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.

“Lagging Supply” Leads to Slowdown in Sales

The National Association of Realtors (NAR) recently released the results of their Existing Home Sales Report. Despite the fact that properties are selling faster than they have at any other time since July of 2013, existing home sales declined 3.3% from March.

NAR’s Chief Economist Lawrence Yun explained the main reason for the slow:

"April's setback is the result of lagging supply relative to demand and the upward pressure it's putting on prices.”

One major news organization actually used this headline about the decline:

Existing home sales crater in April, falling 3.3%

They certainly haven’t cratered! April marked the second month in a row that the annual sales pace remained above the five million mark (5.04 million). Year-over-year sales have increased for seven consecutive months and are still 6.1% above a year ago.

Every month, SentriLock, LLC provides NAR Research with data on the number of homes shown to potential buyers. This data is referred to as ‘Foot Traffic’ and is a great predictor of future sales and buyer demand. In April, buyer demand remained at the same level experienced in March. 

So why did sales go down?

Buyers who are ready and willing to make a purchase are entering a market where their dream house may not have been listed yet. They can’t find it! Or if they find it, it happens to catch the eye of other buyers and an ‘auction like environment’ begins.

"Housing inventory declined from last year and supply in many markets is very tight, which in turn is leading to bidding wars, faster price growth and properties selling at a quicker pace," says Yun. "To put it in perspective, roughly 40 percent of properties sold last month went at or above asking price, the highest since NAR began tracking this monthly data in December 2012." (emphasis added)

The median home price of existing homes sold in April was $219,400, which is 8.9% higher than last year, and marks the 38th consecutive month of year-over-year price gains.

Bottom Line

So how do you make sense of everything that’s going on in the housing market when there are so many conflicting headlines on the same report?

John Burns, real estate expert and CEO of John Burns Real Estate Consulting gives this advice:

“The bottom line is this: don't make decisions based on newspaper articles. Read the actual press release, including the methodology, and make sure the results jive with other data points and qualitative feedback you receive.” 

If you are one of the many homeowners out there realizing that now may be the time to list your home for sale, or one of the many renters debating a purchase, let's get together and talk about what’s really going on in the market!

New Construction: Hear Those Hammers in the Background?

If you are planning on selling your home over the next two years, now may be the time to act. Demand is high, supply is low and many homeowners are benefiting from an almost auction atmosphere with several buyers fighting for their house in the current multi-bid environment. Higher prices and less stringent contingencies are making it easier for the seller and their family.

However, there may be more (and better) competition about to hit the market in the form of newly constructed homes. This may put an end to the buyers’ frenzy over the limited inventory of existing homes which has been below normal levels for over a year.

According to the latest report from the National Association of Realtors (NAR), the forecast for new housing starts and sales will increase significantly over the next two years:

• NAR is forecasting 1.1 million new housing starts in 2015, jumping to 1.4 million in 2016.
• New home sales are projected to increase from the 437,000 in 2014 to 570,000 this year and 720,000 in 2016.

Bottom Line

In major urban areas across the country, building cranes are again stretched across the city skyline. In many suburbs, you can again hear the thumping of a carpenter’s hammer in the background. Those are the sights and sounds that inform us that it may be time to sell.

More Home Buyers Putting Less Down

A recent post by the National Association of Realtors (NAR) revealed that in the months of December 2014 through February 2015, there was an increase in the number of first-time buyers making a down payment of 6% or less as compared to last year:

• 2014: 61% of first time home buyers
• 2015: 66% of first time home buyers

While the number of small down payments is lower than it was in 2009 when 77% of down payments were 6% or less, it does show the recent decisions by both Fannie Mae and Freddie Mac to offer 3% down payment options to certain buyers is impacting the market. FHFA Director Mel Watt recently explained why Freddie and Fannie made this decision:

“The new lending guidelines by Fannie Mae and Freddie Mac will enable creditworthy borrowers who can afford a mortgage, but lack the resources to pay a substantial down payment plus closing costs, to get a mortgage with 3% down. These underwriting guidelines provide a responsible approach to improving access to credit while ensuring safe and sound lending practices.”

This is great news to millions of purchasers that have been denied the opportunity to own their own home because of the almost impossible burden of saving for a 20% down payment.

Will these programs create future challenges?

Certain pundits fear that low down payment programs will create a wave of foreclosures down the road. Mr. Watt also addressed this concern:

“To mitigate risk, Fannie Mae and Freddie Mac will use their automated underwriting systems, which include compensating factors to evaluate a borrower’s creditworthiness. In addition, the new offerings will also include homeownership counseling, which improves borrower performance. FHFA will monitor the ongoing performance of these loans.” 

Also, the Urban Institute revealed data showing what impact substantially lower down payments would have on default rates in today’s mortgage environment. Their study revealed:

“Those who have criticized low-down payment lending as excessively risky should know that if the past is a guide, only a narrow group of borrowers will receive these loans, and the overall impact on default rates is likely to be negligible. This low down payment lending was never more than 3.5 percent of the Fannie Mae book of business, and in recent years, had been even less. If executed carefully, this constitutes a small step forward in opening the credit box—one that safely, but only incrementally, expands the pool of who can qualify for a mortgage.”

Here are the direct links to the guidelines for each program:

Fannie Mae 3% Down Program

Freddie Mac 3% Down Program

Remember, as with any new program, there will be some confusion. Contact your mortgage professional for a deeper understanding. Don’t have a mortgage person yet? We’ll be more than happy to help.

Where Are Prices Headed In The Next 5 Years?

Today, many real estate conversations center on housing prices and where they may be headed. That is why we like the Home Price Expectation Survey.

Every quarter, Pulsenomics surveys a nationwide panel of over one hundred economists, real estate experts and investment & market strategists about where prices are headed over the next five years. They then average the projections of all 100+ experts into a single number. 

The results of their latest survey

• Home values will appreciate by 4.3% in 2015.
• The cumulative appreciation will be 19.4% by 2019.
• That means the average annual appreciation will be 3.6% over the next 5 years.
• Even the experts making up the most bearish quartile of the survey still are projecting a cumulative appreciation of 11.8% by 2019.

Individual opinions make headlines. We believe the survey is a fairer depiction of future values.

Buying a Home is 35% Less Expensive than Renting!

In the latest Rent vs. Buy Report from Trulia, they explained that homeownership remains cheaper than renting with a traditional 30-year fixed rate mortgage throughout the 100 largest metro areas in the United States.

The updated numbers actually show that the range is from an average of 16% in Honolulu (HI), all the way to 55% in Sarasota (FL), and 35% Nationwide!

The other interesting findings in the report include:

• Interest rates have remained low and even though home prices have appreciated around the country (3.9%), they haven’t greatly outpaced rental appreciation (3.7%). “In the past year, these two trends have made homeownership even more affordable compared with renting.”
• Some markets might tip in favor of renting if home prices increase at a greater rate than rents and if – as most economists expect – mortgage rates rise, due to the strengthening economy.
• Nationally, rates would have to rise to 10.6% for renting to be cheaper than buying – and rates haven’t been that high since 1989. 

Bottom Line

Buying a home makes sense socially and financially. Rents are predicted to increase substantially in the next year, so lock in your housing cost with a mortgage payment now.

The Difference Your Interest Rate Makes

Some Highlights:

• Even a small increase in interest rates drastically impacts your budget.
• Securing a mortgage now while rates are still low means you can get more house for your money.
• Spend your money on your dream home, not on interest.

Housing Update: Demand Up, Supply Down, Prices Increasing

Earlier this week, the National Association of Realtors (NAR) released their latest quarterly report. The report covered three important aspects of the housing market:

1. Buyer Demand
2. Supply of Housing Inventory
3. Single Family Residential Prices

Today, we want to break down the highlights of the report along with several quotes from Lawrence Yun, the Chief Economist at NAR.

Buyer Demand

Total existing-home sales (which include single family and condo) were at an annual rate of 4.97 million in the first quarter of 2015. This represents a number which is 6.2 percent higher than the pace during the first quarter of 2014.

Yun: "Sales activity to start the year was notably higher than a year ago, as steady hiring and low interest rates encouraged more buyers to enter the market."

Supply of Housing Inventory

There were 2 million existing homes available for sale at the end of the first quarter of 2015 which represents a 4.6 months’ supply of inventory which down from 4.9 months a year ago. A healthy balance of supply between buyers and sellers is 6 to 7 months.

Yun: "With supply remaining tight—especially at the entry-level price range—buyers will need the expertise and local market insight of a Realtor® to help them through each intricate step of the buying process."

Single Family Residential Prices

Home prices accelerated in 148 out of 174 metro areas (85%) during the first quarter of 2015. and the number of areas experiencing double-digit price appreciation doubled compared to last quarter. Compared to last quarter, the number of regions experiencing double-digit price appreciation doubled.

The national median existing single-family home price in the first quarter was $205,200, compared to $191,100 in first quarter of 2014. This represents a 7.4% increase year-over-year.

Yun: “…stronger demand without increasing supply led to faster price growth in many markets…Homeowners throughout the country have enjoyed accumulating household wealth through the steady rise in home values in the past few years." 

Bottom Line

Whether you are thinking about buying your first home or selling your current residence to buy the home of your dreams, let’s get together and discuss how the above numbers have affected our neighborhood's prices.

You Want to Raise My Rent How Much?

We recently reported that investment purchases in 2014 fell 7.4% for the year, that combined with a diminished supply of distressed inventory allowing for big profits, has real estate investors looking for a new way to make more money in 2015.

So if they don’t have new properties to buy… how would they make more money? Easy… they are going to raise your rent!

A recent article from Bloomberg Business gave insight into exactly what the CEO’s of major investment firms are thinking.

“We are focusing aggressively on rent bumps,” American Residential Properties CEO Stephen Schmitz said during a panel discussion. “There’s a supply imbalance in some markets. The same thing that keeps occupancy high also drives rents.”

How Much Are They Going To Raise Your Rent?

Rental rates are predicted to increase 4% on renewals and as much as 5.7% for new tenants.

Haendel St. Juste, a Morgan Stanley analyst put it this way:

“The focus is now on optimizing revenue, compared to getting heads in beds,”

So What Can You Do?

If you are one of the millions of renters out there dreading the day that you have to renew your lease, or planning to move into a new rental property, let's get together and evaluate your ability to lock in your housing cost, by buying now.

Attaining the American Dream: The 5 Financial Reasons to Buy

We have reported many times that the American Dream of homeownership is alive and well. The personal reasons to own differ for each buyer, with many basic similarities.

Eric Belsky, the Managing Director of the Joint Center of Housing Studies at Harvard University expanded on the top 5 financial benefits of homeownership his paper - The Dream Lives On: the Future of Homeownership in America.

Here are the five reasons, each followed by an excerpt from the study:

1.) Housing is typically the one leveraged investment available.

“Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”

2.) You're paying for housing whether you own or rent. 

“Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.”

3.) Owning is usually a form of “forced savings”.

“Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”

4.) There are substantial tax benefits to owning.

“Homeowners are able to deduct mortgage interest and property taxes from income...On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.”

5.) Owning is a hedge against inflation.

“Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.”

Bottom Line

We realize that homeownership makes sense for many Americans for an assortment of social and family reasons. It also makes sense financially. If you are considering a purchase this year, contact a local professional who can help evaluate your ability to do so.

Homeownership Still a Great Investment

Four recent news articles confirmed that most Americans still see real estate as a great long term investment. The Gallup organization polled the American people and discovered that they believe that real estate is a better long term investment than stocks/mutual funds, gold, savings or bonds:

A second survey was done by Edelman Berland which showed that:

At the same time, Tim Rood, chairman of the business advisory firm The Collingwood Group, explained that real estate is:

“…one of the last legitimate wealth creation opportunities…The leveraged return if you put down 10 percent on a house, the trajectory of appreciation lately is you’re going to get your money back inside of a year and then after that 5 to 10 percent appreciation rates. It's phenomenal."

Bottom Line

Real estate continues to be a sensational long term investment. If you need help with any of your real estate needs, let’s get together and discuss the opportunities available in today’s market.

Easy Chicken Little: Homeownership Rates Are NOT Crashing

The Census recently released their 2015 Q1 Homeownership Statistics, and many began to worry that Americans have taken a step back from the notion of homeownership.

The national homeownership rate (Americans who owned vs. rented their primary residence) increased significantly during the housing boom, reaching its peak of 69.2% in 2004. The Census Bureau just reported the first quarter of 2015 ended with a homeownership rate of 63.7%. Many reported on this and began to question Americans’ belief in the ideal of homeownership as a major part of the American Dream.

Everyone Calm Down…

It is true the homeownership rate has fallen over the last several years. However, if you look at the national rate over the last 30 years (1984-2014), you can see that the current homeownership rate has returned closer to historic norms. The 63.7% rate is less than a percentage point under the rate in 1985 and 1995.

What Will the Future Bring?

In a Housing Wire article this week, Ed Stansfield who manages the housing market research at Capital Economics said:

“The homeownership rate fell further at the start of the year to a 22-year low of 63.7. However, with credit conditions now loosening and employment set to continue growing strongly, we suspect this long downward trend may not last for much longer.”

In the same article referenced above, Jonathan Smoke, chief economist for realtor.com, explained why the homeownership rate will probably begin to increase:

“The homeownership rate is likely to bottom this year or next not far from where we are now. By historical patterns, the rate could indeed go up. The simple math behind what it costs to rent versus buy shows that if you can afford the down payment and qualify for a mortgage, it is cheaper to buy rather than rent in 80% of the counties in the US now.”

Bottom Line 

With interest rates and prices still below where experts predict, perhaps we should get together and evaluate your ability to purchase a home.

Homeowners: We Need to Sell Your House Twice

Every house on the market has to be sold twice; once to a prospective buyer and then to the bank (through the bank’s appraisal). In a housing market where supply is very low and demand is very high, home values increase rapidly. One major challenge in such a market is that bank appraisal. If prices are jumping, it is difficult for appraisers to fine adequate comparable sales (similar houses in the neighborhood that closed recently) to defend the price when doing the appraisal for the bank.

With escalating prices, the second sale might be even more difficult than the first. And now, there may be a second issue further complicating the appraisal issue.

The Mortgage News Daily (MND) recently published an article titled Conservative Appraisals Increasingly Mentioned in 2015; Did Something Change?

The article revealed that there was a “flurry” of comments on their website from members expressing concern about…

“…a sudden increase in appraisals reflecting market values well below what had been expected. In some cases the low appraisals had merely required the restructuring of the loan, in others they killed the deal.” 

The National Association of Realtors revealed this month that 8% of the contracts that fell through over the last three months were terminated because of appraisal issues.

MND decided to survey their members and ask why this sudden increase in “short” appraisals could be taking place. Here is one result of that survey:

“Almost everyone we spoke to mentioned Fannie Mae's new Collateral Underwriter (CU).”

Collateral Underwriter provides a risk score on individual appraisals which will lead to a ranking of appraisals by risk profile, allowing lenders to identify appraisals with heightened risk of quality issues, overvaluation, and compliance violations. It went on-line on January 26.

Marianne Sullivan, senior vice president of single-family business capability with Fannie Maebelieves that CU is not a problem for appraisers. She claimed:

“From an appraiser perspective, one of the lender's responsibilities has always been to review the quality of an appraiser, and they have been using various methods to do that forever. I don’t think appraisers will find this tool to be disruptive.”

However, some think that CU has caused appraisers to become too cautious with their appraised values. One mortgage professional in the MND article explained it this way:

"My personal opinion is that appraisers are being overly conservative in choosing comps because of CU. If CU questions the comps, adjustments, etc., the appraiser would have to do a lot of extra work to justify them. I had anticipated that CU would cause delays because of this extra work, but it seems that appraisers are one step ahead and are being ultra conservative, thus avoiding the extra work in the first place. I haven't spoken to an appraiser about it; this is just my interpretation of what I am seeing."

Ryan Lundquist, a Certified Residential Appraiser in the Sacramento area, agreed:

“One of the unintended consequences of CU may be more conservative appraisals.”

Bottom Line

We must realize that, in today’s housing market, every house must be sold twice and the second sale (to the bank’s appraiser) could be the more difficult one.

4 Reasons To Move-Up This Spring

Spring is in full force; the summer months are right around the corner. If you are debating moving up to your dream home, here are four great reasons to consider buying today instead of waiting.

1.) Buyer Demand is High & Inventory Is Low

Recent numbers show that buyer demand is at the highest peak experienced in years, and inventory for sale is at a 4.6 months supply, which is still markedly lower than the 6.0 months needed for a historically normal market.

The National Association of Realtors, Chief Economist, Lawrence Yun put it this way, "Demand in many markets is far exceeding supply, and properties in March sold at a faster rate than any month since last summer."

Listing your home today can greatly increase exposure to buyers who are out in force and ready to act.

2.) Prices Will Continue to Rise

The Home Price Expectation Survey polls a distinguished panel of over 100 economists, investment strategists, and housing market analysts. Their most recent report projects appreciation in home values over the next five years to be between 11.7% (most pessimistic) and 27.5% (most optimistic).

The bottom in home prices has come and gone. Home values will continue to appreciate for years. Waiting for your current home’s value to increase before selling could price you out of your new home if you aren’t careful.

3.) Mortgage Interest Rates Are Still Near Record Lows

As we reported last week, interest rates have remained below 4% for some time now, and are substantially lower than the rate previous generations paid when getting a mortgage.

The Mortgage Bankers Association, Fannie Mae, Freddie Mac & the National Association of Realtors are in unison projecting that rates will rise over the next 12 months.

An increase in rates will impact YOUR monthly mortgage payment. Even an increase of half a percentage point can put a dent in your family’s net worth. Whether you are moving up or buying your first home, your housing expense will be more a year from now if a mortgage is necessary to purchase your home.

4.) It’s Time to Move On with Your Life

The ‘cost’ of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise. But, what if they weren’t? Would you wait?

Look at the actual reason you are buying and decide whether it is worth waiting. Have you always wanted to live in a certain neighborhood? Would a climate change be just what the doctor ordered? Would you like to be closer to family?

Bottom Line

If the right thing for you and your family is to move up to your dream home this year, buying sooner rather than later could lead to substantial savings.