Category Archives for "Pricing"

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Home Prices Have Appreciated 6.9% in 2018

Home Prices Have Appreciated 6.9% in 2018 | Simplifying The Market

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%.

Home Prices Have Appreciated 6.9% in 2018 | Simplifying The Market

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!

Home Prices Have Appreciated 6.9% in 2018 | Simplifying The Market

What does this mean?

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!

Bottom Line

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!

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Home Prices Up 6.49% Across the Country! [INFOGRAPHIC]

Home Prices Up 6.49% Across the Country! [INFOGRAPHIC] | Simplifying The Market

Some Highlights:

  • The Federal Housing Finance Agency (FHFA) recently released their latest quarterly Home Price Index report.
  • In the report, home prices are compared both regionally and by state.
  • Based on the latest numbers, if you plan on relocating to another state, waiting to move may end up costing you more!

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What Does the Future Hold for Home Prices?

What Does the Future Hold for Home Prices? | Simplifying The Market

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.

The Impact of Rising Interest Rates

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.

The Impact of an Economic Slowdown

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.

It Comes Down to Supply and Demand

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.

CoreLogic is predicting that home values will appreciate by 5.1% over the next twelve months and the Home Price Expectation Survey calls for values to increase by 4.2% in 2019.

Bottom Line

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.”

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Why are Existing Home Sales Down?

Why are Existing Home Sales Down? | Simplifying The Market

The latest Existing Home Sales Report issued by the National Association of Realtors (NAR) revealed that home sales have decreased for four consecutive months and are at their slowest pace in over two years. This has some industry leaders puzzled considering the fact that the economy is strengthening, unemployment is down, and wages are beginning to rise. This begs the question: “Where are the buyers?”

Actually, agents in the field of most communities are still seeing strong desire from prospective purchasers. They have a list of potential buyers ready to go if the right houses come on the market and they claim it is not a shortage of demand, but is instead a shortage of inventory that is causing the market to soften.

Why is there a shortage of inventory?

You only need to look at the graph below to understand:

Why are Existing Home Sales Down? | Simplifying The Market

New construction sales over the last ten years are far below historic numbers from 1995-2002.

A recent industry report looked at building permits and concluded:

“If construction over the past decade matched historic norms, accounting for population change, the country would have had 2.3 million more single-family home permits.”

That decade of not building enough homes is the primary reason for the concerns about today’s market.

Wait, weren’t we talking about ‘existing’ home sales?

Some may argue that NAR’s sales report deals with existing home sales and not new construction, and they would be correct. However, reports have shown that one of the main reasons why existing homeowners are not selling is because they can’t find homes that meet the needs of their current lifestyles. Historically, the upgrades in a newly constructed home were the answers to those needs.

Over the last decade, however, there were fewer homes built to satisfy this move-up seller. Consequently, there are many homeowners who stayed in their homes for a longer tenure, instead of putting their homes up for sale.

Bottom Line

As more new homes are being built, there will be more housing inventory to satisfy current demand which will cause prices to moderate and sales volumes to increase.

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What Does the Recent Rash of Price Reductions Mean to the Real Estate Market?

What Does the Recent Rash of Price Reductions Mean to the Real Estate Market? | Simplifying The Market

Last week, in a new report from Zillow, it was revealed that there has been a rash of price reductions across the country. According to the report:

  • There are more price cuts now than a year ago in over two-thirds of the nation’s largest metros
  • About 14% of all listings had a price cut in June
  • Since the beginning of the year, the share of listings with a price cut increased 1.2%
  • This is the greatest January-to-June increase ever reported, and more than double the January-to-June increase last year

Senior Economist Aaron Terrazas further explained:

“A rising share of on-market listings are seeing price cuts, though these price cuts are concentrated at the most expensive price-points and primarily in markets that have seen outsized price gains in recent years.”

What this DOESN’T MEAN for the real estate market…

This doesn’t mean home values have depreciated or are about to depreciate.

A seller may put a home worth $300,000 on the market for $325,000 hoping a bidding war will occur and an overanxious buyer will pay more than its actual value. That has happened often over the last few years. If the seller gets no offers and reduces the price to $300,000, it doesn’t mean the home dropped in value. It is still worth $300,000.

Home prices will continue to appreciate over the next 12 months. In this same report, Terrazas remarks:

“It’s far too soon to call this a buyer’s market, home values are still expected to appreciate at double their historic rate over the next 12 months, but the frenetic pace of the housing market over the past few years is starting to return toward a more normal trend.”

What this DOES MEAN for the real estate market…

This does mean that sellers should be more conservative when it comes to the price at which they list their homes – especially sellers in the upper end of each market.

Sellers have been listing their homes at inflated prices hoping a super-hot market will deliver a buyer willing to pay virtually any price to ensure they don’t lose the house. That strategy has worked somewhat successfully over the last two years. However, the time that strategy would have worked may have passed.

Again, quoting Aaron Terrazas in the report:

“The housing market has tilted sharply in favor of sellers over the past two years, but there are very early preliminary signs that the winds may be starting to shift ever-so-slightly.”

Bottom Line

Prices are not depreciating. However, if you want to sell your house quickly and with the least amount of hassles, pricing it correctly from the beginning makes the most sense.

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Supply & Demand Will Determine Future Home Values

Supply & Demand Will Determine Future Home Values | Simplifying The Market

Will home values continue to appreciate throughout 2018? The answer is simple: YES! – as long as there are more purchasers in the market than there are available homes for them to buy. This is known as 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. Every month this year, demand (buyer traffic) has increased as compared to last year and for the first five months of 2018, supply (the number of available listings) had decreased as compared to last year. However, a recent report by the National Association of Realtors (NAR) revealed the first year-over-year increase in supply in three years.

Here are the numbers for supply and demand as compared to last year since the beginning of 2018:

Supply & Demand Will Determine Future Home Values | Simplifying The Market

The increase in the June numbers doesn’t mean that prices won’t continue to appreciate. In that same report, Lawrence Yun, NAR’s Chief Economist, explained:

“It’s important to note that despite the modest year-over-year rise in inventory, the current level is far from what’s needed to satisfy demand levels.

Furthermore, it remains to be seen if this modest increase will stick, given the fact that the robust economy is bringing more interested buyers into the market, and new home construction is failing to keep up.”

Bottom Line

The reason home prices are still rising is that 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.

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Selling Your Home? Here’s 2 Ways to Get the Best Price!

Selling Your Home? Here’s 2 Ways to Get the Best Price! | Simplifying The Market

Every homeowner wants to make sure that they maximize their financial reward when selling their home, but how do you guarantee that you receive the maximum value for your house?

Here are two ways to ensure that you get the highest price possible.

1. Price it a Little Low

This may seem counterintuitive, but let’s take a look at this concept for a moment. Many homeowners think that pricing their homes a little OVER market value will leave them with room for negotiation when, in actuality, it just dramatically lessens the demand for their houses (see chart below).

Selling Your Home? Here’s 2 Ways to Get the Best Price! | Simplifying The Market

Instead of the seller trying to ‘win’ the negotiation with one buyer, they should price their house so that demand for the home is maximized. By doing so, the seller will not be fighting with a buyer over the price but will instead have multiple buyers fighting with each other over the house.

Realtor.com gives this advice:

“Aim to price your property at or just slightly below the going rate. Today’s buyers are highly informed, so if they sense they’re getting a deal, they’re likely to bid up a property that’s slightly underpriced, especially in areas with low inventory.”

2. Use a Real Estate Professional

This, too, may seem counterintuitive as the seller may think that he or she will make more money by avoiding a real estate commission. With this being said, studies have shown that homes typically sell for more money when handled by real estate professionals.

study by Collateral Analytics, reveals that FSBOs don’t actually save any money, and in some cases may be costing themselves more, by not listing with an agent. The data showed that:

“FSBOs tend to sell for lower prices than comparable home sales, and in many cases below the average differential represented by the prevailing commission rate.”

The results of the study showed that the differential in selling prices for FSBOs, when compared to MLS sales of similar properties, is about 5.5%. Sales in 2017 suggest the average sales price was near 6% lower for FSBO sales of similar properties.

Bottom Line

Price your house at or slightly below the current market value and hire a professional. This will guarantee that you maximize the price you get for your house.

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House-Buying Power at Near-Historic Levels

House-Buying Power at Near-Historic Levels | Simplifying The Market

We keep hearing that home affordability is approaching crisis levels. While this may be true in a few metros across the country, housing affordability is not a challenge in the clear majority of the country. In their most recent Real House Price Index, First American reported that consumer “house-buying power” is at “near-historic levels.”

Their index is based on three components:

  1. Median Household Income
  2. Mortgage Interest Rates
  3. Home Prices

The report explains:

“Changing incomes and interest rates either increase or decrease consumer house-buying power or affordability. When incomes rise and/or mortgage rates fall, consumer house-buying power increases.”

Combining these three crucial pieces of the home purchasing process, First American created an index delineating the actual home-buying power that consumers have had dating back to 1991.

Here is a graph comparing First American’s consumer house-buying power (blue area) to the actual median home price that year from the National Association of Realtors (yellow line).

House-Buying Power at Near-Historic Levels | Simplifying The Market

Consumer house-buyer power has been greater than the actual price of a home since 1991. And, the spread is larger over the last decade.

Bottom Line

Even though home prices are increasing rapidly and are now close to the values last seen a decade ago, the actual affordability of a home is much better now. As Chief Economist Mark Fleming explains in the report:

“Though unadjusted house prices have risen to record highs, consumer house-buying power stands at near-historic levels, as well, signaling that real house prices are not even close to their historical peak.”

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Homes More Affordable Today than 1985-2000

Homes More Affordable Today than 1985-2000 | Simplifying The Market

Rising home prices have many concerned that the average family will no longer be able to afford the most precious piece of the American Dream – their own home.

However, it is not just the price of a home that determines its affordability. The monthly cost of a home is determined by the price and the interest rate on the mortgage used to purchase it.

Today, mortgage interest rates stand at about 4.5%. The average annual mortgage interest rate from 1985 to 2000 was almost double that number, at 8.92%. When comparing affordability of homeownership over the decades, we must also realize that incomes have increased.

This is why most indexes use the percentage of median income required to make monthly mortgage payments on a typical home as the point of comparison.

Zillow recently released a report comparing home affordability over the decades using this formula. The report revealed that, though homes are less affordable this year than last year, they are more affordable today (17.1%) than they were between 1985-2000 (21%). Additionally, homes are more affordable now than at the peak of the housing bubble in 2006 (25.4%). Here is a chart of these findings:

Homes More Affordable Today than 1985-2000 | Simplifying The Market

What will happen when mortgage interest rates rise?

Most experts think that the mortgage interest rate will increase to about 5% by year’s end. How will that impact affordability? Zillow also covered this in their report:

Homes More Affordable Today than 1985-2000 | Simplifying The Market

Rates would need to approach 6% before homes became less affordable than they had been historically.

Bottom Line

Though homes are less affordable today than they were last year, they are still a great purchase while interest rates are below the 6% mark.

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Next Recession in 2020? What Will Be the Impact?

Next Recession in 2020? What Will Be the Impact? | Simplifying The Market

Economists and analysts know that the country has experienced economic growth for almost a decade. They also know that a recession can’t be too far off. A recent report by Zillow Research shed light on a survey conducted by Pulsenomics in which they asked economists, investment strategists and market analysts how they felt about the current housing market. That report revealed the possible timing of the next recession:

Experts largely expect the next recession to begin in 2020.”

That timing concurs with a recent survey of economists by the Wall Street Journal:

“The economic expansion that began in mid-2009 and already ranks as the second-longest in American history most likely will end in 2020 as the Federal Reserve raises interest rates to cool off an overheating economy, according to forecasters surveyed.”

Here is a graph comparing the opinions of those surveyed by both the Wall Street Journal and Pulsenomics:

Next Recession in 2020? What Will Be the Impact? | Simplifying The Market

Recession DOES NOT Equal Housing Crisis

According to the Merriam-Webster Dictionary, a recession is defined as follows:

“A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”

A recession means the economy has slowed down markedly. It does not mean we are experiencing another housing crisis. Obviously, the housing crash of 2008 caused the last recession. However, during the previous five recessions home values appreciated.

Next Recession in 2020? What Will Be the Impact? | Simplifying The Market

According to the experts surveyed by Pulsenomics, the top three probable triggers for the next recession are:

  • Monetary policy
  • Trade policy
  • A stock market correction

A housing market correction was ranked ninth in probability. Those same experts also projected that home values would continue to appreciate in 2019, 2020, 2021 and 2022.  

Others agree that housing will not be impacted like it was a decade ago.

Mark Fleming, First American’s Chief Economist, explained:

“If a recession is to occur, it is unlikely to be caused by housing-related activity, and therefore the housing sector should be one of the leading sources to come out of the recession.”

And U.S. News and World Report agreed:

“Fortunately – and hopefully – the history of recessions and current issues that could harm the economy don’t lead many to believe the housing market crash will repeat itself in an upcoming decline.”

Bottom Line

A recession is probably less than two years away. A housing crisis is not.

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