A Tale of Two Markets

A Tale of Two Markets [INFOGRAPHIC] | MyKCM

Some Highlights:

  • A trend that has been emerging for some time now is the contrast between inventory & demand in the Premium & Luxury Markets vs. the Starter & Trade-Up Home Markets and what that’s, in turn, doing to prices!
  • Inventory continues to rise in the luxury & premium home markets which is causing prices to cool.
  • Demand continues to rise with low inventory in the starter & trade-up home markets, causing prices to rise!
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Three Ways Rising House Prices Could Impact You

According to the National Association of Realtors, median home prices across the US have increased by more than 7% year-over-year.  This means you’d pay approx. $374,000 in today’s market for a house you could have purchased a year ago for $349,000.  Here are three ways this could impact you:

1 – If You’re Thinking of Selling a Home
You may benefit by selling your home now instead of waiting. The new home you’d purchase to replace your current home is likely to cost you more if you wait a year.  Not only that, but your monthly payments could also increase if interest rates continue to climb.

2 – If You’re Thinking of Buying a Home
For the same reasons stated above, it’s probably a good idea for you to consider buying now instead of waiting.  If home prices continue to increase, you’d benefit from the increase instead of being stuck on the other side of the decision wishing you could have purchased a home at last year’s prices.

3 – If You’re Thinking of Making Home Improvements
If your home has increased in value, you may be able to tap into the additional equity to finance your home improvement project.

Contact me for more info or to explore your options!

Top 4 Home Renovations for Maximum

Top 4 Home Renovations for Maximum ROI [INFOGRAPHIC] | MyKCM

Some Highlights:

  • Whether you are selling your home, just purchased your first home, or are a homeowner planning to stay put for a while, there is value in knowing which home improvement projects will net you the most “Return On Investment” (ROI).
  • While big projects like adding a bathroom or a complete remodel of a kitchen are popular ways to increase a home’s value, something as simple as updating landscaping and curb appeal can have a quick impact on a home’s value.

House Prices: Simply a Matter of Supply & Demand

House Prices: Simply a Matter of Supply & Demand | MyKCM

Why are home prices still rising? It is a simple answer. There are more purchasers in the market right now than there are available homes for them to buy. This is an example of the theory of “supply and demand” which is defined as:

“the amount of a commodity, product, or service available and the desire of buyers for it, considered as factors regulating its price.”

When demand exceeds supply, prices go up. This is currently happening in the residential real estate market.

Here are the numbers for supply and demand as compared to last year for the last three months (March numbers are not yet available):

House Prices: Simply a Matter of Supply & Demand | MyKCM

In each of the last three months, demand (buyer traffic) has increased as compared to last year while supply (number of available listings) has decreased. If this situation persists, home values will continue to increase.

Bottom Line

The reason home prices are still rising is because there are many purchasers looking to buy, but very few homeowners ready to sell. This imbalance is the reason prices will remain on the uptick.

Three Questions to Ask Before You Invest in Real Estate

It’s important to ask these three questions when you invest in real estate:

  1. How can I increase my rate of return?  The cornerstone of any smart investment strategy is to calculate your rate of return.  With real estate this is done by running the numbers using an internal rate of return (IRR) formula that takes into account:
    • Present Value (PV) – what am I paying out of pocket to get into this investment?
    • Term (N) – what’s my timeline and how long am I going to hold this investment?
    • Periodic Cash Flow (PMT) – what’s my monthly cash flow?
    • Future Value (FV) – what are my net proceeds (after expenses) when I sell the investment?
  2. How does my rate of return with real estate compare with other investment opportunities?  When calculating your rate of return, make sure to account for:
    • Carrying costs (mortgage, taxes, insurance, maintenance, etc.)
    • Your time spent managing the property
    • Vacancy loss if you don’t find a tenant
  3. How can I reduce my risk?  You may want to consider these strategies to reduce your investment risk:
    • Increase your liability insurance in case something goes wrong
    • Consider a rent-to-own strategy where you find a tenant before you find a property
    • Consider mortgage strategies that result in more cash flow and/or better liquidity

Contact me so we can get started on helping you answer these questions!

Homeowners: Your House Must Be Sold TWICE

Homeowners: Your House Must Be Sold TWICE | MyKCM

In today’s housing market, where supply is very low and demand is very high, home values are increasing rapidly. Many experts are projecting that home values could appreciate by another 5%+ over the next twelve months. One major challenge in such a market is the bank appraisal.

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

Bill Banfield, Executive VP of Capital Markets urges anyone looking to buy or sell in today’s market to remember the impact of this challenge:

“Based on the HPPI, it appears homeowners in the markets where prices are rising faster than the national average – like Denver, Seattle and San Francisco – are continuing to underestimate just how quickly home values are rising, so the average appraisal is higher than homeowner estimate.

On the inverse of that, homeowners in areas where the values aren’t rising as fast may think they are rising faster than they are, leading to the appraisal lagging the estimate.”

The chart below illustrates the changes in home price estimates over the last 12 months.

Homeowners: Your House Must Be Sold TWICE | MyKCM

Bottom Line

Every house on the market must 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 get together to discuss this and any other obstacles that may arise.

Housing Prices are NOT Heading for Another Crash

As home values continue to increase at levels greater than historic norms, some are concerned that we are heading for another crash like the one we experienced ten years ago. We recently explained that the lenient lending standards of the previous decade (which created false demand) no longer exist. But what about prices?

Are prices appreciating at the same rate that they were prior to the crash of 2006-2008? Let’s look at the numbers as reported by Freddie Mac:

Housing Prices are NOT Heading for Another Crash | MyKCM

The levels of appreciation we have experienced over the last four years aren’t anywhere near the levels that were reached in the four years prior to last decade’s crash.

We must also realize that, to a degree, the current run-up in prices is the market trying to catch up after a crash that dramatically dropped prices for five years.

Bottom Line

Prices are appreciating at levels greater than historic norms. However, we are not at the levels that led to the housing bubble and bust.