Who’s Buying and Selling: Trends Shaping 2024

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The National Association of Realtors (NAR) released its 2024 Profile of Home Buyers and Sellers last month. I got my cliff notes of the report from a newsletter by Jason Barlow of Arbor Financial Group but you can read the full NAR report here.

The NAR Profile helps people like me, Jason, and others in the real estate industry understand what buyers and sellers are looking for. Here are the basic takeaways:

Shift in First-Time Buyers: first-time buyers made up only 24% of the market this year, the lowest share since 1981.
Aging Buyer Demographics: the average first-time buyer is now 38, up from 35 in 2023, and repeat buyers are typically 61, showing a trend toward older buyers.
Family and Home Choices: only 27% of buyers had children at home, the smallest share to date. Plus, 17% purchased multigenerational homes.
Financing Trends: cash sales are up, with 26% of buyers paying fully in cash – a record high.
Agent Loyalty: buyers and sellers still overwhelmingly choose agents they know, with 40% of buyers and 66% of sellers using a referred agent.
Technology’s Role: 43% of buyers’ first step was online, with the internet being the main tool for their search.

If you are considering buying or selling, a discussion about the process, market, and your expectations is a great place to start. Give me a call if you want to understand more about the process or email me directly: Kristin.lanham@bhghome.com.

Rising Rent & Utility Costs vs. Home Values

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Last month, Jason Barlow of Arbor Financial Group sent an interesting newsletter about the rising costs of utilities and rent and how all of that affects home values. I wanted to share some of that information with you here (and add my own takes).

Right now, rent and utilities are outpacing home values for the first time in a decade. Last year, rent increased 3.8% while home values only grew 1.8%. Nearly half of renters are spending 30% or more on their income on housing. And minority households are facing the highest burden, with Black renters at 56%.

Those figures are certainly something to keep in mind if you’re deciding between buying and renting. Here is an article from The Washington Post that lays out all this information in more detail. As a realtor, I find incredible value in homeownership (if only as a form of long-term investment that can create generational wealth for your family). But I understand the markets and economy fluctuate, taking these rent and utility costs with them.

Kristin’s take: Right now, if you have been on the fence in buying a home or an investment home, I think is a great time to get into the housing market. We still have low inventory, however we have seen price reductions. In this graph many of the lenders are anticipating rates to fall next year (see graph above). Get in now, before everybody gets into the market – marry the house, date the rate – then refi when rates start to go down. You most likely will get a lower price now than when rates go down.

March Market Update

Watch the video below to get a Better Homes and Gardens monthly market update for March 2023!

I update my website with them each month with Concord, Martinez and Walnut Creek. Just go to Kristinlanham.com click on Walnut Creek Lifestyle Blogs and then videos. The market overall is heating up with multiple offers. Prices are still down from 2022, however we have very little inventory. The last couple of offers I have written each had 4 offers and went over asking. Give me a call if you want to chat about the market!

Welcome To Villa Del Sol!

On the market June 18th.

A beautiful Mediterranean townhome in the heart of downtown Martinez.

Amazing walkability to restaurants, bars, shops, Amtrak, walking trails, and Farmer’s Market.

Two-car garage with extra storage, laundry hook-ups, and wash basin.

3 bedrooms
2 bathrooms
1,483 square feet
$210 low HOA monthly fees
8 units in the complex

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.

Fed halts rate increases (JVM Lending)

Jay Vorhees at JVM Lending shared an interesting blog recently about the Fed halting rate increases. We’ve posted about the Fed and how it affects the housing market many times in the past, so I wanted to break it down for you again. First, Jay’s blog:

Yesterday, the Fed announced that there will be no more rate hikes in 2019. And many people in the mortgage and real estate industries cheered. But a lot of economists and Fed-watchers are more worried than ever.

Here is just one of many articles (from the WSJ) I read today illuminating serious concerns. The Fed has the toughest job in the world. It needs to build up enough ammo to fight the next recession without actually causing the next recession.

The problem for the Fed is that it needs to lower rates 4-5% to effectively help the economy when a recession hits. But, the Fed Funds rate is only 2.5% today, and if the Fed raises rates any more, they could cause a recession.

So, that leaves more Quantitative Easing as a likely option when the next recession hits. But that too may be less effective because the Fed still holds almost $4 trillion in MBS and Treasuries, down a little from, but still close to, its peak holdings of $4.5 trillion.

So, what does all this mean for those of us in the real estate and mortgage industries? It means the sun will shine a little brighter this year for all of us. But, the more the Fed artificially induces bright sunshine now, the longer the sun will be behind a cloud in the future.

So, like the Portuguese biscuit maker who just keeps making buscuits no matter what the economy does, we should all do the same – as fast as possible. Because our current economically-sunny weather won’t last, and we need to be ready for the cloudy weather that is certain to come and that will likely now last even longer.

Okay, that’s a lot to take in, right? Here is my takeaway: cash is king and save your money to buy when the market dips. Europe is already in a slowdown, we are seeing the tech stocks take a hit, and this past week we now have an inverse yield curve, which in the past indicated a recession in the next year or so. Who knows what will happen (nobody has a crystal ball, but you can save)?

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.

Homeowners: Cash in on all-time high equity

I came across a CNBC story recently about homeowners and the $14.4 trillion in equity they’re about to be able to dig into. New research, according to the article, suggests that home equity is about $1 trillion higher than its peak in 2005 before the Great Recession.

With interest rates rising on consumer debt, the article states, home equity loans or lines of credit could be an appealing option for consumers looking to borrow money at a lower cost. Homeowners no longer need to refinance just to take out equity. This is the aspect of the story I really want to focus on. First, a graph from the story:

Why consumers tap their home equity

Use	Description	Percent using*
Major expense	Take cash out, often for a large expense like home remodeling	91 percent
Debt consolidation	Consolidate balances from other accounts	41 percent
Refinance	Refinance to get a better rate or term	23 percent
Piggyback	Concurrent with a mortgage origination, often used for down payment	4 percent
Undrawn	Not used immediately (i.e., a rainy day fund)	2 percent

[Source: TransUnion, CNBC story]

(*Based on 2.4 million home equity loans originated between July 2016 and June 2017)

During the meltdown, people were using their homes like they were ATMs; as interest rates dropped they kept refinancing and taking out money to buy a boat, a big trip, etc., but when equity dropped, or they lost their job, they were in trouble. Use a HELOC (Home Equity Line of Credit) wisely. If it helps you get into a home or remodel a home to add value, it will be a smart decision. And always remember as rates go up, so does the interest on a line of credit.

Why borrowers should consider a 30-year mortgage

Jay Vorhees at JVM Lending has written an excellent blog about borrowers and their understanding of liquidity, and why borrowers should consider the lower 30-year mortgage payment. Besides the flexibility it offers, it allows a sort of cushion for any borrowers who may find themselves in personal trouble, and is also usually a good long-term investment. Read on below to get the full picture, with two cents from me – can you say liquidity:

Borrowers often underestimate the importance of liquidity. Especially when times are good. When rates are relatively low (under 8%), we always recommend using financing (obtaining a mortgage) to buy real estate, even if borrowers have ample cash. Similarly, we usually advise borrowers who want lower 15-year rates to take a 30-year mortgage. Even though borrowers can afford the higher 15-year mortgage payment, the lower 30-year mortgage payment offers them more flexibility. There are several reasons why borrowers should value liquidity more:

1. Job Loss, Major Illness, Injury, Legal Troubles, Recessions. People often forget how quickly fortunes can turn (especially those of us in sales), and how important cash is when income dries up. This is particularly the case when the economy turns and financial instruments and hard assets drop in value and become difficult to sell. An abundance of cash during unexpected hard times often means the difference between bankruptcy and muddling through.

2. Ability to Buy Distressed Assets. When the economy turns and asset prices tank, there are often tremendous bargains to be had for anyone with even a little cash. After the mortgage meltdown, for example, one of our clients purchased eight rental properties for around $100,000 each. He was out of pocket less than $250,000 for all of those purchases, and all of the properties cash-flowed from the start. In addition, they are all worth close to $300,000 now. I watched many other clients do the same thing in the stock market after both the dotcom crash and the 2008 meltdown.

3. Investment Returns Exceed After Tax Cost of Mortgage. This does not apply to everyone of course, but many borrowers can often invest money that they do not put into their home and earn a return that exceeds the cost of their mortgage, especially after tax benefits are taken into account. Example: Borrowers A and B both have $250,000. “A” puts down 50% on a $500,000 house; “B” puts down 20% and invests the $150,000 he saves. In the long run, Borrower B will have a much higher net worth and more liquidity along the way if his investment yield exceeds his rate by 2% or more (not difficult over the long term).

Interesting, right? I saw this first hand in the down turn, people with cash bought investment properties. They are usually patient and don’t get caught up in all the hubbub. Many can’t see past the downturn and believe it will never improve, however we are not building any new land and history shows us that what does down, goes back up. Remember cash is king, so start saving and get a leg up on the next down turn.

Interest rates: is the latest increase a deal-breaker?

My friend Jay Vorhees at JVM Lending had a fun blog about the 1/4% rate increase recently. He compared it to be equivalent to just less than four lattes per month, to put it into context. You can see the highlights of that blog below, and then our fun take on it!

From Jay: There have been a lot of rumblings in the news lately about rate increases…mostly b/c rates have been increasing :).

The Fed recently announced an increase in the Fed Funds rate with more on the way, and rates have been increasing in general in response to positive economic reports, as most everyone knows. As a result, rates are now back at levels not seen since 2011. The good news is that rates remain very low by historical standards, as we remind everyone over and over (6% was a “gift” in 2006; 7% was awesome in the 1990s; and 9% was unimaginable in the 1980s).

The other good news? Rates affect payments much less than most people think. Here is the rule of thumb: for every 1/4% increase in rates, a mortgage payment increases by about $15 per $100,000. That’s less than four Starbucks Lattes per month. So, in a “Starbuckian economy,” a 1/4% increase in rates will increase the payment on a $500,000 loan by about 20 Lattes per month. That’s not too bad, especially when you consider that those lattes may be tax deductible too.

From Kristin: So, let’s compare a 6-pack of beer, an average cost of which is about $9, to the 1/4% rate increase. You could get almost two 6 packs for that increase. Or maybe a new shirt on sale at Old Navy. A decent bottle of wine at Trader Joe’s will run you about $15. Eating out at many restaurants in downtown Walnut Creek might cost about $15 per person before tip.

So, before you get too worried about the rate increase, consider that what you’re really losing is just a new shirt, or a couple of beers, or one lunch out with friends. Or, god forbid, a handful of lifeblood, I mean lattes, before work! All said, this increase won’t have too much of an effect on your life.

Of course, it’s not all sunshine and rainbows. According to this article, mortgage rates are fast approaching 5 percent, which is a fresh blow to the housing market.