Simplifying the Market™ brought to you by Real Pros

We hope 2016 is a great year for you both personally & professionally.

Simplifying the Market™ brought to you by Real Pros

In a recent post, Trulia examined whether homeownership was again being seen by adults in the US as a “part of their personal American Dream.” Over the last five years:

• The percentage of U.S. adults who believe homeownership is part of their American Dream increased from 70% to 75%
• The percentage of 18-34 Year-olds who believe homeownership is part of their American Dream increased from 65% to 80%

Here is a graph of the survey over the last five years:

Bottom Line

As the housing industry recovers from the crisis of 2008-2010, Americans belief in homeownership as part of their own personal American Dream has also made a strong comeback.

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Now that the market has showed signs of recovery, some sellers may be tempted to try and sell their home on their own (FSBO) without using the services of a real estate professional.

Real estate agents are trained and experienced in negotiation. In most cases, the seller is not. The seller must realize their ability to negotiate will determine whether they can get the best deal for themselves and their family.

Here is a list of some of the people with whom the seller must be prepared to negotiate if they decide to FSBO:

• The buyer who wants the best deal possible
• The buyer’s agent who solely represents the best interest of the buyer
• The buyer’s attorney (in some parts of the country)
• The home inspection companies, which work for the buyer and will almost always find some problems with the house.
• The termite company if there are challenges
• The buyer’s lender if the structure of the mortgage requires the sellers’ participation
• The appraiser if there is a question of value
• The title company if there are challenges with certificates of occupancy (CO) or other permits
• The town or municipality if you need to get the COs permits mentioned above
• The buyer’s buyer in case there are challenges on the house your buyer is selling
• Your bank in the case of a short sale

Bottom Line

The percentage of sellers who have hired a real estate agent to sell their home has increased steadily over the last 20 years. Let's get together and discuss all we can do to make the process easier for you.

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There are many benefits to homeownership. One of the top ones is being able to protect yourself from rising rents and lock in your housing cost for the life of your mortgage.

Don’t Become Trapped

Jonathan Smoke, Chief Economist at realtor.com recently reported on what he calls a “Rental Affordability Crisis”. He warns that,

“Low rental vacancies and a lack of new rental construction are pushing up rents, and we expect that they’ll outpace home price appreciation in the year ahead.”

The Joint Center for Housing Studies at Harvard University recently released their 2015 Report on Rental Housing, in which they reported that 49% of rental households are cost-burdened, meaning they spend more than 30% of their income on housing. These households struggle to save for a rainy day and pay other bills, such as food and healthcare.

It’s Cheaper to Buy Than Rent

In Smoke’s article, he went on to say,

“Housing is central to the health and well-being of our country and our local communities. In addition, this (rental affordability) crisis threatens the future value of owned housing, as the burdensome level of rents will trap more aspiring owners into a vicious financial cycle in which they cannot save and build a solid credit record to eventually buy a home.”

 “While more than 85% of markets have burdensome rents today, it’s perplexing that in more than 75% of the counties across the country, it is actually cheaper to buy than rent a home. So why aren’t those unhappy renters choosing to buy?”

Know Your Options

Perhaps, you have already saved enough to buy your first home. HousingWire reported that analysts at Nomura believe:

“It’s not that Millennials and other potential homebuyers aren’t qualified in terms of their credit scores or in how much they have saved for their down payment.

It’s that they think they’re not qualified or they think that they don’t have a big enough down payment.” (emphasis added)

Many first-time homebuyers who believe that they need a large down payment may be holding themselves back from their dream home. As we reported last week, in many areas of the country, a first-time home buyer can save for a 3% down payment in less than two years. You may have already saved enough!

Bottom Line

Don’t get caught in the trap so many renters are currently in. If you are ready and willing to buy a home, find out if you are able. Have a professional help you determine if you are eligible to get a mortgage.

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Simplifying the Market™ brought to you by Real Pros

Simplifying the Market™ brought to you by Real Pros

Yesterday, the National Association of Realtors (NAR) released their latest Existing Home Sales Report which covered sales in November. The report revealed that sales:

“…fell 10.5 percent to a seasonally adjusted annual rate of 4.76 million in November (lowest since April 2014 at 4.75 million)…”

That revelation gave birth to a series of industry articles, some of which quoted pundits questioning whether the housing market was slowing. In actually, there is one rather simple explanation to much of the falloff in sales last month is likely the implementation of the “Know Before You Owe” mortgage rule, commonly known as the TILA-RESPA Integrated Disclosure (TRID) rule, which went into effect on October 3.. These regulations caused house closings to be delayed by an extra three days in November as shown in the graph below.

Three days might sound like a minimal difference. However, since there are only approximately 20 days in a month that a closing would normally take place (Mondays through Fridays), losing three days constitutes well over 10% of all closings. These sales are not lost. They are just moved into the next month’s numbers. In a DS News article on the subject yesterday, Auction.com EVP Rick Sharga explained:

“The most likely cause for the weak sales numbers is a delay in processing loans due to the new TRID mortgage requirements imposed by the CFPB. This is the biggest change in mortgage document processing in many years, and there have been numerous reports within the industry of problems implementing the process and the new documentation that comes with it.”

So how is the housing market actually doing?

A better way to look at how well the housing market is doing is to look at the Foot Traffic Report from NAR which quantifies the number of prospective buyers that are actively looking for a home at the current time:

We can see immediately that demand to buy single family homes is increasing over the last few months - not decreasing.

Bottom Line

No matter what last month’s sales numbers show, the housing market is still doing well as demand remains strong.

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As the economy continues to improve, more and more Americans are seeing their personal financial situations also improving. Instead of just getting by, many are now beginning to save and find other ways to build their net worth. One way to dramatically increase their family wealth is through the acquisition of real estate.

For example, let’s assume a young couple purchases and closes on a $250,000 home in January. What will that home be worth five years down the road?

Pulsenomics surveys a nationwide panel of over one hundred economists, real estate experts and investment & market strategists every quarter. They ask them to project how residential prices will appreciate over the next five years. According to their latest survey, here is how much value that $250,000 house will gain in the coming years.

Over a five year period, that homeowner can build their home equity to over $40,000. And, in many cases, home equity is large portion of a family’s overall net worth.

Bottom Line

If you are looking to better your family’s long-term financial situation, buying your dream home might be a great option.

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Today, many real estate conversations center on housing prices and where they may be headed. That is why we like the Home Price Expectation Survey.

Every quarter, Pulsenomics surveys a nationwide panel of over one hundred economists, real estate experts and investment & market strategists about where they believe prices are headed over the next five years. They then average the projections of all 100+ experts into a single number.

The results of their latest survey:

Home values will appreciate by 3.9% by the end of 2015, 3.4% in 2016 and 3.1% in each of the following four years (as shown below). That means the average annual appreciation will be 3.2% over the next 5 years.

The prediction for cumulative appreciation rose from 18.1% to 21.6% by 2020. Even the experts making up the most bearish quartile of the survey still are projecting a cumulative appreciation of 13.8%.

Bottom Line

Individual opinions make headlines. We believe the survey is a fairer depiction of future values.

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Some Highlights:

• 91.9% of homes in the US have positive equity
• 256,000 homes regained equity in the third quarter of 2015
• 37.5 million homes have significant equity (defined as more than 20%)

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At the end of December, in every region of the country, hundreds of homeowners have a tough decision to make. The ‘listing for sale agreement’ on their house is about to expire and they now must decide to either take their house off the market (OTM), For Sale by Owner (FSBO) or list it again with the same agent or a different agent.

Let’s assume you or someone you know is in this situation and take a closer look at each possibility:

Taking Your Home off the Market

In all probability, after putting your house on the market and seeing it not sell, you’re going to be upset. You may be thinking that no one in the marketplace thought the house was worthy of the sales price.

Because you are upset, you may start to rationalize that selling wasn’t that important after all and say,

“Well, we didn’t really want to sell the house anyway. This idea of making a move right now probably doesn’t make sense.”

Don’t rationalize your dreams away. Instead, consider the reasons you decided to sell in the first place. Ask your family this simple question:

“What made us originally put our home up for sale?” 

If that reason made sense a few months ago when you originally listed the house, chances are it still makes sense now. Don’t give up on what your family hoped to accomplish or on goals your family hoped to attain.

Just because the house didn’t sell during the last listing contract doesn’t mean the house will never sell or that it shouldn’t be sold.

Re-Listing with your Existing Agent

For whatever reason, your house did not sell. Perhaps you now realize how difficult selling a house may be or that the listing price was too high, or perhaps you’re now acknowledging that you didn’t exactly listen to your agent’s advice.

If that is the case, you may want to give your existing agent a second chance. That’s a perfectly okay thing to do.

However, if your agent didn’t perform to the standard they promised when they listed your home you may want to either FSBO or try a different agent.

For Sale by Owner

You may now believe that listing your house with an agent is useless because your original agent didn’t accomplish the goal of selling the house. Trying to sell the house on your own this time may be alluring. You may think you will be in control and save on the commission.

But, is that true? Will you be able to negotiate each of the elements that make up a real estate transaction? Are you capable of putting together a comprehensive marketing plan? Do people who FSBO actually ‘net’ more money?

If you are thinking about FSBOing, take the time to first read: 5 Reasons You Shouldn’t For Sale by Owner.

List with a New Agent

After failing to sell your home, you may no longer trust your agent or what they say. However, don’t paint all real estate professionals with that same brush. Have you ever gotten a bad haircut before? Of course! Did you stop getting your hair cut or did you simply change hair stylists?

There is good and bad in every profession—good and bad hair stylists, agents, teachers, lawyers, doctors, police officers, etc. And just because there are good and bad in every line of work doesn’t mean you don’t call on others for the products and services you need. You still get your haircut, see a doctor, talk to a lawyer, send your kids to school, etc.

Bottom Line

You initially believed that using an agent made sense. It probably still does. Contact a local real estate professional and discuss the possibilities.

Simplifying the Market™ brought to you by Real Pros

In a recent 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 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:

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.

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! Let's get together and evaluate your ability to buy today.

Simplifying the Market™ brought to you by Real Pros

In today's market, with homes selling quickly and prices rising, some homeowners might consider trying to sell their home on their own, known in the industry as a For Sale by Owner (FSBO). There are several reasons this might not be a good idea for the vast majority of sellers.

Here are five of those reasons:

1. There Are Too Many People to Negotiate With

Here is a list of some of the people with whom you must be prepared to negotiate if you decide to For Sale By Owner:

• The buyer who wants the best deal possible
• The buyer’s agent who solely represents the best interest of the buyer
• The buyer’s attorney (in some parts of the country)
• The home inspection companies, which work for the buyer and will almost always, find some problems with the house
• The appraiser if there is a question of value

2. Exposure to Prospective Purchasers

Recent studies have shown that 89% of buyers search online for a home. That is in comparison to only 20% looking at print newspaper ads. Most real estate agents have an internet strategy to promote the sale of your home. Do you?

3. Results Come from the Internet

Where do buyers find the home they actually purchased?

• 44% on the internet
• 33% from a Real Estate Agent
• 9% from a yard sign
• 1% from newspaper

The days of selling your house by just putting up a sign and putting it in the paper are long gone. Having a strong internet strategy is crucial.

4. FSBOing has Become More and More Difficult

The paperwork involved in selling and buying a home has increased dramatically as industry disclosures and regulations have become mandatory. This is one of the reasons that the percentage of people FSBOing has dropped from 19% to 8% over the last 20+ years.

The 8% share represents the lowest recorded figure since NAR began collecting data in 1981.

5. You Net More Money when Using an Agent

Many homeowners believe that they will save the real estate commission by selling on their own. Realize that the main reason buyers look at FSBOs is because they also believe they can save the real estate agent’s commission. The seller and buyer can’t both save the commission.

Studies have shown that the typical house sold by the homeowner sells for $210,000 while the typical house sold by an agent sells for $249,000. This doesn’t mean that an agent can get $39,000 more for your home as studies have shown that people are more likely to FSBO in markets with lower price points. However, it does show that selling on your own might not make sense.

Bottom Line

Before you decide to take on the challenges of selling your house on your own, let's get together and discuss the many benefits of using a local real estate expert!

Simplifying the Market™ brought to you by Real Pros

As a seller, you will be most concerned about ‘short term price’ – where home values are headed over the next six months. As a buyer, you must be concerned not about price but instead about the ‘long term cost’ of the home.

The Mortgage Bankers Association (MBA), the National Association of Realtors, Fannie Mae and Freddie Mac all projected that mortgage interest rates will increase by about three-quarters of a percentage point over the next twelve months.

According to CoreLogic’s most recent Home Price Index Report, home prices will appreciate by 5.2% over the next 12 months.

What Does This Mean as a Buyer?

Here is a simple demonstration of what impact an interest rate increase would have on the mortgage payment of a home selling for approximately $250,000 today if home prices appreciate by the 5.2% predicted by CoreLogic over the next twelve months:

Simplifying the Market™ brought to you by Real Pros

Some Highlights:

• Foreclosure Inventory has dropped year-over-year for the last 4 years (48 months).
• Only 3.4% of US homes are in serious delinquency.
• 29 states have a foreclosure inventory rate lower than the national average.
• For more information you can download the full report here

Simplifying the Market™ brought to you by Real Pros

A recent post on “The Home Story”, a site published by Fannie Mae, explained the difference between the price a seller may get for their home and the value an appraiser might assign the property.

The Sales Price

Of course, most sellers want to maximize the value they get for the house. However, the price they set might not be reflective of the other comparable homes in the neighborhood. As the article stated:

“People tend to view their homes emotionally, and that can become quickly apparent when they decide to sell.”

That doesn’t mean that the home won’t necessarily sell for that price.

A seller can set an asking price and actually have a buyer agree to that price. However, that value may not be necessarily in agreement with what most buyers are willing to pay. For example, one person can view a property, determine it is exactly what they are looking for and well worth the asking price, whereas another person could look at the same property and feel the asking price is too high.

Steven Corbin, Director of Valuation in Fannie Mae’s CPM Real Estate division gives an example:

“Someone may have driven by the property countless times, and they really want to live in that house. So in reality they may overbid for that property. This would be a situation where the actions of a specific buyer do not represent the actions of a typical buyer.”

The Appraised Value (or Market Value)

Fannie Mae explains what they look for when appraising the house:

“When a contract is established on a property, an appraised value is determined by a professional real estate appraiser. The appraiser works on the lender’s behalf to determine that value by taking many factors into consideration, including the neighborhood, the value of properties of similar size and construction, and even such things as the type of fixtures on the premises and layout of the floor plan.”

Corbin adds:

“From a lending perspective, a bank would want to know the probable price a typical buyer would offer for the property. That’s what an appraiser would set as the market value.”

The Challenge when Sales Price and Appraisal Value are Different

If the appraiser comes in with a value that is below the agreed upon sales price, the lending institution might not authorize the mortgage for the full amount a buyer would need to complete the transaction.

Quicken Loans actually releases a Home Price Perception Index (HPPI) that quantifies the difference between what sellers and appraisers believe regarding value. The HPPI represents the difference between appraisers’ and homeowners’ opinions of home values.

Currently, there is approximately a 2% difference between what homeowners believe their home to be worth and what appraisers value that same home. On a $300,000 sale that would be a $6,000 difference. That could be a challenge that might prevent the home sale proceeding to the closing table.

Quicken Loans Chief Economist Bob Walters recently commented on this issue:

“The more homeowners are in line with appraisers, the easier it will be to refinance their mortgage and easier for those looking to buy a home. If the two are aligned, it eliminates one of the top stumbling blocks in the mortgage process.”

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). In a housing market where supply is very low and demand is very high, home values increase rapidly. One major challenge in such a market is the bank appraisal. If prices are jumping, it is difficult for appraisers to find adequate comparable sales (similar houses in the neighborhood that closed recently) to defend the price when performing the appraisal for the bank.

With escalating prices, the second sale might be even more difficult than the first. Let's get together and discuss the market in your neighborhood and the best listing price for your home.

Simplifying the Market™ brought to you by Real Pros

CoreLogic released their most current Home Price Index last week. In the report, they revealed home appreciation in three categories: percentage appreciation over the last year, over the last month and projected over the next twelve months.

Here are state maps for each category:

The Past – home appreciation over the last 12 months

The Present – home appreciation over the last month

The Future – home appreciation projected over the next 12 months

Bottom Line:

Homes across the country are appreciating at different rates. If you plan on relocating to another state and are waiting for your home to appreciate more, you need to know that the home you will buy in another state may be appreciating even faster.

Let's get together to determine your next steps.

Simplifying the Market™ brought to you by Real Pros

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 5% or less.

Below are the results of a Digital Risk survey done on Millennials who recently purchased a home.

2. FICO Scores

The Ipsos 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.

Below are the numbers from the latest Ellie Mae report.

Bottom Line

If you are a prospective purchaser who is ‘ready’ and ‘willing’ to buy but not sure if you are also ‘able,’ let's get together and discuss your options.

Simplifying the Market™ brought to you by Real Pros

We all realize that the best time to sell anything is when demand 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 now is a great time to sell your house.

Let’s look at the data covered by the latest Pending Home Sales Report and Existing Home Sales Report.

THE PENDING HOME SALES REPORT

The report announced that pending home sales (homes going into contract) are up 3.9% over last year, and have increased year-over-year now for 14 consecutive months.

Lawrence Yun, NAR’s Chief Economist, expects demand to remain stable through the final two months of the year, and “forecasts existing-home sales to finish 2015 at a pace of 5.30 million – the highest since 2006.” 

Takeaway: Demand for housing will continue throughout the end of 2015 and into 2016. The seasonal slowdown often felt in the winter months hasn’t started and shows little signs of being near.

THE EXISTING HOME SALES REPORT

The most important data point revealed in the report was not sales but instead the inventory of homes on the market (supply). The report explained:

• Total housing inventory decreased 2.3% to 2.14 million homes available for sale
• That represents a 4.8-month supply at the current sales pace
• Unsold inventory is 4.5% lower than a year ago

There were two more interesting comments made by Yun in the report:

1. "New and existing-home supply has struggled to improve, leading to few choices for buyers and no easement of the ongoing affordability concerns still prevalent in some markets."

In real estate, there is a guideline that often applies. When there is less than 6 months inventory available, we are in a sellers’ market and we will see appreciation. Between 6-7 months is a neutral market where prices will increase at the rate of inflation. More than 7 months inventory means we are in a buyers’ market and should expect depreciation in home values. As Yun notes, we are currently in a sellers’ market (prices still increasing).

2. "Unless sizeable supply gains occur for new and existing homes, prices and rents will continue to exceed wages into next year and hamstring a large pool of potential buyers trying to buy a home.” As rents and prices increase, potential buyers will not able to save as much for a down payment and many may become priced out of the market.

Takeaway: Inventory of homes for sale is still well below the 6 months needed for a normal market. Prices will continue to rise if a ‘sizeable’ supply does not enter the market. Take advantage of the ready willing and able buyers that are still out looking for your house.

Bottom Line

If you are going to sell, now may be the time.

Simplifying the Market™ brought to you by Real Pros

Some Highlights:

• Interest rates have come a long way in the last 30 years.
• The interest rate you secure directly impacts your monthly payment and the amount of house that you can afford.
• Experts predict that rates will increase by 3/4 a percent over the next 12 months.
• Secure a low rate now to get the most house for your money.

Simplifying the Market™ brought to you by Real Pros

The monthly mortgage payment on a home is determined by two elements: the price of the house and the interest rate you pay on your mortgage. Recently released reports are revealing that the experts expect both elements to increase in 2016.

HOME PRICES

CoreLogic has projected a nationwide 5.2% home value appreciation for the next twelve months. Here is their breakdown by state:

MORTGAGE INTEREST RATES

All four of the entities that provide projections on mortgage interest rates agree: they’re going up in 2016. Here are the predictions over the next four quarters:

Bottom Line

With both home values and interest rates projected to increase over the next twelve months, buying (or moving-up), sooner rather than later, makes sense.

Simplifying the Market™ brought to you by Real Pros

Below are quotes from experts as well as industry reports & articles that cover the residential rental market in the U.S.

The experts…

Zillow Chief Economist Svenja Gudell:

"Make no mistake: Despite this recent slowdown in rental appreciation, the rental affordability crisis we've been enduring for the past few years shows no signs of easing, especially as income growth remains weak. It will take a lot more supply, and a lot more renters-turned-homeowners, to fully reverse this.”

Lawrence Yun, Chief Economist of the National Association of Realtors

“Rents and home prices are expected to exceed income growth into next year because of the insufficient creation of new home construction and the detrimental impact its inadequacy continues to have on housing costs in several markets.”

David Brickman, Executive Vice President of Freddie Mac Multifamily

"We know rents are rising faster than incomes, and now we have data to show that many renters don't have enough to pay all their debts each month, which is forcing them to make tradeoffs, such as cutting spending on other items.”

The reports and articles…

Zillow's 2016 Housing Market Predictions

“Rising rents won't let up in 2016, and will continue to set new records. The next year will bring the least affordable median rents ever.”

2015 rent.com Rental Market Report

“68% of property managers predict that rental rates will continue to rise in the next year by an average of 8%”

CNBC

“The primary reasons cited for the latest rises were increasing demand and low inventory. Vacancy rates for rental housing nationally dropped to a 20-year low of 6.8 percent in the second quarter…Rents and occupancies are currently hovering at historic highs as supply isn't keeping up with demand.”

 Bottom Line

If you are one of the many renters debating a home purchase, let's get together to discuss your options, before your rent goes up!

Simplifying the Market™ brought to you by Real Pros

Last week, an article in the Washington Post discussed a new ‘threat’ homebuyers will soon be facing: higher mortgage rates. The article revealed:

“The Mortgage Bankers Association expects that rates on 30-year loans could reach 4.8 percent by the end of next year, topping 5 percent in 2017. Rates haven’t been that high since the recession.”

How can this impact the housing market?

The article reported that recent analysis from Realtor.com found that -

“…as many as 7% of people who applied for a mortgage during the first half of the year would have had trouble qualifying if rates rose by half a percentage point.”

This doesn’t necessarily mean that those buyers negatively impacted by a rate increase would not purchase a home. However, it would mean that they would either need to come up with substantially more cash for a down payment or settle for a lesser priced home.

Below is a table showing how a jump in mortgage interest rates would impact the purchasing power of a prospective buyer on a $300,000 home.

Bottom Line

If you are considering a home purchase (either as a first time buyer or move-up buyer), purchasing sooner rather than later may make more sense from a pure financial outlook.