Between 1987 and 1999, which is often referred to as the ‘Pre-Bubble Period,’ home prices grew at an average of 3.6% according to the Home Price Expectation Survey.
Every month, the economists at CoreLogic release the results of their Home Price Insights Report,which includes the actual year-over-year change in prices across the country and their predictions for the following year.
The chart below shows the forecasted year-over-year prices for 2018 (predictions made in 2017). According to their predictions, the average appreciation over the course of 2018 should be 4.8%, which is still greater than the ‘normal’ appreciation of 3.6%.
If we layer in the actual price appreciation that has occurred this year, we can see that over the course of 2018, home prices have appreciated by an average of 6.9% and have outpaced projections all year!
The tale of today’s real estate market is one of low inventory, high demand, and rising prices. The forces at work can be simply explained with the theory of supply and demand. That being said, if a large supply of inventory were to come to the market, prices may start to appreciate closer to the forecasted rate which would STILL be greater than the historic norm!
If you are a homeowner whose house no longer meets your needs, now may be a great time to list your home and capitalize on the equity you have gained over the last year to make a significant down payment on your next home!
We all realize that the best time to sell anything is when the demand for that item is high and the supply of that item is limited. The last two major reports issued by the National Association of Realtors (NAR) revealed information that suggests that right now continues to be a great time to sell your house.
The report announced that pending home sales (homes going into contract) are down 2.3% from last year and have continued to fall on an annual basis for seven straight months.
Lawrence Yun, NAR’s Chief Economist, had this to say:
“The reason sales are falling off last year’s pace is that multiple years of inadequate supply in markets with strong job growth have finally driven up home prices to a point where an increasing number of prospective buyers are unable to afford it.”
Takeaway: Demand for housing is strong and will continue to grow in 2019. Without an influx of new listings for sale, pending home sales will continue to decline. Listing now means you will be able to take advantage of the demand currently in the market.
The most important data point revealed in the report was not sales-based, but was instead the inventory of homes for sale (supply). The report explained:
There were two more interesting comments made by Yun in the report:
“Led by a notable decrease in closings in the Northeast, existing home sales trailed off again last month, sliding to their slowest pace since February 2016 at 5.21 million.”
In real estate, there is a guideline that often applies: When there is less than a 6-month supply of inventory available, we are in a seller’s market and we will see appreciation; between 6-7 months is a neutral market, where prices will increase at the rate of inflation; and more than a 7-month supply means we are in a buyer’s market and should expect depreciation in home values. As Yun notes, we are (and will remain) in a seller’s market and prices will continue to increase unless more listings come to the market.
“Listings continue to go under contract in under a month, which highlights the feedback from Realtors® that buyers are swiftly snatching up moderately-priced properties. Existing supply is still not at a healthy level, and new home construction is not keeping up to meet demand.”
Takeaway: Inventory of homes for sale is still well below the 6-month supply needed for a normal market. Prices will continue to rise if a sizable supply does not enter the market.
If you are going to sell, now may be the time to take advantage of the ready, willing, and able buyers that are still out looking for your house.
Here are four great reasons to consider buying a home today instead of waiting.
CoreLogic’s latest Home Price Insights report reveals that home prices have appreciated by 6.2% over the last 12 months. The same report predicts that prices will continue to increase at a rate of 5.1% over the next year.
Home values will continue to appreciate for years. Waiting no longer makes sense.
Freddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year mortgage have already increased by half of a percentage point, to around 4.5% in 2018. Most experts predict that rates will rise over the next 12 months. The Mortgage Bankers Association, Fannie Mae, Freddie Mac and the National Association of Realtors are in unison, projecting that rates will increase by half a percentage point to around 5.1% by this time next year.
An increase in rates will impact your monthly mortgage payment. A year from now, your housing expense will increase if a mortgage is necessary to buy your next home.
There are some renters who have not yet purchased homes because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that unless you are living with your parents rent-free, you are paying a mortgage – either yours or your landlord’s.
As an owner, your mortgage payment is a form of ‘forced savings’ that allows you to build equity in your home which you can then tap into later in life. As a renter, you guarantee your landlord is the person building that equity.
Are you ready to put your housing cost to work for you?
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 if it is worth waiting. Whether you want to have a great place for your children to grow up, you want your family to be safer, or you just want to have control over renovations, maybe now is the time to buy.
Home prices are at the top of everyone’s minds. Can they maintain their current pace of appreciation? Will rising mortgage rates negatively impact home values? Will the next economic slowdown cause prices to crash?
Let’s try to answer these questions based on what has happened in the past as well as what we know about the current real estate market.
We explained earlier this year that rising mortgage rates have not negatively impacted home prices in the past and probably wouldn’t this time either. Freddie Mac’s comments were very direct:
“In the current housing market, the driving force behind the increase in prices is a low supply of both new and existing homes combined with historically low rates. As mortgage rates increase, the demand for home purchases will likely remain strong relative to the constrained supply and continue to put upward pressure on home prices.”
They were correct. So far this year, home values have continued to appreciate above normal historic percentages and it appears the gradual increase in rates has had little impact on prices.
Many people fear that when the economy turns, we may see the same depreciation in home values as we did a decade ago.
However, we recently reported that the same group of economists, real estate experts, and investment & market strategists who predicted the next recession will occur in the next 18-24 months have also projected that house prices will continue to appreciate for the next five years, albeit at smaller percentages.
As always, home prices will be determined by the demand to purchase compared to the available inventory of homes for sale. For the last six years, demand has far exceeded the available supply which has resulted in the average annual appreciation to top 6% since 2012. That is far greater than the historic norm of 3.6% annual appreciation that we saw prior to the housing boom.
There are currently small signs that housing inventory is slowly beginning to increase. Months supply of houses for sale matched last year’s numbers for the last two months after 37 consecutive months of decreasing inventory. New construction data has also shown positive signs that inventory will be increasing.
As inventory begins to meet demand, we will see appreciation return to more normal levels. We are already seeing projections coming in lower than the 6.2% annual average we have seen more recently.
Mark Fleming, Chief Economist at First American, explained it best:
“We’re seeing the first indications that price appreciation may be slowing, but the underlying fundamental housing market conditions support a natural moderation of house prices rather than a sharp decline.”
There are many things that factor into the decision to buy a home. New research from the Urban Institute suggests that one of those things may be inherited from your parents.
According to an analysis of millennial homeowners, the homeownership rate of those whose parents rent their homes is 14.4%, while the rate amongst millennials whose parents are homeowners is 31.7%!
“A young adult’s odds of homeownership are highly correlated with their parent’s homeownership.
Without controlling for such factors as age, income, education, marital status, and race or ethnicity, there is a 17 percentage-point gap between the homeownership rate for young adults whose parents are renters and young adults whose parents are homeowners.”
The study also revealed that as a parent’s net worth increases, so does the likelihood that their child will own a home. These two findings are not surprising as we know from the Survey of Consumer Finances that a homeowner’s net worth is 44x greater than that of a renter.
So, a parent who is a homeowner will have more wealth which will, in turn, increase the chances that their children will own their own homes in the future.
Below is a breakdown of the relationship between a parent’s wealth and a millennial’s likelihood to own a home.
The Good News: The high homeownership rate amongst baby boomers (likely the parents of many millennials) is a great sign that millennials will want to own homes. We are already seeing this in the high-demand environment that we are currently experiencing in the starter and trade-up markets.
Even though millennials took longer than many of the generations before them to start home searches of their own, the data shows that they will not be waiting much longer!
There are many benefits to homeownership, but one of the top benefits is protecting yourself from rising rents by locking in your housing cost for the life of your mortgage.
A recent article by Apartment List addressed rising rents by stating:
“Our national rent index is up 0.1 percent month-over-month, marking the sixth straight month of increasing rents. Year-over-year growth now stands at 1.2 percent.”
The article continues, explaining that:
“Rents increased month-over-month in 62 of the nation’s 100 largest cities, down significantly from the 85 cities that saw rents rise last month. That said, rents are still up year-over-year in most of the nation’s largest markets — 77 of the 100 largest cities have seen rents increase over the past twelve months.”
Additionally, Urban Land Magazine explained that,
“Currently, nearly half (47 percent) of renter households are cost burdened(i.e., paying more than 30 percent of income for housing), while 25 percent (totaling 11 million households) are severely cost burdened, paying over 50 percent of their total household income for rent.”
These households struggle to save for a rainy day and pay other bills, including groceries and healthcare.
As we have previously mentioned, the results of the latest Rent vs. Buy Report from Trulia show that homeownership remains cheaper than renting with a traditional 30-year fixed rate mortgage in the 100 largest metro areas in the United States.
The updated numbers show that the range is an average of 2% less expensive in Honolulu (HI), all the way up to 48.9% less expensive in Detroit (MI), and 26.3% nationwide!
Perhaps you have already saved enough to buy your first home. A nationwide survey of about 1,166 renters found that 34% said they rent because they cannot afford to buy, 29% said they cannot afford to buy where they live, and nearly a quarter (24%) were saving to buy.
Many first-time homebuyers who believe that they need a large down payment may be holding themselves back from their dream homes. As we have reported before, in many areas of the country, a first-time homebuyer can save for a 3% down payment in less than two years. You may have already saved enough!
Don’t get caught in the trap that so many renters are currently in. If you are ready and willing to buy a home, find out if you are able. Let’s get together to determine if you can qualify for a mortgage today!
Here are five reasons why listing your home for sale this fall makes sense.
The latest Buyer Traffic Report from the National Association of Realtors (NAR) shows that buyer demand remains very strong throughout the vast majority of the country. These buyers are ready, willing and able to purchase…and are in the market right now! In fact, more often than not, multiple buyers end up competing with each other to buy the same homes.
Take advantage of the buyer activity currently in the market.
Housing inventory is still under the 6-month supply needed for a normal housing market. This means that, in the majority of the country, there are not enough homes for sale to satisfy the number of buyers in the market. This is good news for homeowners who have gained equity as their home values have increased. However, additional inventory could be coming to the market soon!
Historically, a homeowner stayed in his or her home for an average of six years, but that number has hovered between nine and ten years since 2011. Many homeowners have a pent-up desire to move as they were unable to sell over the last few years because of a negative equity situation. As home values continue to appreciate, more and more homeowners will be given the freedom to move.
The choices buyers have will continue to increase. Don’t wait until this other inventory comes to market before you decide to sell.
Today’s competitive environment has forced buyers to do all that they can to stand out from the crowd, including getting pre-approved for their mortgage financing. This makes the entire selling process much faster and much simpler as buyers know exactly what they can afford before home shopping. According to Ellie Mae’s latest Origination Insights Report, the average time it took to close a loan was 44 days.
If your next move will be into a premium or luxury home, now is the time to move up! The abundance of inventory available in these higher price ranges has created a buyer’s market for anybody looking to purchase these homes. This means that if you are planning on selling a starter or trade-up home, your home will sell quickly AND you’ll be able to find a premium home to call your own!
According to CoreLogic, prices are projected to appreciate by 5.1% over the next year. If you are moving to a higher-priced home, it will wind up costing you more in raw dollars (both in down payment and mortgage payment) if you wait.
Look at the reason you decided to sell in the first place and determine whether it is worth waiting. Is money more important than being with family? Is money more important than your health? Is money more important than having the freedom to go on with your life the way you feel you should?
Only you know the answers to the questions above. You have the power to take control of the situation by putting your home on the market. Perhaps the time has come for you and your family to move on and start living the life you desire.
If you are ready to start your buying or selling process
give me a call at 541-668-1632 - I´m happy to answer all your questions.