Study collects key data from America's 20 largest cities.
The three most expensive cities in the US in terms of first-year homeownership are all in California - but New York has the highest closing costs in the country, according to a new study by fintech company, SmartAsset. The purpose of the study was to calculate the cost of homeownership in the first year after a home was purchased, as the first year is often the most expensive, due to having to pay closing costs and the all-important, budget-busting down payment. SmartAsset looked at data from 20 of the largest cities in the country based on six metrics - median home value, a 20% down payment, average closing costs (except for escrow and pre-paid expenses), monthly mortgage payment, property taxes and homeowner insurance. Only Washington DC was missing from the data. The mortgage payment was also based on a 30-year fixed-rate mortgage with an interest rate of 3%. The study found that San Francisco is unsurprisingly “the nation’s least affordable large city for first-year homeownership” followed by San Jose - the Silicon Valley tech hub - and Los Angeles in third, whose average closing costs are at least $1,000 lower than in the other two. It said homebuyers in San Francisco “need a whopping $364,900 for their first year, thanks in large part to a median home value of $1,439,752”. It also revealed that the average property tax bill in San Francisco is the third highest, costing $9,214. SmartAsset also found that first-year homeownership costs differ wildly. While in Indiana, homebuyers can expect to spend about $50,000 in their first year, that is still more than seven times cheaper than in San Francisco, California, where total costs can exceed $364,500. Seattle, the fourth most expensive city in the study, is “slightly more affordable than Los Angeles” the report said, with homebuyers needing $172,623 “in cash” to cover upfront costs, including average closing costs of $5,930. Buying a home in the Big Apple – the most populous city in the US – can cost $203,993 in the first year of homeownership, but it also boasts a median home value of $710,200, making homes in New York more affordable than on the West Coast. The only downside, the report added, is that closing costs in NY are by far the highest - “more than double what they are anywhere else, thanks in large part to a citywide transfer tax” that pushed average closing costs to more than $18,000. At the other end of the scale, Indianapolis, in Indiana, was listed as the most affordable and the lowest of all 20 cities in the study, with a median home value of only $184,474. Average closing costs, excluding escrow and prepaid expenses, are also lower than in any other city at just $2,852. “The average property tax bill in Indianapolis is just $1,900 per year, about a third of the average for all 20 cities. All of this amounts to the first year of homeownership costing just $50,014,” the report said. The second most affordable big city for the first year of homeownership was Columbus, Ohio, where homebuyers can expect to pay $57,791 in their first year of homeownership. Both the median home price in Ohio’s capital city ($203,796) and the average closing costs ($3,391) are the second lowest in the country. SmartAsset also noted that San Antonio, in Texas, the seventh most populous city in the country and the third most affordable big city in the study, with a median value of a home of $217,326, benefits from a stock of affordable homes. Philadelphia, in Pennsylvania, ranks as the fourth most affordable city on the East Coast, with a median home price of $62,990, including $51,347 in upfront costs, the lowest average homeowners’ insurance ($640), and the third-lowest average property taxes ($2,162). The study pointed out that the federal Department of Housing and Urban Development considered homebuyers who spent more than 30% of their income as “housing cost burdened”. It advised buyers to seek financial advice on how much to spend on a home purchase, noting that experts recommended a monthly mortgage payment no higher than 28% of a person’s gross monthly income, or as little as 25% of their take home pay.
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Economists say the central bank will scale back program as inflation concerns grow. Federal Reserve policy makers are expected to announce this week that they will start scaling back their massive asset-purchase program amid greater concern over inflation, economists surveyed by Bloomberg said. A majority of the 49 economists in the survey predicted the U.S. central bank will begin the taper in November and wrap it up by mid-2022, curbing the current $120 billion monthly buying pace by reducing Treasuries by $10 billion a month and mortgage-backed securities by $5 billion. They are closely divided on whether interest-rate liftoff will be in 2022 or early 2023, with a slim majority estimating the latter timing while they see rates rising to 1.75% by the end of 2024, a quarter point more than the survey projected in September. The Federal Open Market Committee meets for two days starting Tuesday and will issue a policy statement at 2 p.m. in Washington Wednesday. There will be no quarterly economic and rate forecasts published at this meeting. Chair Jerome Powell will hold a press conference 30 minutes later. Tapering“A Nov. 3 taper announcement looks a forgone conclusion,” James Knightley, chief international economist at ING Financial Markets LLC, said in a survey response. With inflation persisting, “the taper could end more abruptly than currently signaled with a high probability of at least two interest-rate increases in the second half of next year.” Almost all the economists expect the FOMC to announce tapering this meeting, which is in line with Powell’s comment on October 22 that “I do think it’s time to taper.” Nearly two-thirds expect the slowing in bond buying to begin this month, with most of the rest looking for a December kickoff. The committee discussed options for both months in its prior meeting in September, according to minutes of that debate. The committee’s most contentious decision at the upcoming meeting may be how long the tapering should last. While most economists expect bond purchases will be reduced by $15 billion every month – in a process that would wrap up around the end of June – a separate question in the survey revealed a number who think the Fed may decide to speed up. That showed 35% expecting the taper to be completed in seven months or faster, versus 51% who expect it will take eight months. A quicker end to the tapering would give the policy makers the flexibility to raise interest rates earlier than otherwise, because Powell and others have said they want to end the taper before moving to possible hikes. What Bloomberg Economics Says...“We think there will be some language about how the taper pace is not on a “preset” course. This would be similar to the 2013 taper announcement, but more importantly, preserve some flexibility for the Fed if inflation does turns out to be stickier and full employment looks to be reached earlier.” Much of the meeting will be focused on a review of surging inflation, which Powell has acknowledged has lasted longer than expected. The FOMC may tweak its statement language to repeat that while inflation will be transitory due to supply disruptions, it is persisting longer or there may be some other-than-transitory factors, according to 54% of the economists. “The Fed is likely to continue to call high year-over-year inflation rates as transitory although allow that they may not decline in 2022 to the extent previously forecast,” said Hugh Johnson, chief economist at Graypoint LLC. Even so, the committee is almost certain to retain its language that it won’t raise interest rates until the labor market meets its full employment goal. While the FOMC uses a variety of gauges in measuring that objective, economists say it likely suggests liftoff when the unemployment rate falls to 4%. Though the FOMC has emphasized it wants an inclusive definition of maximum employment, the first hike would occur with Black unemployment at 6%, in the view of a smaller number of economists who forecast that metric. Inflation RisksMost of the economists see upside risks to inflation, a view that echoes that of Powell and other central bankers who have spoken recently. They see the risks to economic growth as more uncertain, with 41% putting them as roughly balanced and 45% seeing risks to the downside. “The risks of too high inflation for too long and the possibility of an emerging conflict between the Fed’s dual goals will be in focus for the meeting and may be acknowledged in the statement,” said Elisabet Kopelman, U.S. economist for Skandinaviska Enskilda Banken AB. While FOMC officials have generally expressed confidence that Americans’ expectations for inflation over the medium and long term are well anchored, reflecting a view that price gains will come down from recent elevated levels, the economists are less sure. In the survey, 52% described inflation expectations as consistent with the Fed’s goals, while 44% saw them as out of line. Powell FutureThe meeting takes place amid intense focus on whether Powell will be renominated, with his term as chair ending in February. As President Joe Biden considers openings for the top Fed job and other slots, 79% of the economists expect Biden to keep him in the job – still an overwhelming number but one that’s dropped slightly since September. Fed Governor Lael Brainard, a Democrat, is seen as the most likely alternative, with 13% of economists predicting she will be chosen as chair. NAR releases latest pending home sales index
Pending home sales retreated slightly in September as potential buyers paused their home search. According to the National Association of Realtors, contract signings dropped 2.3% month over month and were 8% lower than a year ago. All four major regions reported a decline in both annual and monthly contract activity in September. Month over month, pending home sales in the Northeast dwindled 3.2% to 93.1 in September, down 18.5% from last year. Sales in the Midwest fell 3.5% to 111.4, down 5.8% from a year ago. In the South, sales dipped 1.8% to 139.1, down 5.8% from September 2020. The West posted a 1.4% drop to 105.3, down 7.2% from the year before. “Contract transactions slowed a bit in September and are showing signs of a calmer home price trend, as the market is running comfortably ahead of pre-pandemic activity,” said NAR chief economist Lawrence Yun. “It’s worth noting that there will be less inventory until the end of the year compared to the summer months, which happens nearly every year.” Although housing supply stays low, Yun anticipates a turnaround in 2022. “Rents have been mounting solidly of late, with falling rental vacancy rates,” he said. “This could lead to more renters seeking homeownership in order to avoid the rising inflation, so an increase in inventory will be welcomed.” NAR projects home sales to have increased by 6.4% by year’s end before declining by 1.7% in 2022 due to rising mortgage rates. Yun also expects home prices to moderate to 2.8% next year after a double-digit price gain of 14.7% in 2021. |
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