Housing Inventory Shortage Causes

housing inventory shortage
Mover rates (infographic from census.gov)

A common complaint from home buyers is that there is lack of quality homes for sale.  A fact that most overlook is that home sale inventory has been relatively low since 2011.  The shortage has been attributed to many things including, home prices, economy, mortgage interest rates, jobs, etc.  However, a Freddie Mac report issued earlier this year pinpoints a major cause of the ongoing inventory shortage.  And according to the report, the housing shortage may get worse before it gets better.

A post-recession housing inventory shortage was actually predicted in 2010 by Brian Wesbury, chief economist for First Trust Advisers (Housing Shortage Coming In 2011; Forbes.com; February 15, 2010).  Wesbury’s industry startling prediction was based on statistics that require an average of 1.5 million homes to be added to the housing inventory each year just to be on par with population growth.  At that time, housing starts and completions were only a fraction of the 1.5 million target. 

Since then, housing market inventory has been low relative to the housing market prior to the great recession.  A lack of inventory has been attributed for inconsistent home sale stats this year, as well as previous years.  And although there have been a few years of post-recession record home sales, home sales have struggled for ten years to surpass pre-recession numbers. 

A study by Freddie Mac discusses one of the major causes of the recent housing shortage that has been impeding the real estate market, which is the growing trend of “aging in place.”  The study, published by Freddie Mac Insights earlier this year (While Seniors Age in Place, Millennials Wait Longer and May Pay More for their First Homes; freddiemac.com; February 6, 2019), is fueling an ongoing debate of the current housing inventory shortage. 

Aging in place is term given to aging home owners who stay on their homes as long as possible.  Rather than moving to retirement communities or other stereotypical older adult housing, seniors are staying put.  This trend is confirmed by a survey conducted by AARP that indicated “3 out of 4 adults age 50 and older want to stay in their homes and communities as they age” (2018 Home and Community Preferences: A National Survey of Adults Age 18-Plus; aarp.org; August 2018).

To highlight the impact of the current trend of aging in place, the Freddie Mac report pointed out that the home ownership rate for seniors aged 67 to 85 only dropped 3.6 percent, while the previous generation experienced a 11.6 percent drop in homeownership for the same age span.  A major revelation was that the current homeownership rate for seniors aged 81 to 85 is almost 15 times greater than the previous generation (for the same age span).

The Freddie Mac study looked at subdued millennial home buying trends and looked at who lived in the homes that millennials could have purchased.  The results indicated that seniors born after 1931 stayed in their homes longer, which resulted in higher homeownership rates compared to previous generations.  According to the study, “We estimate that this trend accounts for about 1.6 million houses held back from the market through 2018, representing about one year’s typical supply of new construction, or more than half of the current shortfall of 2.5 million housing units…This additional demand for homeownership from seniors will increase the relative price of owning versus renting, making renting more attractive to younger generations…

By Dan Krell
Copyright © 2019

Original located at https://dankrell.com/blog/2019/07/21/housing-inventory-shortage-causes/

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Great time to buy a home

great time to buy a home
Should I Buy Now or Wait? (infographic from keepingcurrentmatters.com)

If you’ve been waiting to buy a home, now may be your time to jump into the market.  Maybe you’ve been wary of home prices, or concerned about mortgage rates.  Maybe you’ve been attempting to “time the market” to get a good deal on a home.  Regardless of your reason for waiting to buy a home, you shouldn’t ignore the current market conditions.  It’s as if a perfect storm of home buying conditions is lining up to a great time to buy a home.

The big news is that mortgage interest rates continue to drop.  National average mortgage rates have been declining since the fall, moving closer to the historic bottom!  The May 30th U.S. weekly average for a thirty-year fixed rate mortgage provided by the Freddie Mac Primary Mortgage Market Survey(freddiemac.com) dropped to 3.99 percent.  Mortgage News Daily’s Matthew Graham reported on June 3rd that mortgage rates dropped further (mortgagenewsdaily.com).  Graham’s title “Mortgage Rates Continue to Plummet” is telling.

Although economists express confidence in the economy, they attribute the movement in mortgage interest rates to the current trade wars and bond market activity.  The mortgage industry may also be anticipating a Fed rate cut at the next week’s meeting of the Open Market Committee.

Lower mortgage rates aren’t always a reason to take the plunge into the housing market.  But what about moderating home sale prices?  The FHFA Home Price Index (fhfa.gov) indicates that nationwide average home prices increased only 1.1 percent during the first quarter of 2019!  Compared to the year-over-year 5.1 percent HPI increase, the modest first quarter gain may indicate a more affordable housing market.   Locally, the Montgomery County year-over-year average home sale price only increased 0.2 percent, according to MarketStats by ShowingTime (getsmartcharts.com).  However, the average price per square foot decreased 14.3 percent!

Another factor making it a great time buy a home is the lackluster spring home sales.  Counter to what is expected, home sales have somewhat cooled during the spring.  A May 30th NAR press release titled “Pending Home Sales Trail Off 1.5% in April” indicates that national home sales have been declining.  In fact, the forward-looking indicator based on contract signings dropped 1.5 percent this past month.  The total pending home sales in Montgomery County dropped about 2.8 percent compared to last spring. 

There are increasingly more housing choices.  Although housing supply remains tight, there were about 2.5 percent more new listings this April compared to the same time last year.  Although many of these new listings go quickly, increasing new listings mean that there are more home sellers that are entering the market this year giving you more homes to consider.

Putting all the data points together signify a great time to buy a home.  Housing affordability has increased, partly due in part by increasing family incomes, lower mortgage rates, and moderating home prices.  Home sellers who are listing their homes for sale this spring are adjusting their sale price expectations.  Homes that have been on the market for an extended time may be an opportunity for you to negotiate a lower sale price.  According to mortgage experts, average mortgage rates have “plummeted,” giving you more flexibility and possibly lower housing costs. 

These home buying conditions may not last very long. But before you decide to buy, determine if buying a home is the right choice by consulting a Realtor and other financial professionals.

Original located at https://dankrell.com/blog/2019/06/08/great-time-to-buy-a-home/

By Dan Krell
Copyright © 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Overpaying First-time Homebuyers

overpaying first-time homebuyers
First-Time Homebuyers (infographic from nar.Realtor)

If you’re thinking of buying your first home, or have already started the process, take note.  First time home buyers tend to overpay when buying a home.  This is the conclusion of a study recently published in the Journal of Real Estate Research (Under What Circumstances do First-time Homebuyers Overpay? – An Empirical Analysis Using Mortgage and Appraisal Data; 2019).  Although the stunning claim of overpaying first-time homebuyers is worthy of discussion, there’s more to the story than what’s implied. 

Considering housing affordability, authors Jessica Shui and Shriya Murthy tested their hypothesis that first-time homebuyers tend to overpay for their homes compared to repeat home buyers. Their conclusions indicate that the overpayment is a little more than one percent.  It doesn’t sound like much, but the overpayment could be a little more than $3,500 on a $350,000 home purchase.  In addition to discussing overpayment, they found that first-time homebuyers typically buy smaller homes with less amenities (which is not a surprise). 

Are home prices increased because of seller closing cost assistance?  Many first-time homebuyers lack cash and savings and typically ask for seller closing cost assistance.  For most first-time homebuyer purchases, the seller credit is already “baked” into the list price.  Anticipating that the buyer will ask for a closing assistance, the home seller typically will increase their asking price from the outset.  However, some home sale prices are negotiated upward to add seller closing assistance to the list price.

Although Shui and Murthy imply that first-time homebuyers are less savvy than their counterparts, they look toward appraisals as the cause and the solution.  Their results indicate that a majority of first-time homebuyer appraisals provide valuations at contract price, and suggest that appraisers are somewhat “biased” to help the house appraise.  Their solution is for appraisers to be neutral, which they believe would mitigate inflated home prices and help first-time homebuyers renegotiate the contract price. 

Although the study takes a circuitous route to the conclusion, the premise and statistics are presented to make it sound as if appraisers are at fault for overpaying first-time homebuyers .  However, if this is your first home purchase, there are many more factors to consider. 

Take for instance the buyer agent.  Research has demonstrated that most buyer agents don’t act in the best interest of their clients.  Most notable is the research that indicates that seller-paid buyer agent commissions actually increase home sale price (which I cited last week).  When hiring a buyer agent, you should take into account how they view their fiduciary responsibility.  Don’t assume the list price is reasonable.  Have your buyer agent provide unbiased comparables to formulate an offer and negotiating strategy. 

Although you have the right to choose your lender and title company (among other real estate professionals), you may be steered toward a professional affiliated with your buyer broker/agent.  Before deciding, compare costs and ask for references.  (Knowing your rights as a real estate consumer is crucial, see: https://dankrell.com/blog/2014/02/27/respa-empowers-home-buyers-and-consumers/)

Overpaying first-time homebuyers is not just about home sale price.  There are other areas where you may not negotiate well. The home inspection is one of those issues, and can also reveal that the home is need of repair.  You probably would like to negotiate repairs to be completed by licensed contractors.  Sometimes, the seller will offer a credit in lieu of making repairs. Before accepting the credit, make certain the amount is adequate by checking with your licensed contractor.

Finally, understand that buying your first home is emotional.  Don’t fall prey to agent sales tactics.  Stay focused on the facts and use the data to help you formulate your offer to negotiate the best price.

Original located at https://dankrell.com/blog/2019/06/03/overpaying-first-time-homebuyers

By Dan Krell
Copyright © 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home buying process simplified

home buying process
Traditional Home Buying Process

An article by Tracey Barbour for the Alaska Business Monthly (Younger buyers partial to homeownership, home-buyer education, online resources: akbizmag.com; September 2017) describes the growing phenomenon of millennial homeownership.  Not surprisingly, many millennial home buyers are taking advantage of home buyer assistance programs.  Because millennials grew up with the internet, you might think that they would rely less on professionals when home buying.  But the opposite seems to be true.  A majority of millennials prefer to connect with a single point-of-contact when applying for a mortgage (and likely when dealing with real estate agents).  However, millennials do rely on the internet when it comes to understanding the home buying process.  They spend copious amounts of time doing their own research on the home buying process.

It’s not just millennials, but most home buyers are taking advantage of online and digital resources to learn about the home buying process.  Maybe it’s because we live in an era of information overload that home buyers are more aware of the many factors that need to be considered before buying a home.  Regardless, the abundance of “home buying process” resources are helping home buyers decide if they are suited to buy a home, assisting with financial planning of buying a home, finding down payment assistance, mortgage application information, and so much more. 

It used to be that if you were a first-time home buyer, you relied heavily on your real estate agent for the education of the home buying process.  You placed a great deal of trust on their guidance.  The home buying process was envisioned as a step-by-step formula to purchasing a house.  The purpose of explaining the home buying as a process was to reduce the major aspects of home buying into distinct parts and make it seem simple and trouble-free.

The home buying process is a big ball of stuff…

Today, the standard “home buying process” as explained by real estate agents seems nebulous and lacking detail.  Maybe even a little pedestrian.  Maybe it’s because real estate agents tried to make their job easy and have control, but the word “process” incorrectly suggests that there is an exact order that is “one size fits all.”  However, the home buying process is more aptly described by adapting the “timey-wimey” quote of the 2007 episode of Dr. Who (Blink) to say “People assume that home buying is a strict progression of cause to effect, but it is more like a big ball of home buying stuff.”

Moreover, all home buyers are different.  Not just in their preferences, but also in their needs and expectations.  And thus, home buyers will experience the process differently.  One thing I can confirm from eighteen years of listing and selling homes is that all transactions are different. 

But don’t discount the value of the traditional “home buying process” meme.  Consider it a framework of mini-processes that are critical to buying a home.  Each mini-process will be proceeding at its own pace parallel to other processes. 

Choose your buyer agent well.  The role of your buyer agent should go beyond helping you visit homes and writing an offer.  Your agent should be there every step of the way to settlement helping you maneuver through the “big ball of home buying stuff.”  When going through home buying process you can encounter pitfalls and setbacks that are time consuming and emotionally draining.  Your agent should be able to offer guidance on coping and resolving any potential issues.

Original published at https://dankrell.com/blog/2019/05/06/home-buying-process-simplified/

By Dan Krell
Copyright © 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

After you move in

after you move in
After you move in

Moving into your new home is exciting.  You just went through an intensive process that tested your character.  You feel a sense of relief it’s over.  But the work is not over, it’s just beginning.  What you do after you move into your new home can help maintain its value. It also can save you time, money, and keep your home functioning.

Of course, there are the standard items that needs immediate attention after you move in.  Changing the locks is the number one item on the new homeowner list for obvious reasons.  Deep cleaning the home is a task that is also performed, especially if the previous owner had pets.  Keep all warranty information, including a home warranty policy (if you have one), in a safe place so you can find it if you need it.  Make sure you know where the water shut off valve and the main electrical breaker is located in case of an emergency.  Change of address forms from the USPS need to be completed to ensure you receive your mail.  A visit to the DMV is necessary to change the address on your driver’s license. 

But what else can you do after you move in to make life easier in your new home?  Revisit your home inspection report.  If the home seller made repairs, make sure you keep those invoices (your agent should have asked for those receipts prior to closing).  If there is a problem with any of the repairs, you can call the associated contractor to reinspect the repair.  However, it’s likely that the seller didn’t repair everything in the inspection, or maybe they didn’t repair anything.  Review the report to see which items require your immediate attention, or may require attention within the year.  Make sure you install any missing safety items (such as smoke and carbon dioxide detectors).  Taking care of the urgent items immediately will likely prevent expensive repairs down the road.  Keep the list of items likely needing attention in the future, so you can check them when you conduct regular maintenance.

Next on the list , after you move in, is to create a maintenance schedule.  For most new home owners, maintenance seems to be a dirty word.  After all, you just moved in and the last thing you want to focus on is “upkeep.”  But putting off repairs can make the likelihood of damage to your home and repair expense increase over time.  Research has even verified that deferred maintenance lowers your home’s value.  Your home inspection report also should have information about maintaining systems such as (but not limited to): HVAC, electric, plumbing, roof, and exterior.

If you haven’t yet created a maintenance budget, do it now.  Some of the systems may need replacing sooner than others.  Check your home inspection report for the systems’ age and average life expectancy.  Start saving to replace systems (HVAC, roof, etc.) so it’s not as much of a financial burden when the time comes to replace them.

Life happens and so does the occasional surprise.  It is not uncommon for maintenance and other “surprises” to occur your first year in the home.  Although it may seem correct to blame the home inspector, they are not perfect.  They are limited to what they can see.  “Surprises” often occur in a system or area that was not observable during the time of the inspection.  It is my experience that home inspectors make themselves available within the first year of ownership to answer questions relating to their report.  Some will even reinspect the item in question. 

Original published at https://dankrell.com/blog/2019/04/09/after-you-move-in/

By Dan Krell
Copyright © 2019.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.