Home Prices Up …. Challenges?

Appraisal-Challenges-STMHome values continue to climb and are projected to increase by about 5% over the next twelve months. That is great news for anyone who owns a home. However, it could present a challenge for a family trying to sell their house.

If prices are surging, it is difficult for appraisers to find adequate, comparable sales (similar houses in the neighborhood that closed recently) to defend the sales price when performing the appraisal for the bank.

The National Association of Realtors (NAR) recently released information revealing just how prominent the challenge is in today’s market.

Home Prices Are Up...but there is a Challenge | Simplifying The Market

And the challenge is deepening…

Every month, Quicken Loans measures the disparity between what a homeowner believes their house is worth as compared to an appraiser’s evaluation in their Home Price Perception Index (HPPI). Here is a chart showing that difference for each of the last 12 months.

Home Prices Are Up...but there is a Challenge | Simplifying The Market

As we can see the difference has increased each of the last two months.

Bottom Line

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). With escalating prices, the second sale might be even more difficult than the first. If you are planning on entering the housing market this year, let’s meet up so I can guide you through this, and any other obstacle that may arise.

Thinking of Selling Your Home?

SearchingForHome-STMThe housing market is really heating up and buyer demand is dramatically increasing as we enter the spring season. However, one challenge to the current market is a major shortage of inventory. Below are a few comments made in the last month by industry experts.

Lawrence Yun, Chief Economist of NAR

“Looking ahead, the key for sustained momentum and more sales than last spring is a continuous stream of new listings quickly replacing what’s being scooped up by a growing pool of buyers. Without adequate supply, sales will likely plateau.”

Jonathan Smoke, Chief Economist of Realtor.com

“Low inventories and tight credit will limit the gains we will see in 2016. However, given the level of pent-up demand evident in web activity and stated buyer intentions for 2016, we should see this spring materialize as the busiest season of sales since 2006.”

Rick Sharga, Ten-X’s EVP

“Inventory is too low to support much higher sales. There’s virtually no inventory available at the entry level, and single family housing starts and permits continue to languish at levels far below where they should be at this point of the recovery.”

David Crowe, Chief Economist of the National Assoc. of Home Builders

“Many sellers may not have an absolute decision as to whether to buy an existing home or a new home. So the low inventory of existing homes is locking them in place.”

Freddie Mac

“Challenges remain, with low housing supply and declining affordability being a key concern in many markets.”

Buyers Looking for Green Options

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Some Highlights:

  • 11% of new homebuyers stated “energy efficient features” as the reason for their purchase.
  • The most popular remodeling projects done for energy efficiency were insulation upgrades, HVAC replacements, and vinyl & wood window installations.
  • Research shows that word preference does make a difference when it comes to attracting “green buyers.”

Saving for a Down Payment

FasterThanYouThink-KCMIn a study conducted by Builder.com, researchers determined that nationwide, it would take “nearly eight years” for a first-time buyer to save enough for a down payment on their dream home. Depending on where you live, median rents, incomes and home prices all vary. By determining the percentage of income a renter spends on housing in each state, and the amount needed for a 10% down payment, they were able to establish how long (in years) it would take for an average resident to save. According to the study, residents in South Dakota are able to save for a down payment the quickest in just under 3.5 years. Below is a map created using the data for each state:

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What if you only needed to save 3%?

What if you were able to take advantage of one of the Freddie Mac or Fannie Mae 3% down programs? Suddenly saving for a down payment no longer takes 5 or 10 years, but becomes attainable in under two years in many states as shown in the map below.

Years-To-Save-3-KCM

Bottom Line

Whether you have just started to save for a down payment, or have been for years, you may be closer to your dream home than you think! Meet with a local real estate professional who can help you evaluate your ability to buy today.

2016 The Best Year in Real Estate in a Decade

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In today’s market we are seeing a healthy supply of buyers entering the market and bidding on the limited inventory available which is helping to drive new construction and support the increase in home prices.

A few weeks ago, Jonathan Smoke, the Chief Economist at realtor.com, exclaimed: “All indicators point to this spring being the busiest since 2006.” Now, Freddie Mac has doubled down on that claim and is saying that 2016 will be the best year that the real estate industry has seen in a decade. In their March Housing Outlook Report, Freddie Mac explained:

“Despite the challenges facing the housing market, we expect this to be the best year for housing in a decade. Home sales, housing starts, and house prices will reach their highest level since 2006 according to our latest forecast…Challenges remain, with low housing supply and declining affordability being a key concern in many markets, but on balance, the housing markets in the U.S. are poised for the best year since 2006.”

The key indicators that have given Freddie Mac such a positive outlook are:

  • Low interest rates
  • A resilient labor market
  • An increase in household formations
  • A projected increase in newly constructed homes

Bottom Line

2016 looks to be shaping up as a great year for residential real estate. Whether you are thinking of buying or selling, now may be the time to sit down with a real estate professional to discuss the new opportunities that are arising.

Rent or Buy – Either Way Your Paying a Mortgage

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There are some renters that have not yet purchased a home 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 your mortgage or your landlord’s. As The Joint Center for Housing Studies at Harvard University explains:

“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return.   That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

Christina Boyle, a Senior Vice President, Head of Single-Family Sales & Relationship Management at Freddie Mac, explains another benefit of securing a mortgage vs. paying rent:

“With a 30-year fixed rate mortgage, you’ll have the certainty & stability of knowing what your mortgage payment will be for the next 30 years – unlike rents which will continue to rise over the next three decades.”

As an owner, your mortgage payment is a form of ‘forced savings’ that allows you to have equity in your home that you can tap into later in life. As a renter, you guarantee your landlord is the person with that equity. The graph below shows the widening gap in net worth between a homeowner and a renter:

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Bottom Line

Whether you are looking for a primary residence for the first time or are considering a vacation home on the shore, owning might make more sense than renting with home values and interest rates projected to climb.

Move Up to Your Dream Home Now!

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Now that the housing market has stabilized, more and more homeowners are considering moving up to the home they have always dreamed of. Prices are still below those of a few years ago and interest rates have stayed near historic lows. Sellers should realize that waiting to make the move when mortgage rates are projected to increase probably doesn’t make sense. As rates increase, the price of the house you can afford will decrease if you plan to stay within a certain budget for your monthly housing costs. 

Here is a chart detailing this point:

BuyersPurchasingPowerKCM

According to Freddie Mac, the current 30-year fixed rate is currently around 3.75%. With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, by $10,000). Freddie Mac predicts that mortgage rates will be closer to 4.7% by this time next year.

Act now to get the most house for your hard-earned money.