher, 42.

The couple painted over the shade in every room but their daughter’s bedroom. They spent “at least half a million” dollars on additional, structural renovations, says her husband, 42. The cosmetic changes for the show house, donated by participating designers, saved them as much as $30,000, he estimates.

Zillow now values the 5,100-square-foot six-bedroom, 3 1/2-bathroom home at $1.99 million. But the Leshers have no plans of selling. “If we sold it today, we would be in good shape, but we’re not selling it,” says Dr. Lesher.

Not all show house redesigns have the desired marketing impact. If designs vary too much between rooms, real-estate agents say, they can hinder a sale.

“The problem with designer showcase homes is they don’t flow,” says Topeka agent John Valley who sold the Dietricks their home. “One room looks this way, one room looks that way. It doesn’t have any continuity.”

In Palm Springs, James Lee and Dominick Spatafora bought the midcentury modern show house that was part of the town’s 2014 Modernism Week shortly after the festival ended that year. Its look was coordinated by Christopher Kennedy, a local interior designer and prior owner of the home.

“I serve as the creative director,” says Mr. Kennedy, who has put together four show houses and describes his style as “combining Jet-Set nostalgia with California modernism.”

For the 2014 show house, he set a neutral color palette and ensured that permanent features, such as floors, tiles and bathroom fixtures would work together. Messrs. Lee and Spatafora say some of the whimsical designs took them out of their comfort zone, which they liked because it exposed them to cutting-edge décor they had not seen before. It included a gold ceiling in the TV room, a sink that lights up in a fluorescent blue in one bathroom and turquoise and black wallpaper with fish, paired with a black ceiling, in the powder room. One stretch too far: hand-painted zebra-patterned wallpaper in the master bedroom that they removed.

The couple, whose primary residence is in the Marina del Rey area of Los Angeles, bought the 3,000-square-foot, four-bedroom property for $1 million, slightly below the asking price of $1.1 million, which had been lowered from the initial price of $1.4 million. They still paid a premium to the average square-foot price in Palm Springs’ Indian Canyon neighborhood in 2014, says Ronald Scott Parks, a broker with Pacific Sotheby’s International Realty in Palm Springs. Mr. Parks estimates the home’s current value between $1.25 million and $1.3 million.

Back in 2014, the couple spent less than $10,000 on additional improvements. After their purchase, they were taken aback when locals mentioned that they had been in their house, but they now enjoy its prominence.

“Initially, you feel so exposed,” says Mr. Spatafora. “But it’s actually fun to talk about it.”

Source: https://www.wsj.com/articles/decorator-show-houses-are-designed-to-sell-11562162857

Author: Cecilie Rohwedder

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