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Source: Keeping Current Matters
There are some that think that housing affordability is a challenge. Historically, that’s not true. Others think that home prices are approaching bubble values. If we look back over the last sixteen years, that is also not the case. As a matter of fact, the numbers show that the U.S. residential real estate market is doing just fine.
Here are two articles and excerpts that make this point:
“It has been an excruciatingly long time coming, but the housing sector in the United States is finally getting healthy. Thank millennials and thank homebuilders who are starting to produce more of the starter houses young people demand.”
“Interest rates are so low now that a family can buy the median-priced U.S. home on income of less than $45,000 a year — about $11,000 less than the median household income. And half of America’s houses are cheaper than that.”
There are those worried that all this positive talk resembles what was being said in 2004 and 2005. Jonathan Smoke, Chief Economist at realtor.com, explains the difference very simply but effectively:
“The havoc during the last cycle was the result of building too many homes and of speculation fueled by loose credit. That’s the exact opposite of what we have today.” (emphasis added)
Source: Keeping Current Matters
There are some industry pundits claiming that residential home values have risen too quickly and that current levels are on the verge of another housing bubble. It is easy to see how this thinking has taken form if we look at a graph of home prices from 2000 to today.
The graph definitely looks like a rollercoaster ride. And, as prices begin to reach 2006 levels again, it “seems logical” that the next part of the ride would be downhill. However, this graph includes the anomaly of the price bubble and the correction (the housing crash).
Let’s assume that instead of the rise and fall in home prices that we saw last decade, we just had normal historic appreciation from 2000 to today. According to the 100+ experts that are surveyed for the Home Price Expectation Survey, normal annual appreciation for residential single family homes from 1987 to 1999 was 3.6%.
Starting with the median home price in 2000, we added 3.6% to it each year since then. Here is that graph intermixed with the above graph.
What this shows us is that, had the bubble and crash not occurred and instead we just had normal annual appreciation over this period, prices would actually be greater than they are today.
There is no reason for alarm as prices seem to be right in line with where they should be.
Source: Keeping Current Matters
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Source: Keeping Current Matters
Many experts have been calling upon home builders to ramp up construction to help with the lack of existing inventory for sale. For the past two months, new home sales have surged, with July’s total coming in at the highest since October 2007.
The latest estimates from the US Census Bureau and Department of Housing and Urban Development show that sales in July were 31.3% higher than this time last year, and 12.4% higher than last month, at a seasonally adjusted annual rate of 654,000.
Zillow’s Chief Economist, Svenja Gudell, echoed the reaction of some as she commented:
“July(‘s) new home sales data was a surprise, but a welcome one. For years, the market has been practically begging builders to both ramp up their efforts overall and to put more focus on serving the less expensive end of the market. Today’s data confirms both are happening in earnest.”
The National Association of Home Builder’s (NAHB) Chairman, Ed Brady, didn’t seem as surprised:
“This rise in new home sales is consistent with our builders’ reports that market conditions have been improving. As existing home inventory remains flat, we should see more consumers turning to new construction.”
NAHB’s Chief Economist, Robert Dietz, believes this is just the start for new home sales if market conditions continue:
“July’s positive report shows there is a need for new single-family homes, buoyed by increased household formation, job gains and attractive mortgage rates. This uptick in demand should translate into increased housing production throughout 2016 and into next year.”
The existing home sales numbers for July will be released today and will shed more light on the overall health of the housing market.
New home sales hit their highest mark in over 9 years. Buyers are out in force to find a home that fits their needs. Many are turning to new construction, as the inventory of existing homes has not been able to keep up with demand.
Source: Keeping Current Matters
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Source: Keeping Current Matters
Recent research by the National Association of Realtors (NAR) examined certain red flags that caused the housing crisis in 2005, and then compared them to today’s real estate market. Today, we want to concentrate on four of those red flags.
All four categories were outside historical norms in 2005. Home prices were way above normal ratios when compared to both rents and incomes at the time.
NAR explained that mortgage transactions as a percentage of all home sales were also at a higher percentage:
“Loose credit was one of the main culprits of the housing crisis. Mortgage lending expanded dramatically as unhealthy housing speculation reached its peak and was met by the highest level of credit availability as measured by the Mortgage Bankers Association. The index measures the overall mortgage credit condition by the share of home sales financed by mortgages. This metric does not capture credit quality, but it does set a view of the importance of financing in supporting the housing market.”
House flipping was rampant in 2005. As NAR’s research points out:
“Heightened flipping activity is a clear indication of speculation in the real estate market. A property is considered as a speculative flip if the property is sold twice within 12 months and with positive profit. Flipping is a normal part of a healthy housing market. In an inflated housing market, expectations about short-term profit from pure price appreciation are very high; therefore, the level of flipping activity would show evidence of being heightened.”
Here are the categories with percentages reflecting the unrealistic ratios & numbers of 2005 as compared to the current market. Remember, a negative percentage reflects a positive gain for the market.
They say hindsight is 20/20… Today, experts are keeping a close watch on the potential red flags that went unnoticed in 2005.
Source: Keeping Current Matters
Have you ever been flipping through the channels, only to find yourself glued to the couch in an HGTV ‘show hole’*? We’ve all been there… watching entire seasons of “Love it or List it,” “Fixer Upper,” “House Hunters,” “Flip or Flop,” “Property Brothers,” and so many more, just in one sitting.
When you’re in the middle of your real estate themed show marathon, you might start to think that everything you see on TV must be how it works in real life, but you may need a reality check.
Truth: There may be buyers who fall in love and buy the first home they see, but more often than not the process of buying a home means touring more than three homes.
Truth: The reality is being staged for TV. Many of the homes being shown are already sold and are off the market.
Truth: Since there is no way to show the entire buying process in a 30-minute show, TV producers often choose buyers who are further along in the process and have already chosen a home to buy.
Truth: Of course this would be great! Open Houses are important to guarantee the most exposure to buyers in your area, but are only a PIECE of the overall marketing of your home. Just realize that many homes are sold during regular listing appointments as well.
Truth: Similar to the buyers portrayed on the shows, many of the sellers have already spent hours deliberating the decision to list their home and move on with their life/goals.
Having an experienced professional on your side while navigating the real estate market is the best way to guarantee that you can make the home of your dreams a reality!
*Show Hole – A side effect of binge-watching. Symptoms include a sense of emptiness and depression brought on by realizing you just wasted a good portion of your life watching several seasons of a TV show or an entire movie franchise all at once when you could have managed your time better.
Source: Keeping Current Matters
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.
Home values will appreciate by 4.5% over the course of 2016, 3.6% in 2017 and about 3.2% in the next two years, and finally 2.9% in 2020 (as shown below). That means the average annual appreciation will be 3.5% over the next 5 years.
The prediction for cumulative appreciation increased slightly from 24.7% to 26.3% by 2020. The experts making up the most bearish quartile of the survey are still projecting a cumulative appreciation of 11.1%.
Individual opinions make headlines. We believe the survey is a fairer depiction of future values.
Source: Keeping Current Matters
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Source: Keeping Current Matters