home buying

Buyer Demand Far Outpaces Inventory...NOW Is The Time To Sell!

Inventory in our area is still very competitive for home sellers, and buyers are entering the market to take advantage of low interest rates. It is truly a great time to enter the real estate market no matter which end of the spectrum you're on!

The price of any item is determined by the supply of that item, as well as the market demand. The National Association of Realtors (NAR) surveys “over 50,000 real estate practitioners about their expectations for home sales, prices and market conditions” for their Realtors Confidence Index.

Their latest edition sheds some light on the relationship between Seller Traffic (supply) and Buyer Traffic (demand).

Buyer Demand

The map on the right was created after asking the question:

“How would you rate buyer traffic in your area?”

The darker the blue, the more buyers are looking for homes in that area. Only 3 states came in with a weak demand level.

 

 

Seller Supply

The Index also asked:

“How would you rate seller traffic in your area?”

As you can see from the map on the left, a good portion of the country has weak seller traffic, meaning there are far fewer homes on the market than what is needed to satisfy the buyers who are out looking for their dream homes.

Bottom Line

Looking at the maps above, it is not hard to see why prices are appreciating in many areas of the country. Until the supply of homes for sale starts to meet the buyer demand, prices will continue to increase. This is great news for homeowners thinking of selling their home. Buyers should not be discouraged; low interest rates allow for affordable options even when inventory is low. 

 

HOW TO: Buy a home in a seller's market

 

Our area is currently experiencing a seller's market - there are less homes for sale, than interested buyers. This can make it difficult for buyers to break into the housing market; difficult, but not impossible. We have some tips to help you secure a home within your budget - even during a seller's market.

How seller's markets come to exist

The main metric used when evaluating housing markets is home price appreciation.There are several factors which can influence the price of homes in any given area, including:

  • Population growth. Generally, when there's an increase in the number of people moving to a town, demand for housing begins to exceed supply. The basic law of Supply and Demand will tell you that too few homes will lead to an increased sales price. 
  • Job growth. An influx of new companies and jobs can in turn fuel population growth that turns areas into seller's markets. This is a great indicator of economic progress! Unfortunately, it can also present challenges to buyers seeking to relocate to the area. 
  • Housing starts. The term "housing starts" refers to the number of new homes on which builders have started construction in any particular month. Because new construction directly affects supply, a decrease in housing starts can result in a sellers market. 

We are currently experiencing a seller's market. Here's how to tell:

  • Average days on market (DOM). This measurement will tell us the average number of days a home stays on the market before changing hands. In our area, this number has been steadily dropping since January 2017 and as of April 11, 2018, it sits right around 100 days from the day a home goes on the market, to the day the new owners receive the keys. Considering the time it takes to process a contract is about 60-80 days, this number is quite low!
  • Asking vs. final home price. In seller's markets, bidding wars can often erupt among buyers, which means sellers may enjoy a final sales price that's equal to their asking price, or more. So, if a home is listed at $450,000 and sells for $450,000, $460,000, or higher, that's a seller's market. In a strong seller's market, the final sales price is typically at least 10% higher than the asking price.

Buying a house in a seller's market

To compete against other buyers in a seller's market, you need to be prepared. First off, you should meet with a mortgage lender to discuss your finances, and find out what you can afford. You'll need a pre-approval letter before you start looking at homes; when competition is fierce, sellers want to know that the offers they're receiving are backed by actual buying power. 

Once you have a pre-approval, you'll want to hire a Realtor. It is crucial that you are represented during your purchase, especially in a seller's market. The Realtor who has the home listed is contractually bound to represent the seller's best interests not yours. You'll want to find a Realtor that you trust to advocate for you, and get you into the areas you're interested in. Often times Realtors will have knowledge of homes that haven't even hit the market yet - take advantage of that knowledge!

You'll want to discuss with your Realtor your wants, needs, and desired location. When housing supply is low, try to keep an open mind and consider exploring areas slightly outside of your target. Once you've found a home, you and your Realtor will work quickly to submit an offer. Consider adding an Escalation Clause to your contract, which basically states "if sellers receive an offer higher than this one, I am willing to increase my offer to X." You may also want to add a personal letter to the sellers with your contract, sometimes small details like that can really set your offer apart. 

 

9 Housing Trends To Expect Nationwide In 2019

 

It's hard to believe another year has come and gone so soon. As we're preparing to welcome 2019 there are some national real estate trends you should be aware of. The challenge of low inventory is likely to continue, however we're starting to see an uptick in builders constructing more entry-level homes which will be a great asset to first time buyers. 

Here are nine housing and mortgage trends to watch for in 2019.

1. ISO: More homes for sale

Real estate has been a seller’s market for more than six years, meaning that there are more would-be buyers than homes for sale, sliding the balance of negotiating power in sellers’ direction. It's looking like that will remain the case through 2019 as well. 

Now, while a seller's market isn't ideal for buyers, there is hope on the forecast as we expect to see more homes hit the market than we have in the past several years. 

Freddie Mac, a government-sponsored enterprise that provides capital to the mortgage market, estimates that 370,000 fewer homes were built in 2017 than were needed to satisfy demand resulting from population growth. “Until construction ramps up, housing costs will likely continue rising above income, constricting household formation and preventing homeownership for millions of potential households,” Freddie Mac concludes.

2. Home prices are expected to rise

This is great news for current homeowners, but may prove to be a challenge to buyers entering the market for the first time. Don't panic, though, prices are not expected to rise as dramatically as we've seen over the past several years.

“Home price appreciation will slow down — the days of easy price gains are coming to an end — but prices will continue to rise,” says Lawrence Yun, chief economist for the National Association of Realtors. NAR predicts that existing home prices will rise 2.5% in 2019, to a median of $265,200, compared with a 4.7% rise in 2018, to $258,700.

CoreLogic and Realtor.com also predict a slowdown in sale prices of existing homes in 2019.

Home price appreciation has slowed in 2018, says Frank Nothaft, chief economist for CoreLogic. “Rising prices and interest rates have reduced home buyer activity and led to a gradual slowing in appreciation,” he wrote in a market commentary.

3. Mortgage rates will rise

We've been extremely fortunate the last few years that interest rates have remained quite low, allowing many new buyers to purchase their first home relatively easily. From the beginning of 2018 to mid-December, 30-year fixed mortgage rates went up a little less than three-quarters of a percentage point, to around 4.75%. Forecasters expect mortgage rates to rise again in 2019 — but at a slower pace.

Freddie Mac expects the 30-year fixed mortgage rate to rise half a percentage point in 2019, and the National Association of Realtors predicts a rise of 0.4 percentage point. Fannie Mae’s forecast is for an increase of just 0.1 percentage point.

Keep in mind that these are predictions about where mortgage rates will end this year and end next year. In between, mortgage rates can bounce up and down.

4. Affordability 

As always, finding affordable housing is a concern for As home prices and mortgage rates rise in tandem, home buyers find it harder to afford homes. Nationwide, areas with lower inventory will of course see higher prices and more competitive markets. 

5. Smaller Homes

From a home buyer’s perspective, most markets need more houses for sale, and they need to be on the affordable end of the price scale. After all, many first-timers buy starter homes instead of forever homes, with prices below the area’s median. There are signs that home builders are responding by building smaller, more affordable homes.

“Continuing a multiyear trend, new single-family home size decreased during the third quarter of 2018,” wrote Robert Dietz, chief economist for the National Association of Home Builders, in a November blog post. “New home size has been falling over the last three years due to an incremental move to additional entry-level home construction.”

According to the U.S. Census Bureau, the median size of single-family homes started in the third quarter of 2018 was 2,320 square feet. That’s 4.9% smaller than the median size of new homes three years earlier, at 2,440 square feet.

Hopper says Navy Federal’s members typically shop for homes costing less than $300,000 — and they like to buy new homes. He says he’s encouraged that builders are focusing on these customers.

“I think for many years, the builders were focused on that $500,000-and-up market because the margins were healthier,” he says. “But they’re starting to find now that there’s so much pent-up demand in the lower-end-priced market that they can sustainably offer communities and new construction, and we’ve seen a lot of growth in that space.”

Year-over-year median prices for new homes began decelerating in spring 2018. At $309,700, the median price of a new home in October was 3.1% lower than the median new-home price 12 months earlier. But Fannie Mae and NAR predict that new-home prices will rise in 2019.

6. First-time buyers dominate

The mortgage and real estate industries are focused on serving first-time home buyers, and for good reason: “First-timers have dominated the mortgage market for the past 10 years, and their share today is still high," according to an Urban Institute report published this summer, which adds: “We don’t see this changing anytime soon."


Before the housing crisis, first-time home buyers took out about 40% of purchase mortgages, according to the institute. Lately the first-timer share has been about 60%.

Tian Liu, chief economist for Genworth Mortgage Insurance, says 80% of the growth in home sales in the past three years has come from first-time buyers, and the reason is simple: They represent years of pent-up demand.

“Between 2007 and 2015, our estimate is that roughly 3 million first-time home buyers delayed buying a home, and they’re reaching that age when they can no longer delay,” Liu says. “Their housing needs are really catching up with them. It doesn’t feel right to be raising a family in a rental apartment. They want to own their place. So I think those drivers will be very significant for the next few years.”

7. Lending standards ease a little

Mortgage lenders learned an enduring lesson in the housing crisis a decade ago: Make sure borrowers can repay their loans. So lenders tightened mortgage standards, partly on their own and partly in response to a regulatory crackdown on risky mortgages. These changes made it harder to get a home loan.

The Urban Institute’s Housing Finance Policy Center has argued that lenders overcorrected after lending too freely in the two or three years preceding the financial crisis of 2008.

There is evidence that lenders agree. Gradually, they have been relaxing lending standards.

“Not drastically, but looser than it was a year ago,” says Matt Hackett, operations manager for Equity Now, a mortgage lender in New York City. “It’s not a floodgate scenario where people just start changing guidelines drastically.”

He says he has observed that the relaxed standards come in the form of reduced documentation requirements, lower credit scores and bigger loan-to-value ratios (smaller down payments, basically).

Mortgage data provider Ellie Mae shows that the relaxation of credit standards indeed has been gradual. Average credit scores for home purchases slipped a bit in October (the latest data available) compared with 12 months earlier. Debt-to-income ratios, which measure borrowers’ debt loads, nudged upward over the same period. That means they have higher debt and less flexibility to withstand financial emergencies.

8. More borrowers choose ARMs

It’s almost as predictable as May flowers following April showers: Whenever rates on fixed-rate mortgages go up, you’ll see more borrowers opting for adjustable-rate mortgages. It happened in 2018 and it could continue into 2019.

Borrowers choose ARMs because the initial rates on adjustables are lower than the rates on fixed-rate mortgages. This gives borrowers lower monthly payments in the first few years. ARM borrowers take the risk that their rates and monthly payments could climb when the rate-adjustment period begins.

More borrowers have been accepting the risk. In October, 8.2% of mortgages were ARMs, according to Ellie Mae; 12 months earlier, ARMs had a 5.5% share of mortgages.

Rising rates on fixed-rate mortgages aren’t the only reason for adopting ARMs. Adjustables are most popular in the highest-priced housing markets, such as San Jose, according to CoreLogic.

Taking out an ARM as rates rise, like now, could be a bad idea because borrowers might face higher mortgage payments once the annual loan adjustments kick in.


But getting an ARM can be a good strategy for borrowers who don’t plan to overstay the initial interest rate. A 3/1 ARM, for example, has a lower introductory rate that lasts three years and then adjusts annually afterward. Someone getting, say, a 5/1 ARM is betting that they’ll refinance or sell the home within five years or so, before the rate potentially adjusts upward.

9. Overconfident sellers could struggle

As mentioned before, 2019 will remain a seller’s market, where would-be buyers outnumber the supply of homes they can afford. But that doesn’t mean home sellers can expect bidding wars from desperate buyers.


That’s especially the case with people who are selling homes that are priced above the median for their local market, Realtor.com economist Hale says. First-time buyers dominate most markets, and they tend to shop for homes priced below the median. As a seller, Hale says, “if you’re in that above-median price point, you’re going to have to price competitively and offer incentives for buyers.”

Hale adds: “Surprisingly, it’s going to be more difficult for buyers and sellers in 2019.” Especially for buyers looking for less expensive homes and sellers selling more expensive ones.

 

More information Here.