Inventory Shortages Are Slowing Down the Market

Inventory Shortages Are Slowing Down the Market | Keeping Current Matters

The real estate market is moving more and more into a complete recovery. Home values are up. Home sales are up. Distressed sales (foreclosures and short sales) have fallen dramatically. It seems that 2017 will be the year that the housing market races forward again.

However, there is one thing that may cause the industry to tap the brakes: a lack of housing inventory. While buyer demand looks like it will remain strong throughout the summer, supply is not keeping up.

Here are the thoughts of a few industry experts on the subject:

Lawrence Yun, Chief Economist at NAR:

“Sellers are in the driver’s seat this spring as the intense competition for the few homes for sale is forcing many buyers to be aggressive in their offers. Buyers are showing resiliency given the challenging conditions. However, at some point — and the sooner the better — price growth must ease to a healthier rate. Otherwise sales could slow if affordability conditions worsen.”

Tom O’Grady, Pro Teck CEO

“The lack of inventory is very real and could have a severe impact on home sales in the months to come. Traditionally, a balanced market would have an MRI (Months Remaining Inventory) between six and 10 months.

This month, only eight metros we track have MRIs over 10, compared to 27 last year and 48 two years ago—illustrating that this lack of inventory is not being driven by traditionally ‘hot’ markets, but is rather a broad-based, national phenomenon.”

Ralph McLaughlin, Chief Economist at Trulia

“Nationally, housing inventory dropped to its lowest level on record in 2017 Q1. The number of homes on the market dropped for the eighth consecutive quarter, falling 5.1% over the past year.”

Freddie Mac

“Tight housing inventory has been an important feature of the housing market at least since 2016. For-sale housing inventory, especially of starter homes, is currently at its lowest level in over ten years. If inventory continues to remain tight, home sales will likely decline from their 2016 levels. …all eyes are on housing inventory and whether or not it will meet the high demand.”

Bottom Line

If you are thinking of selling, now may be the time. Demand for your house will be strongest at a time when there is very little competition. That could lead to a quick sale for a really good price.

3 Reasons the Housing Market is NOT in a Bubble

3 Reasons the Housing Market is NOT in a Bubble | Keeping Current Matters

With housing prices appreciating at levels that far exceed historical norms, some are fearful that the market is heading for another bubble. To alleviate that fear, we just need to look back at the reasons that caused the bubble ten years ago.

Last decade, demand for housing was artificially propped up because mortgage lending standards were way too lenient. People that were not qualified to purchase were able to obtain a mortgage anyway. Prices began to skyrocket. This increase in demand caused homebuilders in many markets to overbuild.

Eventually, the excess in new construction and the flooding of the market with distressed properties (foreclosures & short sales), caused by the lack of appropriate lending standards, led to the housing crash.

Where we are today…

1. If we look at lending standards based on the Mortgage Credit Availability Indexreleased monthly by the Mortgage Bankers Association, we can see that, though standards have become more reasonable over the last few years, they are nowhere near where they were in the early 2000s.

3 Reasons the Housing Market is NOT in a Bubble | Keeping Current Matters

2. If we look at new construction, we can see that builders are not “over building.”Average annual housing starts in the first quarter of this year were not just below numbers recorded in 2002-2006, they are below starts going all the way back to 1980.

3 Reasons the Housing Market is NOT in a Bubble | Keeping Current Matters

3. If we look at home prices, most homes haven’t even returned to prices seen a decade ago. Trulia just released a report that explained:

“When it comes to the value of individual homes, the U.S. housing market has yet to recover. In fact, just 34.2% of homes nationally have seen their value surpass their pre-recession peak.”

Bottom Line

Mortgage lending standards are appropriate, new construction is below what is necessary and home prices haven’t even recovered. It appears fears of a housing bubble are over-exaggerated.

Sales Activity Increases, Inventory Drops for Holidays

(Sacramento Association of REALTORS® – RESIDENTIAL RESALE STATISTICS Dec. 2015)

Housing Stat Image

Sales volume for December surged 30.4% to 1,571, a substantial increase from the 1,205 closed escrows in November. The current number is 3.3% above the 1,520 sales of October. Compared with December 2014 (1,313 sales), the current number is up 19.6%. Equity sales made up 90.9% of all sales (1,428 units) for the month. The remainder of sales were REO/bank‐owned (57 units/3.6%) and Short Sales (60/3.8%). Other types of sales (auction, probate, etc.) accounted for 1.7% or 26 sales. Both REO Sales (2.7%) and Short Sales (17.3%) decreased for the month. Equity Sales increased slightly, up .4%.

Breaking down the financing, 225 sales used cash (14.3%), 750 (47.7%) conventional (mortgage‐backed), 415 (26.4%) used FHA (Federal Housing Administration), 103 (5.6%) used VA (Veterans Affairs) and 78 (5%) used Other* types of financing. The graph below compares market inventory and sales volume since May 2010:

Pending sales dropped off to 849, a 31.4% decrease from the 1,237 pending sales in November. Compared with December 2014, however, the current number is up 4.7% (811). The month‐to‐month median sales price jumped 2.1% from $290,885 to $297,000. This figure is 10.8% above the $268,000 median sales price for December 2014. The total dollar value of all closed transactions for the month totaled $508,723,362. This figure is 30.3% higher than the $390,353,522 total last month and 31.7% higher than the total value of December 2014 ($386,253,993). The year‐end sales total is 17,578, up 11.4% from the 15,778 sales at the same time of last year.

The total Active Listing Inventory decreased 18% from 2,150 to 1,749 and the Months of Inventory remained decreased from 1.8 months to 1.1 months. Year‐to‐year, the current number is down 27.9% (3,002 units).

The average DOM (days on market) for homes sold this month increased from 33 to 35 days. The median DOM increased 31% from 16 to 21. These numbers represent the days between the initial listing of the home as “active” and the day it goes “pending.” Breaking down the DOM, there were 964 listings that sold between 1 – 30 days, 329 listings between 31 – 60 days, 136 between 61 – 90 days, 68 between 91 – 120 days and 74 sales that spent over 120+ DOM.

Inventory V Sales SAR DEC 2015

 

The Sacramento Association of REALTORS® is a professional association representing over 5,500 real estate professionals and commercial affiliates doing business in the greater Sacramento metropolitan area. All SAR statistics reports compiled by Tony Vicari, SAR Communications Manager.

Statistics are derived from the MetroList® MLS database for Sacramento County and the City of West Sacramento.

64.2% of Millennials Put Down Less than 20%

64.2% of Millennials Put Down Less than 20% | Keeping Current Matters

Digital Risk recently polled Millennials about the housing market. Among their findings was the fact that nearly two-thirds of the generation who have recently purchased a home, have done so with less than 20% down; with 36% putting down less than 5%!

Here is a graph detailing the results:

Millennial Down Payments | Keeping Current Matters

This means that more and more American’s between the ages of 18 and 34 stopped paying their landlord’s mortgage and started building their own family’s wealth.

Millennials aren’t the only ones taking advantage of lower down payments.

The Federal Reserve Bank of New York found that if the down payment required to purchase a home went from 20% to 5%, a renter’s Willingness To Pay (WTP) increased by 40%.

Willingness To Pay | Keeping Current Matters

The problem is that thirty-six percent of Americans still think a 20% down payment isalways required when buying a home. Many renters may actually be able to enter the housing market sooner than they ever imagined with new programs that have emerged allowing less cash out of pocket.

Bottom Line

If you are one of the many renters now realizing that the home of your dreams is obtainable, contact a local real estate professional who can guide you through the process.

An Easy Way to Find the Perfect Real Estate Agent

An Easy Way to Find the Perfect Real Estate Agent | Keeping Current Matters

There is a plethora of real estate information available today in the news and on the internet. It can be extremely confusing at times.

If you are thinking of buying or selling, you need an agent who can help make sense of this rapidly evolving housing market. You need an agent who can help you price your home correctly at the beginning of the selling process. You need an agent who can help you determine what to offer on your dream home without paying too much or offending the seller with a low-ball offer.

Dave Ramsey, the financial guru advises:

“When getting help with money, whether it’s insurance, real estate or investments, you should always look for someone with the heart of a teacher, not the heart of a salesman.”

Hiring an agent who has their finger on the pulse of the market will make your buying/selling experience so much easier.

But, how do you identify which agents truly understand what is happening and will take the time to simply and effectively explain what it means to you and your family?

One simple way is to check out the agent on social media. What are they posting on Facebook and Twitter? Are they using their social media platforms to share relevant, helpful information or are they just posting cherry pie recipes and cartoons? The best agents are committed to educating the consumer so they can feel confident when they are buying or selling a home.

What they are posting online will help you determine which agents meet the criteria that Dave Ramsey suggested you look for: someone with the heart of a teacher!

What If I Wait Until Next Year to Buy?

What If I Wait Until Next Year to Buy? | Keeping Current Matters

First-time homebuyers are flocking to the housing market in greater numbers than any time in the last few years. Renters who are ready and willing to buy are now realizing that they are also able to as well. Many first-time buyers are Millennials (born between 1981 – 1997).

If you are one of the many in this generation who sees your friends and family diving head first into the real estate market, and wonder if now is the time for you to do the same, keep reading!

The Cost of Waiting to Buy is defined as the additional funds it would take to buy a home if prices and interest rates were to increase over a period of time.

Let’s look at an example of what the experts are predicting for the upcoming year, and what that really would mean for you. Let’s say you’re 30 and your dream house costs $250,000 today. Right now mortgage interest rates are at or about 4%.

Your monthly mortgage payment (principal & interest only) would be $1,193.54.

But you’re busy, you like your apartment, and moving is such a hassle. You decide to wait until next year to buy. CoreLogic predicts that home prices will appreciate by 5.1% in the next 12 months; this means that same house you loved now costs, $262,750.

Freddie Mac predicts that over this same period of time, interest rates will be a full point higher at 5.0%. Your new payment per month is now $1,410.50.

The difference in payment is $216.96 PER MONTH!

That’s basically like taking $8 and tossing it out the window EVERY DAY!

Or you could look at it this way:

  • That’s your morning coffee everyday on the way to work (average $2) with $10 left for lunch!
  • There goes Friday Sushi Night! ($50 x 4)
  • Stressed Out? How about a few deep tissue massages with tip!
  • Need a new car? You could get a brand new car for $217 a month.

Let’s look at that number annually! Over the course of your new mortgage at 5.0%, your annual additional cost would be $2,603.52!

Had your eye on a vacation in the Caribbean? How about a 2-week trip through Europe? Or maybe your new house could really use a deck for entertaining. We could come up with 100’s of ways to spend $2,603, and we’re sure you could too!

Over the course of your 30 year loan, now at age 61, hopefully you are ready to retire soon, you would have spent an additional $78,105.60, all because when you were 30 you thought moving in 2015 was such a hassle or loved your apartment too much to leave yet.

Or maybe there wasn’t an agent out there who educated you on the true cost of waiting a year. Maybe they thought you wouldn’t be ready. But if they showed you that you could save $78,000 you’d at least listen to what they had to say.

They say hindsight is 20/20, we’d like to think that 30 years from now when you are 60, looking back, you would say to buy now…

One More Time…You DO NOT Need 20% Down

One More Time You Don't Need 20% Down | Keeping Current Matters

A recent survey by Ipsos found that the American public is still somewhat confused about what is actually necessary to qualify for a home mortgage loan in today’s housing market. The study pointed out two major misconceptions that we want to address today.

1. Down Payment

The survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 36% think a 20% down payment is always required. In actuality, there are many loans written with a down payment of 3% or less and the number has increased through the first quarter of the year as shown by the graph below:

Percent of Low Down Payments | Keeping Current Matters

2. FICO Scores

The survey also reported that two-thirds of the respondents believe they need a very good credit score to buy a home, with 45 percent thinking a “good credit score” is over 780. In actuality, the average FICO scores of approved conventional and FHA mortgages are much lower:

Average FICO Scores | Keeping Current Matters

Bottom Line

If you are a prospective purchaser who is ‘ready’ and ‘willing’ to buy but not sure if you are also ‘able’, sit down with someone who can help you understand your true options.