Wishing you the best for 2019! Have a safe and enjoyable weekend, and ring in the New Year properly on Monday!
Tag: 2018
Today’s housing market vs. 2008’s market
Consultant Bob Schwab has a few interesting thoughts on the difference between the housing market in 2008 and the housing market today. He essentially points out that the landscape of today’s market is radically different than 10 years ago, so comparing the two era’s – even if numbers look similar – is tricky. Here are his thoughts below:
Some are attempting to compare the current housing market to the market leading up to the “boom and bust” that we experienced a decade ago. They look at price appreciation and conclude that we are on a similar trajectory, speeding toward another housing crisis.
However, there is a major difference between the two markets. Last decade, while demand was being artificially created by extremely loose lending standards, a tremendous amount of inventory was coming to the market to satisfy that demand. Below is a graph of the inventory of homes available for sale leading up to the 2008 crash.
A normal market should have approximately 6 months supply of housing inventory. As we can see, that number jumped to over 11 months supply leading up to the housing crisis. When questionable mortgage practices ceased, and demand dried up, there was a glut of inventory on the market which caused prices to drop as there was too much supply and not enough demand.
Today is radically different!
There are those who believe that low mortgage rates have created an artificial demand in the current market. They fear that if mortgage rates continue to rise, some of the current demand will dry up (which is a possibility).
However, if we look at supply again, we can see that the current supply of homes is well below the norm of 6 months.
Bottom Line
We will not have a glut of inventory like we did back in 2008 and home values won’t come tumbling down. Instead, if demand weakens, we will return to a normal market (approximately a 6-month supply) with historic levels of appreciation (3.6% annually).
Separate from the Schwab blog, NAR Chief Economist Lawrence Yun says, “It’s important to note that despite the modest year-over-year rise in inventory, the current level is far from what’s needed to satisfy demand levels. Furthermore, it remains to be seen if this modest increase will stick, given the fact that the robust economy is bringing more interested buyers into the market, and new home construction is failing to keep up.”
And First American Chief Economist Mark Fleming says, “Millennials’ lifestyle and economic decisions are some of the main reasons we currently have a lower homeownership rate than expected, based on our Homeownership Progress Index. Yet, it is reasonable to expect homeownership rates to grow as millennials continue to make important decisions, including attaining an education and, later in life, getting married and buying a home.”
Glen Bell, a very analytical realtor in Berkeley, shared some charts with us, which also give additional insights into the disparities in the market:
Bell says he predicts a recession in 2019 or 2020, and that the real estate market will be a minor factor in it. Rising interest rates may offset some buying opportunities. It’s also hard to predict how much tax reform will play into this. Prices continue to rise and might be causing more people in the middle class to flee the Bay Area.
CoreLogic’s State of the Nation’s Housing 2018
Bob Schwab shared CoreLogic’s State of the Nation’s Housing 2018 report recently, and I wanted to pass that information along to you. This is the 30th anniversary of the report, which features CoreLogic’s home price and rent growth information. This year’s report article was authored by Molly Boesel, and you can see it in its entirety below:
The State of the Nation’s Housing 2018
On June 19, the Joint Center for Housing Studies of Harvard University released their 30th anniversary edition of the State of the Nation’s Housing report. The 2018 report highlighted some major themes including lack of housing supply, rising home prices and rents, and housing affordability.
The U.S. housing market continues to be plagued by a lack of supply of homes for sale. Months of supply available for sale is a key measure of housing supply, and is at levels that are below where they would be for the housing market to be balanced. The Harvard report points out that negative equity as reported by CoreLogic no longer appears to be a drag on sales. Negative equity shrank from 12.1 million mortgages in 2011 to 2.5 million in 2017. Rather, a factor in the low housing supply is slow growth in single-family construction that has not kept up with demand.
Low housing supply has contributed to increases in home prices. Home prices, according to the CoreLogic HPI were up by 5.9 percent for all of 2017. Prices for the lowest-cost homes (those homes priced at 75 percent or less than median) were up by 8.5 percent, compared with 4.7 percent for the highest-cost homes (those homes priced at 125 percent or more than median). Along with home price increases, there have also been increases in rents. The report highlights the CoreLogic Single-Family Rental Index (SFRI). While the SFRI is still showing increases in rent through the beginning of 2018, there has been a deceleration in the rate of increase.
Living in the Bay Area, we know the increases in home prices and rents have outpaced increase in incomes and have contributed to affordability problems. High prices and low supply constrain access to homeownership, but affordability issues are more immediate for some households. The CoreLogic SFRI shows that the lowest-cost rentals are showing the fastest rent growth, adding to affordability challenges to low-and-moderate income households. The Joint Center reports that in 2016, 38.1 million households were cost-burdened, meaning they spent more than 30 percent of their incomes on housing. While this number was down by 800,000 from 2015, it is still 6.5 million higher than it was in 2001.
I also believe the low supply in California has multiple factors. People are not moving up, but remodeling because they don’t know where they would move. Seniors also have the same problem and if they stay in California, some counties will not accept their current tax base and they often have to sell in order to buy. It is a domino effect.
I’ve included the graph above for context, and have the entire PDF report available if you’d like to see it. For any housing-specific questions, shoot me a note!
The Cost of Waiting
I generally encourage all my clients to be patient in the home-buying process. You’re looking for your dream home, and a house to call your home where memories are created. You want to exercise patience and really find the right place. However, at some point, waiting too long or sitting on the fence can have consequences.
As you’ll see in the blog from my friend Jay Vorhees at JVM Lending below, waiting too long on a home purchase can be costly. He highlights one particluar (anonymous) client who kept quibbling over small price differences and that stubbornness led to her not only missing out on her dream home, but settling for an entirely different town. To add insult to injury, the home she wanted has doubled in value since!
Read on to learn more:
COST OF WAITING IN 2012
In 2012 and 2013, we had a borrower looking to buy in Oakland and she was obsessed with getting the absolute lowest possible price.
As a result, she kept walking away from transactions, b/c of $5,000 to $10,000 price discrepancies, even though she was shopping in the $650,000 range in what was becoming the hottest market in the country.
The $10,000 differences she quibbled over worked out to be less than $50 per month in payment. What is most interesting is that she waited so long that she was ultimately unable to buy in her desired Rockridge neighborhood altogether, and she ended up buying in a suburb east of Oakland.
The houses she was bidding on are now worth twice what she was offering too. Her “cost of waiting,” or cost of not executing, was extremely high, to say the least. Unfortunately, her story is not unique.
RATES HIT 7 YEAR HIGH
According to this CNBC Report, “interest rates are surging to their highest level in seven years.”
And, it looks like they are going to continue to climb, based on continued strong economic reports and announcements by the Fed.
Despite the rate increases, the demand for housing remains very strong. In addition, property values continue to appreciate at a surprisingly fast pace.
COST OF WAITING IN 2018
These factors (increasing rates and appreciation) combined make the “cost of waiting” as high as ever.
In a recent National Real Estate Post Video, at about the 9-minute mark, Barry Habib uses a $500,000 Orange County purchase as an example.
At current appreciation rates, waiting even six months can cost a buyer an additional $200 per month, according to Mr. Habib.
Waiting a year can cost over $400 per month.
Top 5 Housing Predictions for 2018
As the first month of the new year closes, we are starting to see the 2018 market take shape, and getting a clear look back at the 2017 year. Last year was a strong one for sellers – interest rates remained low, but are now rising, and refinancing plummeted. So, what’s next for 2018?
Take a look at the summaries of Summit Funding’s Top 5 Housing Predictions for 2018, with commentary from yours truly:
- A rise in cash-out refinance
Low-interest rates have fueled buying, kept inventory low, and likely even helped speed up housing recovery in Miami and Houston after their 2017 hurricanes. Interest rates will continue to rise in 2018, but not high enough to deter interested homebuyers. We should, however, keep an eye on a potential rise in cash-out refinance, as Americans’ home equity wealth is at an all-time high. We are also seeing the rise of all-cash purchases, a high rate of home purchase co-borrowers, and increased buying assistance from family. As home prices become even higher — and overvalued, according to CoreLogic — expect to see more parents cash out their home equity to help their adult children begin building their own housing wealth.
- Return to services
With higher home prices come great risks and more compromises for homebuyers, who will become ever more reliant on experienced and informed housing professionals to make buying and mortgage decisions. Mortgage rates will continue to become a commodity; homebuyers have access to rates on their devices and know mortgage brokers are quoting from the same rate sheets. As homebuyers evaluate their partners, they should look for realtors and mortgage professionals who offer value that protects the clients’ bottom line. Housing professionals who deliver this will be the ones who can truly stand out and have longevity in this crowded market. A great lender and agent can make all the difference in the world. Be careful you are comparing apples to apples when getting rate quotes, as it can’t be locked in until you get an accepted offer so lenders can you give varying rates as they know they will be different the day you get an offer accepted.
- Advancement in housing Fintech
Expect technology to continue to make breakthroughs in housing. The proliferation of information has made everyday consumers more demanding of progress and fairness, which is a good thing. They demand more competition for their business and stronger customer empowerment. New housing financial technology will not just be about faster search results or more photos, it will be expected to serve up more home buyer protection. In 2018, homebuyers will increasingly question why they could sell a home at a loss when realtors still collect their brokerage fees. When they see a pre-closing statement listing fee paid to protect their lenders, they would demand to see the calculation of risks and returns designed to protect their purchase. Getting ahead of these questions and demands will become table stakes in the advancement of housing financial technology. This may be a ways off. There is a lot of buyer protection now as a result of the downturn.
- Millennials may continue to prolong homeownership
Americans — including millennials — want to own homes; we knew this already. However, millennials may want other things in life more than homeownership, or they don’t want to be “house poor.” Affordability is definitely the top barrier to home buying, no doubt. However, there are increasing indications that millennials are not pulling out all the stops to buy a home even if they could afford one. In ValueInsured’s latest Modern Homebuyer Survey, 36% of millennials who want to buy a home say they are delaying buying in order to keep their options open. Nearly half (47%) of millennials also say they worry their job future is uncertain and want to figure that out first. Instead of paying high home prices, millennials have proven unafraid to give up buying and go back to renting. A generation known for defying conventions and expectations may change the housing market forever in 2018 if they say “enough” to high home prices and decide to do their own thing.
- The next Seattle or San Jose
In the future, scorching-hot real estate markets will give rise to more calm and cool emerging markets. Places like Provo, UT, Athens, OH and Aberdeen, SD may be hot spots in 2018. More Americans will telecommute to their jobs or shop from their devices instead of at malls. This is simply a fact of life. So, as real estate prices and commercial rents increase, more Asian fusion restaurants, CrossFit studios and organic micro-breweries will open in previously ‘B’ or ‘C’ designated counties. Once upon a time, Portland, OR and Chattanooga, TN were seen as hidden real estate gems, and now they are cities millennials are leaving behind in search of more affordable homes. Millennials’ tendencies to be nomadic and to reject established institutions (or markets), and their sophistication in forming their own community, could prove to be very interesting in challenging traditional housing cycles and expectations.
Stay tuned for December to see if these things panned out or were just a pie in the sky.
New year, new kitchen?
Every year, just like in the fashion industry, there are new styles and trends to consider in real estate design. As told by foodandwine.com, there are going to be some flashy changes to kitchens in 2018. While I personally wouldn’t do some of these things to my kitchen, I can’t deny most look good! Check out a summary of their story below:
Trend #1: “Unicorn” colors
Apparently, white, glossy kitchen units were paired with gentle tones of pale pink and blue, with gold accents and a little glitter in late 2017. I don’t get this one, and not sure why it is popular!
Trend #2: Two-tone cabinets
This one I can get behind. While cabinetry is typically a light or dark shade, it seems more and more people are opting for colorful options in their kitchens. And doing two different, complementary tones is a style gaining in popularity. I like the look of a dark blue against a light blue or a bright red against a standard neutral.
Trend #3: Morocco themes?
Consumers are playing with colorful, mosaic backsplashes, pendant lanterns, and other Moroccan-style decors to warm up their kitchens. I think if done properly and in moderation, this trend can look fantastic, but it might only be for people who really like that style.
Trend #4: Statement patterns
Some people are starting to add cabinetry, doors or islands with intricate designs and patterns on them. I don’t personally like the look – it feels like a stretch – but you may be seeing more of this in 2018. For example, you may see zig-zagged cabinet doors or a herringbone pattern on the wall of islands.
Trend #5: Matching living room furniture
This trend is gaining momentum because having an open concept is now so popular. If you have a kitchen that opens up into a family room or dining room, you may see homeowners trying to mesh the two looks in the connected rooms. For example, a TV stand might have colors and patterns that match the kitchen, while also being a storage area for extra dishes.
Trend #6: Eco is in
More people are starting to consider environmentally-friendly options when creating their kitchens. More organic materials are being used, including plywood cabinetry, cork flooring, concrete tiles, walnut worktops and bamboo lighting.
Trend #7: Gold & copper
Even with all the eco-friendliness and experimentation, kitchens can still look glamorous. That may be the case, considering foodandwine.com expects there to be more shimmery metallics this year, especially with gold and copper. From handles to tiles to lighting to small appliances, expect more flash this year!
Trend #8: Water & wine
Hot water taps are quickly overtaking the use of kettles as they become more affordable and more practical to install. Similarly, wine coolers are cheaper and cheaper, as well as smaller, so finding a good, usable model is becoming easier. You’ll see more wine coolers in kitchens and fewer kettles in 2018. (Side note: still love my hot pot!)
Happy New Year’s!
Wishing you a Happy & Prosperous New Year!
