Sales Up In Almost Every Price Range

The National Association of Realtors’ most recent Existing Home Sales Report revealed that home sales were up rather dramatically over last year in five of the six price ranges they measure.

Only those homes priced under $100,000 showed a decline (-10.1%). The decline in this price range points to the lower inventory of distressed properties available for sale and speaks to the strength of the market.

Every other category showed a minimum increase of at least 9%, with sales in the $250,000- $500,000 range up 21.2%!

Here is the breakdown:

What does that mean to you if you are selling?

Houses are definitely selling. If your house has been on the market for any length of time and has not yet sold, perhaps it is time to sit with your agent and see if it is priced appropriately to compete in today’s market.

Home Values Compared to the Peak… Is Another Bubble Forming?

After the housing market bust we experienced across the country in 2008, many experts have been quick to warn that a new bubble may be forming in some areas of the country.

The quickest and easiest way to show how far we’ve come and how far we still need to go in regards to the ‘Peak’ is to share CoreLogic’s Price & Time Since Peak figures, used to create the map below.

Many areas of the country still have a long way to go to be anywhere near the peaks experienced in 2005-2007. Seven states (seen in the darker blue) are currently at their peak.

The biggest challenge facing the housing market’s recovery right now is the lack of inventory available for sale. Prices are determined by supply and demand. Right now buyer demand is out-pacing seller supply, across many price ranges, driving prices up.

Bottom Line

If you are a homeowner debating listing your home for sale this spring/summer, now is the time, meet with a local real estate professional who can guide you through the process.

217,726 Reasons to Buy a Home Now!

The inaugural Opportunity Cost Report was released recently by realtor.com. The report explained that “with interest rates and home prices expected to climb in the next year, the financial penalties of delaying or forgoing a home purchase in today’s market have become very steep”.

The report estimates that, based on today’s dollars, the average purchaser would accumulate $217,726 in increased wealth over a 30-year period.

(You can get the projected wealth increase for almost 100 metros here.)

What could this mean to someone sitting on the fence waiting to buy?

Experts believe that both home prices and mortgage interest rates will increase over the next twelve months. Obviously, if this does happen, the monthly cost of a home a year from now will be dramatically higher than it is today. The Opportunity Cost Report breaks down exactly how much a purchaser could lose over increments of one year and three years. Here are the results based on an average purchaser in the U.S. delaying their purchase:

Bottom Line

If you are ready, willing and able to buy a home, waiting doesn’t make sense.

2 Out of 3 Renters Want to Own. What’s Stopping Them?

The Federal Reserve Bank of New York recently released the 2015 SCE Housing Survey. The survey revealed that most current renters would prefer owning and that 61.9% of them plan to buy a home within the next five years.

68.3% stated they would prefer owning (with 45.6% saying they ‘strongly’ prefer owning). When asked at what point in the future do they think they will own a primary residence:

• 8.2% said within a year
• 15.3% said in 1 to 2 years
• 38.4% said between 3 to 5 years

What’s Holding Them Back?

Of the 68.3% who would prefer to own, 2 out of 3 cited difficulty in getting a mortgage for the reason they do not own. However, many believe that the reason so many think that it would be difficult to get a mortgage is not fully based on current market realities.

For example, studies have shown that there is confusion over the amount of money needed for a down payment. Research has shown that 40 to 50% of Americans believe that between 15-20% is the minimum required for a down payment. In reality, there are many programs available at 5% and even 3%. There are even some programs that don’t require any down payment (ex. VA loans).

Others fear they need a perfect credit score or believe that the overall mortgaging process has become almost impossible. Actually, the Mortgage Credit Availability Index, a report from the Mortgage Bankers Association, has shown that, over the last seven months, access to mortgages has gotten much more available.

And the NY Fed study suggests that some renters are waiting for interest mortgage rates to fall even further. Fifty percent of the renters surveyed believe mortgage interest rates will fall over the next year and almost 10% believe that they will fall by more than 1%. However, the reality of the situation is that Freddie Mac, the Mortgage Bankers Association and the National Association of Realtors are all projecting that rates will be significantly higher at this time next year. They are all predicting mortgage rates will be almost 1% higher!

Bottom Line

Many renters want to own their own home. Some are not moving forward based on misunderstandings regarding the mortgage process. If you are currently a renter who desires the benefits of homeownership, sit down with a local real estate professional to determine what your options actually are.

Where Will Mortgage Rates Be in 12 Months?

One of the biggest questions plaguing the current housing market is where mortgage interest rates will be at this time next year. Over the last two months, rates have begun to creep up (see chart).

Though we don’t like to project rates moving forward, we do want you and your family to have the information you need in order to decide whether to wait before buying your first house or moving up to your ultimate dream home.

Here are the most current mortgage rate projections from Fannie Mae, Freddie Mac, the Mortgage Bankers’ Association and the National Association of Realtors.

Projecting interest rates is not easy. So what should you do – do it now or wait? We like the advice Doug Duncan, senior vice president and chief economist at Fannie Mae, recently gave:

“The rule for when is it time to buy is always the same: given your household budget and where current interest rates are, if it makes good financial sense to take out a home loan today, then today is the day to do it.”

Bottom Line

If you are ready, willing and able and are thinking of buying a home over the next twelve months, waiting may not make sense.

The #1 Reason to Buy Right Now – THE MONEY!!

People often ask whether they should buy a home now or wait. Recently released data suggests that waiting may not make sense as prices seem to again be on the rise. Let’s take a look at some of the data and commentary on the subject:

Ed Stansfield, chief property economist at Capital Economics:

“The current tightness of supply conditions would normally be consistent with much faster price growth. The continued steady growth in home sales that we expect this year will only add to this upward pressure on prices.”

Case Shiller Home Price Index

“The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a 4.1% annual gain in March 2015 … with a 0.8% increase for the month.”

Anand Nallathambi, CEO of CoreLogic

“All signs are pointing toward continued price appreciation throughout 2015… Tight inventories, job growth and the impact of demographics and household formation are pushing price levels in many states toward record levels.”

Danielle Hale, Director of Housing Statistics at NAR

“Even without further acceleration, the pace of price growth remains too high. Strong buyer demand and low inventories coupled with relatively low new construction are helping to push prices up, keeping the housing market tipped in favor of sellers.”

FHFA Principal Economist Andrew Leventis

“The first quarter saw strong and widespread home price growth throughout most of the country. Home prices are now, on average, roughly 20 percent above where they were three years ago. This run-up has been historically exceptional and is particularly notable in light of the limited household income growth and modest rate of overall inflation observed during that same time period.”

Bottom Line

If you are planning on buying a home in the near future, waiting probably doesn’t make sense from a purely pricing standpoint.

Guess Where Residential Rents are Heading?

Each month, many people are faced with the decision of renewing their rental lease for another year or purchasing their first home. One of the questions that must be answered before they make a decision is – “Where are rents headed?”

The Wall Street Journal recently wrote an article on this issue. Their conclusion:

“Apartment rental increases slowed in the first quarter from a year earlier, but the move is more likely a temporary blip than the beginning of a long-term respite for renters.”

The article goes on to quote Ryan Severino, a senior economist at Reis:

“I wish I had a better story to tell renters these days, but I think they’re in for some rent increases for the foreseeable future.”

Probably the most interesting part of the article came in the Comment Section where a proud landlord proclaimed:

“As a landlord I can tell you I don’t pay property tax. I don’t pay for repairs. The tenant pays. I get my money off the top.”

Here is a chart showing rent increases over the last 25+ years:

5 Reasons You Shouldn’t For Sale By Owner

In today’s market, with homes selling quickly and prices rising some homeowners might consider trying to sell their home on their own, known in the industry as a For Sale by Owner (FSBO). There are several reasons this might not be a good idea for the vast majority of sellers.

Here are five reasons:

1. There Are Too Many People to Negotiate With

Here is a list of some of the people with whom you must be prepared to negotiate if you decide to For Sale By Owner:

• The buyer who wants the best deal possible
• The buyer’s agent who solely represents the best interest of the buyer
• The buyer’s attorney (in some parts of the country)
• The home inspection companies which work for the buyer and will almost always find some problems with the house.
• The appraiser if there is a question of value

2. Exposure to Prospective Purchasers

Recent studies have shown that 88% of buyers search online for a home. That is in comparison to only 21% looking at print newspaper ads. Most real estate agents have an internet strategy to promote the sale of your home. Do you?

3. Results Come from the Internet

Where do buyers find the home they actually purchased?

• 43% on the internet
• 9% from a yard sign
• 1% from newspaper

The days of selling your house by just putting up a sign and putting it in the paper are long gone. Having a strong internet strategy is crucial.

4. FSBOing has Become More and More Difficult

The paperwork involved in selling and buying a home has increased dramatically as industry disclosures and regulations have become mandatory. This is one of the reasons that the percentage of people FSBOing has dropped from 19% to 9% over the last 20+ years.

5. You Net More Money when Using an Agent

Many homeowners believe that they will save the real estate commission by selling on their own. Realize that the main reason buyers look at FSBOs is because they also believe they can save the real estate agent’s commission. The seller and buyer can’t both save the commission.

Studies have shown that the typical house sold by the homeowner sells for $208,000 while the typical house sold by an agent sells for $235,000. This doesn’t mean that an agent can get $27,000 more for your home as studies have shown that people are more likely to FSBO in markets with lower price points. However, it does show that selling on your own might not make sense.

Bottom Line

Before you decide to take on the challenges of selling your house on your own, sit with a real estate professional in your marketplace and see what they have to offer.

If You are Thinking of Selling, Now’s the Time

If you thought about selling your house this year, now may be the time to do it. The inventory of homes for sale is well below historic norms and buyer demand is skyrocketing. We were still in high school when we learned the concept of supply and demand: the best time to sell something is when supply of that item is low and demand for that item is high. That defines today’s real estate market.

Jonathan Smoke, the chief economist of realtor.com, in a recent article revealed:

“Our preliminary review of April activity on realtor.com shows that traffic, searches, and listing views are up more than 35% over last year. With 3 million jobs created and close to 1.5 million new households formed in the past 12 months, many more people want a new home of their own, and they want it bad. Their patience will be tested with tight supply—indeed, the No. 1 impediment of active shoppers in April was not being able to find a home that meets their needs.”

In this type of market, a seller may hold a major negotiating advantage when it comes to price and other aspects of the real estate transaction including the inspection, appraisal and financing contingencies.

Bottom Line

As a potential seller, you are in the driver’s seat right now. It might be time to hit the gas.

Homeownership as an Investment: The Role of Price Appreciation

We recently posted on the results from the latest Home Price Expectation Survey (HPES) showing where residential home prices are headed over the next five years. Today, we want to show you what the results of the report could mean to you.

A good portion of every family’s wealth comes from the equity in the home they live in. As the value of their home (an asset) increases so does their equity. Let’s look at a possible case scenario based on the latest HPES.

Here is a chart showing the survey’s projections on annual appreciation over the next five years:

We then looked at the five-year impact this would have on the equity of a family that purchased a home in January for $250,000:

Their family wealth (based on increased equity) would increase by $47,772 over those five years.

Bottom Line

If you don’t yet own, perhaps you should be thinking about purchasing. If you already own, maybe it’s time to move up to enjoy your dream home and also ride the increase in equity of the larger asset.