The Bright Side Of A Cooling Market

I saw an article in Forbes recently discussing the “cooling” real estate market. That adjective to describe the housing market probably gives potential sellers the chills, while exciting many potential home-buyers. But, many home buyers are actually wondering if buying a home now, with rates at 7%, is a smart move.

The answer to that? Owning a home is always a smart investment. If you plan to own the property for at least five years, you can bet on it paying for itself in the end. If you want to read more good reasons for prioritizing a home for purchase, I highly recommend clicking on the Forbes link up above. It’s worth checking out!

The news always sensationalizes issues as a whole, it is all doom and gloom. However, most people buy or sell homes due to life events such as marriage, job in another city, another baby, a divorce or a death. Rates rarely are thought of when life happens. I bought my house in 1999 at 8.5% not knowing any difference or thoughts about the rate. It was an interest only purchase, however the next 13 years it was refinanced over 7 times. I ultimately ended up with 2.75% 30 year fixed. In that time, the value of my home has increased 4 times the initial price. I now have a ton of equity in my home, which I would not have it I didn’t purchase a home. Buying our home used all our savings and it was tight for the first couple of years. Best investment I ever made.

Other reasons to buy a property some of which are highlighted in the Forbes article as there are many: (1) avoid rising rents with a fixed housing payment; (2) tax advantages; (3) ability to do what you want with the home; (4) forced savings/retirement nest egg; (5) pride of ownership; and (6) inflation hedge.

Finally, this transitioning market makes it easier for buyers to get a home, prices have come down, there are not as many offers, you are not competing against 20 offers and having to remove all your contingencies. You can actually ask for a credit or repairs and get it. Some are predicting rates will go down sometime next year, if that happens, prices and competing will go up and you can just smile while sitting in your new home and start the refi process for a lower payment.

10 Housing Trends for 2020

This time of year, there are a ton of “housing market prediction” pieces flooding the airwaves. Some are crazy, many are measured, and when you put them all together, you get a fairly clear picture of where experts think the industry is headed in 2020.

Below, we’ve gathered the top 10 predictions from a few different sources (Realtor.com, WaPo, and Forbes, to be exact). I’ll add my two cents at the bottom, but here are some possibilities for housing in 2020:

1. Moderate Growth in the Housing Market

New home sales are expected to rise, but existing home sales will remain held down by a lack of supply. Overall, this equals an expectation of moderate growth.

2. Continued Low Rates

The National Association of Realtors (NAR) expects the 30-year fixed-mortgage rate will remain below 4 percent in the coming year, moving to 3.8 percent by the end of 2020.

3. Hottest Home Appreciation Markets? Not in CA

The NAR expects 10 markets to have home price appreciation that outpaces the rest of the country over the next 3-5 years. None are in California:

Ogden, UT
Las Vegas, NV
Fort Collins, CO
Colorado Springs, CO
Dallas/Fort Worth, TX
Columbus, OH
Raleigh/Durham/Chapel Hill, NC
Charlotte, NC
Charleston, SC
Tampa/St. Petersburg, FL

4. Home Prices Will Flatten

Don’t expect to see a surge in home prices – experts at Realtor.com think they will only increase 0.8 percent nationally. They expect prices to decline in some major cities, including San Francisco.

5. Again, Top Markets Shut Out CA

Realtor.com agrees with the NAR in that California won’t have any of the top markets in 2020. Their list:

Boise, ID
McAllen, TX
Tucson, AZ
Chattanooga, TN
Columbia, SC
Rochester, NY
Colorado Springs, CO
Winston-Salem, NC
Charleston, SC
Memphis, TN

Image result for colorado springs — Downtown Colorado Springs

6. Competition Will Increase

Redfin thinks that 1 out of 4 offers will face a bidding war. This increased competition might push price growth up to 6 percent higher in the first half of the year, before it evens out to a more moderate 3 percent.

7. Revenue Will Fall

The Morgage Bankers Association expects lenders to chase fewer loans. They say purchase applications will be up slightly, while refinances will be lower.

8. Millennials Will Shape the Market

Realtor.com data shows that Millennials made up a whopping 46 percent of all mortgage originations in September 2019 (meanwhile, that share of Baby Boomer and Gen X mortgage activity declined). And they’re looking to move into smaller, suburban towns on the outskirts of major metros. Forbes says they want places with live-work-play neighborhoods with the safety and affordability of suburbs AND the transit, walkability, and 24-hour amenities of the big city.

9. The Industry Will Continue to Digitize

Manual, paper-laden processes are old news. Tech-savvy Millennials are entering the market at a fast pace, so the real estate industry is adjusting to meet their demands. Get ready for e-signing everything!

10. California’s Market is Changing

According to Realtor.com, three of the top four metro areas seeing the largest decline in inventory are in Northern California (San Jose, Sacramento, and San Francisco-Oakland).

From what I am seeing and in conversation with other agents the 680/24 corridor will have a robust spring. I had one of the busiest Decembers ever and expect the will continue into the first quarter. The challenge will be finding buyers homes, as I think most will have multiple offers.

Next January, we will have to revisit these prognostications and see which ones were on the money$$$.

4 things not to do when putting your house on the market

RIS Media re-posted an older blog recently, and its advice still rings true. There are plenty of things you SHOULD do when putting your house on the market. But what about the things you shouldn’t do? Read on for more:

So you’ve decided to put your home on the market. Congratulations! Hopefully, you’ve brought a rockin’ realtor on board to help list your home and together you’ve done your due diligence on what to ask for. As you start checking things off your to-do list, it’s also important to pay mind of what not to do. Below are a handful of things to get you started.

Don’t over-improve.
As you ready your home for sale, you may realize you will get a great return on your investment if you make a couple of changes. Updating the appliances or replacing that cracked cabinet in the bathroom are all great ideas. However, it’s important not to over-improve, or make improvements that are hyper-specific to your tastes. For example, not everyone wants a pimped out finished basement equipped with a wet bar and lifted stage for their rock and roll buds to jam out on. (Okay, everyone should want that.) What if your buyers are family-oriented and want a basement space for their kids to play in? That rock-and-roll room may look to them like a huge project to un-do. Make any needed fixes to your space, but don’t go above and beyond—you may lose money doing so.

Don’t over-decorate.
Over-decorating is just as bad as over-improving. You may love the look of lace and lavender, but your potential buyer may enter your home and cringe. When prepping for sale, neutralize your decorating scheme so it’s more universally palatable.

Image result for interior decoration house

Don’t hang around.
Your agent calls to let you know they will be bringing buyers by this afternoon. Great! You rally your whole family, Fluffy the dog included, to be waiting at the door with fresh baked cookies and big smiles. Right? Wrong. Buyers want to imagine themselves in your space, not be confronted by you in your space. Trust, it’s awkward for them to go about judging your home while you stand in the corner smiling like a maniac. Get out of the house, take the kids with you, and if you can’t leave for whatever reason, at least go sit in the backyard. (On the other hand, if you’re buying a home and not selling, then making it personal is the way to go, especially when writing your offer letter. Pull those heartstrings!)

Don’t take things personally.
Real estate is a business, but buying and selling homes is very, very emotional. However, when selling your homes, try your very best not to take things personally. When a buyer lowballs you or says they will need to replace your prized 1970s vintage shag carpet with something “more modern,” try not to raise your hackles.

And all of this is sage advice, choosing the right realtor to work with will streamline that process, talk you off the ledge and help you navigate the offer(s) and in the end if you hired right, will give you peace of mind.

Top 6 reasons you should hire a professional Real Estate Agent

The house-buying and selling processes can be tricky, to say the least. Luckily, there are professionals (like me!) to guide you through it! I recently sat down with a first time home buyer who doesn’t understand the value of a real estate agent. He wanted to know what I do as he can find the houses himself.

The rubber really hits the road when you find the house you want to write on. This particular buyer was interested in a house, but now it is pending. If he had an agent working on his behalf, that agent would have called the listing agent, found out if they were looking at offers on a specific day or as they come and then find out if there is interest in the home. That all could have been communicated to this buyer and they might have put in an offer.

We are all very busy, and real estate can be a stressful process, taking up a lot of time on top of everything else you have going on. Why wouldn’t a buyer want an experienced professional to help them? It doesn’t cost them a cent as the seller pays the commission. For a seller, it is very apparent why you would hire an agent, but here are the top six reasons. At the end of the day, I think it is about trust. Do you trust this agent to work in your best interest?

1. Neighborhood Knowledge

Agents either possess intimate knowledge or they know where to find the industry buzz about your neighborhood. We can run a neighborhood comparative market analysis, in addition to pointing a buyer where more data on schools, crime, demographics and open house listings exist.

2. Price Guidance

Contrary to what some people believe, agents do not select prices for sellers or buyers. However, an agent will help to guide clients to make the right choices for themselves. Buyer’s Agents will ask buyers to weigh all the data supplied to them and to choose a price. Then based on market supply, demand and the conditions, the agent will devise a negotiation strategy.

3. Market Conditions

Real estate agents can disclose market conditions, which will govern your selling or buying process. Many factors determine how you will proceed. Data such as the comparative active/pendings/solds of similar homes, median and average sales prices, average days on market and ratios of list-to-sold prices, among other criteria, will have a huge bearing on what you ultimately decide to do.

4. Education & Experience

You don’t need to know everything about buying and selling real estate if you hire a real estate professional who does. Henry Ford once said that when you hire people who are smarter than you are, it proves you are smarter than they are. The trick is to find the right person (back to trust). For the most part, they all cost roughly the same, so why not hire a person with more education and experience than you? We’re all looking for more precious time in our lives, and hiring pros gives us that time.

5. Professional Networking

Real estate agents network with other professionals, many of whom provide services that you will need to buy or sell. Due to legal liability, many agents will hesitate to recommend a certain individual or company over another, but they do know which vendors have a reputation for efficiency, competency, and competitive pricing. Agents can, however, give you a list of references with whom they have worked and provide background information to help you make a wise selection. If an agent has a great reputation amongst their peers, it can help a buyer get into contract. Agents want to work with agents that are professional, communicate and are known for a smooth process.

6. Negotiation Skills & Confidentiality

Top producing agents negotiate well because, unlike most buyers and sellers, they can remove themselves from the emotional aspects of the transaction and because they are skilled. It’s part of their job description. Good agents are not messengers, delivering buyer’s offers to sellers and vice versa. They are professionals who are trained to present their client’s case in the best light and agree to hold client information confidential from competing interests.

So, next time you’re in the market for buying or selling, and start thinking it’d be easier and cheaper to do it without an agent, think again! These are just a few of the reasons why hiring an agent ends up being the best way to go. Give me a call if you’re looking to buy or sell!

When appraised value is not market value

Sometimes, when the market is in a state of extremes, appraised value does not equal market value. Things are not appraising equally right now because the market stalled at the end of 2018, so homes sat and price reductions occurred. Now that the rates have dropped, buyers are back out, prices are up, but the comps are still off. Here is my friend Jay Vorhees at JVM Lending with more:

Image result for home appraisal — HomeLight

Because the market is heating up again, we have had several appraisal issues recently where there were simply no comparable sales available to support the contract price (despite multiple offers at that price). Because the agents involved in the transactions were frustrated, I thought it was necessary to repeat this blog.

Ten offers over $1 million; appraisal comes in at $850,000

We once had a transaction in Berkeley, CA involving a property that was listed for $850,000, and there were more than 10 offers for over $1 million. The market value for that property was clearly over $1 million because there were so many buyers willing to pay over $1 million in an open market. The appraised value, however, was much less because the highest priced comparable sale in the area was only $850,000. The appraiser knew about the other offers and he knew the market value was probably over $1 million, but he was constrained by appraisal guidelines.

The appraiser could only use comparable sales within one mile of the subject property that closed within the last three months. He could not correlate to the other offers or similar pending sales at all. So, the appraisal came in at $850,000 and this is clearly a case where the appraised value did not equal the market value. This happens all the time in “hot markets” where there are multiple offers and prices are increasing too fast for comparable sales data to keep up.

Why appraisers can’t “push” values

Further, if appraisers push value too far in an attempt to support a contract price, other issues arise. An underwriter will likely call for a full review of the appraisal that will probably result in a significant cut in the value. Or worse, if the appraisal makes it past underwriting, investors may refuse to buy the loan on the secondary market because they are unfamiliar with Bay Area markets and the property appears overvalued on paper.

In any case, prior to the meltdown in 2008, appraisers could correlate to other offers and even pending sales to some extent, but nowadays they are not allowed. Appraising is all about closed sales and tight appraisal guidelines, and not always about estimating market value.

Historical rates and the current market

The Kiplinger Letter is the most widely read business forecasting periodical in the world, and lender Bob Schwab sent a recent one that gave me a lot of interesting information. It says:

“We don’t think a recession is imminent, despite a recent warning sign from the bond market. But that doesn’t mean the economy is fine. A substantial slowdown is in the works. “

The letter also hints at the recent slowdown in the European economy, which we touched on in a recent blog. I recently mentioned the inverse yield curve and the Kiplinger Letter noted the rate on short term bills briefly topped long-term yields last month, a situation the presaged recessions in recent decades, though long term rates soon rose again. Bob also mentioned that it was the 1-year treasury note that had a higher yield than the 5-year. It is when the 1-year and 10-year inverse that has led to a recession in the past.

Suddenly, the U.S. doesn’t appear immune to a recession.

Here are the reasons for guarded optimism, as Kiplinger see them…facts about the underlying strength of the U.S. economy that ought not to be overlooked:

The jobless rate is low. Inflation is modest.
The housing market is starting to rebound. (I feel our area is rebounding, just not as robust as a year ago)
Consumers continue to feel fairly confident, though their mood varies as stock prices rise or fall.
A trade deal with China still appears likely to happen later this spring, which would give a badly needed boost to global trade.
The stock market isn’t pricing in a recession yet. Nor are corporate bonds, whose yields relative to safe Treasuries indicate investors aren’t afraid of defaults.

It is also interesting to look at in the context of historical rates, which for buyers is a key motivator to whether they will buy or not. At the end of the day, we still look great, as shown below:

How is the housing market changing?

According to a Zillow Senior Economist, the housing market is changing: “The number of homes on the market is hesitantly inching higher — now approaching the highest level in a year and a half. The first quarter of 2019 is shaping up to be more competitive than the lull we saw as 2018 come to a close.”

I have some thoughts about this! We are seeing the market pick up locally, but I am still seeing price reductions and then some that surprise me. Overall, homes priced right and in turn-key condition will always fare well over the competition.

The number of homes for sale has increased in four of the last five months after years of decreases, but that doesn’t mean there’s suddenly a huge amount of houses available. Don’t get fooled into thinking there is a hot, new market while you’re buying.

Further, mortgage rates are trending downward over the last year, according to Freddie Mac’s Primary Mortgage Market Survey (Feb. 14 week). They cite a “combination of cooling inflation and slower global economic growth” for this drop.

My take on this is that we are truly operating in a global economy and the softening of Europe with their various issues has had an impact. The Fed has stated they now have the least amount of control over mortgage rates than in their entire history. I have no crystal ball on rates, so enjoy them while they stay low. That may be why we are having an uptick since the winter of 2018.

Home affordability at lowest point in a decade

I recently read a blog from my friend Bob Schwab, a certified mortgage consultant with Finance of America, that had me thinking. It’s about how the median home price in the fourth quarter of 2018 was the least affordable level since the third quarter of 2008, according to statistics from ATTOM Data Solutions.

But, it’s not all doom-and-gloom on that front. Nationally, 58 percent of counties analyzed by the data report recorded an improved home affordability ranking on a quarter-over-quarter basis. According to Daren Blomquist, SVP at ATTOM and quoted in Bob’s blog, “home price appreciation falls more in line with wage growth,” and “high-priced areas such as San Diego, Brooklyn, and Seattle saw annual wage growth outpace annual home price appreciation.”

Here are my two cents on this, and about what it means in the local real estate market: You can’t time the market. Buying over renting is always a better long-term strategy. I have had buyers looking this December and were able to quickly get into a home that had some healthy price reductions (really it finally just got priced right) and we have been able to negotiate on repairs. They also found a home that was about $70k below their top end budget. They were motivated, they just had a baby, wanted a house, and were very methodical. They will simply build equity just by paying their mortgage every month and doing some improvements.

5 reasons why this winter is the best time to buy

Jay Vorhees at JVM Lending put together an interesting blog post recently, and I want to share that with you below. Essentially, he finds five reasons why this current winter season is the best time to take advantage of the real estate market and buy a house! Enjoy:

Most of our agent-readers well know why winter can be a great time to buy from a real estate perspective. I am nonetheless repeating a few of the obvious reasons while also illuminating a few less-obvious mortgage-related reasons.

1. Rates Hit Six Week Low! While rates have been climbing for most of the year, they hit a six week low last week in response to the oil glut and signs of a softer economy. Given that the Fed will likely continue to push rates up next year, this brief rate-reduction gives buyers a short-term opportunity to lock in a relatively low rate.

2. Lender Incentives. Many lenders are offering extra incentives to borrowers right now simply to maximize loan volume during a slower time of the year. This includes JVM of course, as we are offering a $500 closing cost credit to any buyer who gets into contract from now until January 31st. This does not apply to borrowers who are already in contract and locked.

3. Motivated Sellers. If someone is willing to go to the trouble to sell their home during the holidays/winter, they are usually more motivated to sell and willing to negotiate.

4. Fewer Buyers/Less Competition. There are fewer buyers and a lot less competition for homes. Many buyers pull out of the market in the winter b/c they don’t want to take the time to house-hunt during the holiday season or they don’t want to buy in the middle of the school year (if they have kids).

5. Seeing Properties at Their Worst. My neighbor has drop-dead gorgeous crape myrtle and Japanese maple trees all over his yard. In the spring and summer, his yard is an oasis of color. In the winter, however, his yard looks like a war zone. Buyers get to see homes at their worst in the winter, avoiding unpleasant surprises and knowing that their dream home will only look that much better, come spring.

The internet conveniently has numerous articles backing up my points above, in case any readers don’t want to take my word for it. Here are two: The Best Time of the Year to Buy Property from Financial Samurai; and Mortgage Rates Pull Back from Freddie Mac’s website.

Bob Schwab: Is the real estate market finally going back to normal?

Our in-house lender Bob Schwab recently sent an article about the housing market and its ups-and-downs over the last decade-plus. He thinks it’s about time that the real estate market goes back to normal. Here is what is says, with my take at the end!

The housing market has been anything but normal for the last eleven years. In a normal real estate market, home prices appreciate 3.7% annually. Below, however, are the price swings since 2007 according to the latest Home Price Expectation Survey:

After the bubble burst in June 2007, values depreciated 6.1% annually until February 2012. From March 2012 to today, the market has been recovering with values appreciating 6.2% annually. These wild swings in values were caused by abnormal ratios between the available supply of inventory and buyer demand in the market. In a normal market, there would be a 6-month supply of housing inventory.

When the market hit its peak in 2007, homeowners and builders were trying to take advantage of a market that was fueled by an“irrational exuberance.” Inventory levels grew to 7+ months. In this simplified view, with that many homes available for sale, there weren’t enough buyers to satisfy the number of homeowners/builders trying to sell, so prices began to fall.

Then, foreclosures came to market. We eventually hit 11 months inventory which caused prices to crash until early 2012. By that time, inventory levels had fallen to 6.2 months and the market began its recovery. Over the last five years, inventory levels have remained well below the 6-month supply needed for prices to continue to level off. As a result, home prices have increased over that time at percentages well above the appreciation levels seen in a more normal market.

That was the past. What about the future?

We currently have about 4.5-months inventory. This means prices should continue to appreciate at above-normal levels which most experts believe will happen for the next year. However, two things have just occurred that are pointing to the fact that we may be returning to a more normal market.

Listing Supply is Increasing

Both existing and new construction inventory is on the rise. The latest Existing Home Sales Report from theNational Association of Realtors revealed that inventory has increased over the last two months after thirty-seven consecutive months of declining inventory. At the same time, building permits are also increasing which means more new construction is about to come to market.

Buyer Demand is Softening

Ivy Zelman, who is widely respected as an industry expert, reported in her latest ‘Z’ Report: “While we continue to expect a resumption of growth in resale transactions on the back of easing inventory in 2019 and 2020, our real-time view into the market through ourReal Estate Broker Survey does suggest that buyers have grown more discerning of late and a level of “pause” has taken hold in many large housing markets. Indicative of this, our broker contacts rated buyer demand at 69 on a 0- 100 scale, still above average but down from 74 last year and representing the largest year-over-year decline in the two-year history of our survey.”

With supply increasing and demand waning, we may soon be back to a more normal real estate market. We will no longer be in a buyers’ market (like 2007-February 2012) or a sellers’ market (like March 2012- Today). Prices won’t appreciate at the levels we’ve seen recently, nor will they depreciate. It will be a balanced market where prices remain steady, where buyers will be better able to afford a home, and where sellers will more easily be able to move-up or move-down to a home that better suits their current lifestyles.

Bottom Line

Returning to a normal market is a good thing. However, after the zaniness of the last eleven years, it might feel strange. If you are going 85 miles per hour on a road with a 60 MPH speed limit and you see a police car ahead, you’re going to slow down quickly. But, after going 85 MPH, 60 MPH will feel like you’re crawling. It is the normal speed limit, yet, it will feel strange. That’s what is about to happen in real estate. The housing market is not falling apart. We are just returning to a more normal market which, in the long run, will be much healthier for you whether you are a buyer or a seller.

Note: This is a nationwide overview, but there are always micro areas that buck the trend.