Coping with today’s market

It’s that time of year again; the real estate market is getting hot along with the temperature. And that’s about the only thing most are able to predict about this year’s real estate market. Since the Great Recession, early forecasts about home buying and selling trends have typically missed the mark; the trends have varied, sometimes significantly, from year to year. Notwithstanding a very active season, many will be in for a surprise; some will be pleased about their home sale, while others not so much. And if you are selling a home, I’ve provided some tips to help you cope with today’s market:

Home buyers in today’s market

The most important point to remember this year: many home buyers are looking to buy a home, but not necessarily yours. The notion that your home appeals to all home buyers is false. If your home isn’t selling as fast as you thought it would, consider stepping back for a moment to re-evaluate your home and marketing plan.

Most home buyers are looking for a “turn-key” home and won’t settle for just anything on the market. Additionally, most are not willing to spend time and money updating a home they just purchased. Know your home before marketing it and consider making repairs if your home has considerable deferred maintenance.

Prepare your home for today’s market

The next item to remember this year, is that no matter how well your home shows: be prepared for a less than complimentary home inspection. Because there are a number of systems and many components to your home; chances are that there are items that need attention, repairing, and/or replacement – which the home inspector will cheerfully point out. Home inspectors will visually inspect your home, probing structural components when necessary; a detailed report indicates their observations. Most home inspectors are not experts in all aspects of home construction; and commonly recommend other professionals to examine items more closely.

As a home seller, you should understand that buyers in today’s market are under pressure about the investment they are undertaking; and are willing to walk away based on the home inspection findings. Sometimes, it’s not what – but how it’s said that will rattle buyers. Regardless, an uncomplimentary report does not have to blow up the deal. Be prepared for extra rounds of negotiating after the home inspection. Every transaction is different, and your agent should provide guidance on what’s reasonable and appropriate.

A final thought: don’t get greedy, but don’t leave money on the table either. Although inventory remains an issue in a number of areas, don’t feel compelled to over price your home based on the lack of homes for sale. However, don’t be complacent with the “average” home sale price of the neighborhood either. When comparing recent neighborhood sales, you should make pricing adjustments (plus and minus) depending on differences in your home’s age, amenities, size and other factors.

A word of caution: There is a growing trend in the reliance on automated valuations by real estate agents. AVM (automated valuation models) are helpful, but not always accurate. These reports are based on public information about your home and may not include correct information. If your agent recommends a sale price based an automated valuation, you should review the report attentively. If the report confidence level is low to medium, be prepared to carefully review the report and comparables, making adjustments as needed.

Original located at https://dankrell.com/blog/2016/04/21/home-sale-tips-on-coping-with-todays-market/

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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.

January 13, 2016December 13, 2022

Real estate bargains

The typical real estate investor and the average home buyer have something in common – they both are looking for a home that makes financial sense, a bargain if you will. After all, who wants to overpay for their home? Although the investor’s priority is purely financial, a home buyer’s priority is a mix of lifestyle requirements that fits a budget. Even with priorities in line, both investors and home buyers don’t always recognize a bargain when it presents itself.

Finding a bargain home is not as easy as some will have you believe. Bargain hunters typically look for distressed properties such as foreclosures (also known as “bank owned” or REO homes) and short sales. Although there was abundant opportunity to buying such homes immediately after the housing crash, many were hesitant due to lack of market confidence. However, as confidence was revived in the housing market, the courthouse real estate auctions were once again attended home buyers and investors looking for good buys. And as home prices increased, so did the price for distressed properties; making it more difficult to find the bargain home. Even “motivated” home owners may not be as motivated as you think in today’s market.

This phenomenon is corroborated by a recent study of “bargain homes” by Trulia’s research blog. Ralph McLaughlin reported on January 7^th (Where Is A “Bargain” Really A Bargain?; trulia.com) that advertised bargains were actually good buys in 55 of 100 housing markets. Furthermore, hot markets tend to offer less price discounting than cooler markets; home sellers are less inclined to make price reductions in markets where there is increased buyer competition. Locally, the Baltimore metro region was found to be in the top discounted markets for bargain homes (with an average discount of 11.3%); while the Washington DC metro region was found to be in bottom of discounted markets with an average of 4% discount on a bargain home.

It’s clear now that home prices were at the bottom during 2008-2009. At that time, home inventories swelled and there was an abundance of (what would seem today) “cheap” homes for sale. I wrote at that time (If Cheap isn’t Selling, What is?; May 28, 2008) about how cheap homes were not selling, and how home buyers changed their focus from “buy anything” to buying quality homes that impart value. Of course, one of the main reasons cheap homes were not selling quickly was that there was an additional cost associated with the purchase; most of the cheap homes were distressed and required rehab, or at the very least needed updates and minor renovations.

For most investors, the concept of a bargain home is strictly the result of numbers in a formula; and for some home buyers, the bargain may be about getting a good price. However, a bargain home could be more than just the price tag. Maybe the bargain home is also the “value added” home. Rather than just focusing on price, buyers should also be aware of a home’s potential. Of course there is always risk when buying a home, which we experienced during the financial meltdown eight years ago.

Regardless, many lament having not bought homes at or near the price bottom. But hindsight is 20/20. And what didn’t seem like a bargain just a few years ago, is in comparison to today’s increasing home prices and an active housing market, a missed opportunity.

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January 7, 2016November 23, 2021

Home pricing strategies focal point of 2016 housing market

2016 housing market hinges on home prices.

A home selling season has not been anticipated so much by home sellers since 2013. It’s not that 2015 was a bad year for housing, because it wasn’t. It’s that many home owners who have been wanting to sell since 2010 (some because of being underwater) may be in position to make the long awaited move.

A central reason for the reanimation of the housing market is, of course, home prices. Several major indices concur that home prices have made significant improvements through 2015. S&P/Case-Shiller U.S. National Home Price Index (spindices.com) reported a 5.2% annual increase in October, while the FHFA House Price Index (fhfa.gov) revealed a 6.1% year over year increase in October. November’s CoreLogic HPI (corelogic.com) indicated a 6.2% year over year increase and project a 5.4% year over year home price increase next November. And as much as home values had healthy gains nationwide, the local Washington DC metro region’s home annual price increases were more modest: 3.1% according to CoreLogic, and about 1.7% according to S&P/Case-Shiller.

home equity — US Home Equity Report (from corelogic.com)

Although negative equity continues to burden many home owners, the good news is that the number of underwater homes is decreasing. Although home prices continue to edge higher throughout the nation, there are many who are still underwater. According to CoreLogic’s Equity Report Q3 2015 (corelogic.com), 256,000 homes regained equity. And although 92% of mortgaged homes now have equity, about 4.1 million homes continue to be underwater. 17.6% of mortgaged homes are considered “under-equitied” (less than 20% equity), while 2.2% are “near negative equity” (less than 5% equity). 29.3% of underwater homes in the US are located in five states: Nevada, Florida, Arizona, Rhode Island, and Maryland. While 87.9% of Maryland mortgaged homes have equity, 95.5% of mortgage homes in Washington DC have equity. However, the local Washington DC metro region (DC – VA – MD) records 89.2% of mortgaged homes with equity – leaving about 10.8% of mortgaged homes underwater.

If you’re selling your home this spring, you want to capitalize the market. Although you want to benefit from the current low inventory; realize that by late spring, the housing market gets into full swing and inventory surges while your competition intensifies. Also consider the home buyer: many consider themselves savvy consumers who are money conscious and more fiscally responsible than their 2006 counterparts. Most home buyers want homes that have new or recent updates, including systems (such as HVAC and roof). There are few who are willing to make repairs or upgrade homes they are moving into; much less budget for a new roof or furnace in the first years of home ownership.

The sensible way to make the most of your sale is to have a plan, and pricing your home correctly should be the focal point. Don’t fall into the trap of pricing your home by comparing national price increases or worse yet – media reports of hot markets. Real estate is a local phenomenon and you should collect data within your neighborhood (the closer to your home the better). Your real estate agent should be able to produce a detailed market analysis and explain how the comps vary and correspond with each other and to your home. Consider your home’s condition and amenities. You may have to adjust your price if your home is in need “TLC.” However, updates to the kitchen, bathrooms, windows, roof, flooring, and HVAC not only add appeal but also add value.

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December 30, 2015August 14, 2019

Real estate year in review 2015

2015 could have been considered a “damn if you do and damn if you don’t” year for the Fed. The Fed is often criticized (sometimes harshly) for their action and inaction. And as the historic run of near zero interest rates ended this year, many criticized the Fed for waiting too long to raise interest rates, while others said it was still too soon. The full impact of the first Fed rate hike in nine years won’t be known well into the next year.

Another real estate milestone that occurred this year was the implementation of the TRID (TILA-RESPA Integrated Disclosure) rule. Although the Consumer Finance Protection Bureau decided to delay enactment once; the decision to put the rule in effect in October was not only significant, but a historic change to the real estate settlement process. Initially, there was mixed reception; some lenders indicated that they have transitioned smoothly, while others reported having difficulty. Even Congress attempted to provide a grace period for those still transitioning (Homebuyers Assistance Act, H.R. 3192). Like the Fed’s rate increase, the full effect of TRID on consumers and the industry won’t be realized until next year.

Even though the 2015 housing market started slowly, because of record cold weather; the market demonstrated its resiliency with increased sales and continued home price growth throughout the year. Some markets were on fire this year; such as the Seattle WA region, where multiple offers and single digit days on market were the norm and home price indices exceeded the national average. However, most other regions (such as the Washington DC region) experienced average growth. The lack of inventory in some markets was said to add pressure on price growth. Home sale growth is expected to continue in 2016, as housing formation and employment outlooks are brighter. While home prices are still below the 2006 peak, home prices are expected to increase with a market expansion. And as housing affordability decreases, some housing critics are clamoring to predict another housing bubble.

San Francisco CA was one of 2015’s hottest markets. The market was so heated that many described it as “insane.” Madeline Stone reported that San Francisco teardowns sold for well above $1M while resales typically sold for 70% above list price (San Francisco real estate has gotten so crazy that this startup founder was offered stock options for his house; businessinsider.com; March 31, 2015).

And of course, there is the notable sale of a 765sf two-bedroom home that sold for $408,000 earlier this year (17% over list price). The significance of the 100-year-old San Francisco home is that it was described as a “shack” and needed much more than TLC (Daniel Goldstein; San Francisco earthquake shack sells for $408,000; marketwatch.com; October 22, 2015).

And what can be more proof that the real estate market has been recovering (at least for those who can afford it) than the world’s priciest home sale. Patrick Gower, Francois De Beaupuy , and Devon Pendleton reported on December 15th (This $301 Million Paris Chateau Is the World’s Priciest Home; bloomburg.com) about the sale of Chateau Louis XIV for €257Million (approximately $301Million); a private sale to a Middle Eastern buyer. Located in a 56-acre park, the recently built Paris estate is said to have taken three years to build. Amenities include an aquarium, cinema and a wine cellar, and a gold-leaf fountain.

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December 22, 2015October 20, 2020

The Fed, interest rates, and the housing market

After a historic run of over seven years of near zero interest rates, the Fed pulled the trigger to raise the target rate on December 17^th to 0.25% – 0.5%. The last time the Fed changed the rate was almost exactly seven years ago on December 16^th 2008, when the rate decreased from 1% to near zero. And it’s the first rate increase since June 29^th 2006!

In the midst of what was to become the beginning of the great recession, the Federal Open Market Committee press release from December 16^th 2008 (federalreserve.gov) described the rate change to near zero as a means to, “…promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.” And since, housing experts anticipated a Fed rate increase; often predicting how the real estate market would be affected.

Although a significant move by the Fed, the rate increase is minor and rates continue to be relatively low. And don’t worry, even with last week’s Fed target rate increase last week, it doesn’t mean the that mortgage interest rates automatically increase the same amount. Mortgage rates are gauged by bond yields, which usually anticipate and “bake in” any significant news into rates prior to economic announcements.

Putting rates in perspective, Freddie Mac’s Primary Mortgage Market Survey indicated that the average national 30-year-fixed mortgage rate increased last week slightly from 3.95% to 3.97% (and up from the 3.80% a year ago). Furthermore, Freddie Mac’s Economic and Housing Research Weekly Commentary and Economic Update December 17^th statement expects a gradual Fed monetary tightening, with a “modest increase” in long term rates. Additionally, “…Mortgage rates will tick higher but remain at historically low levels in 2016. Home sales will remain strong, but refinance activity should cool somewhat…” (freddiemac.com).

Some say that the Fed’s rate increase is premature, while others say that it may be too late to raise rates; however, many economic experts concur that the economy remains in uncharted waters. Regardless, housing experts agree that the Fed rate increase is good for the real estate market.

The National Association of Realtors® chief economist, Lawrence Yun stated that mortgage rates should continue to remain relatively low through 2016, saying, “…The raising of short-term rates could be more of a confidence play to the market — it provides a signal that the economy is strengthening, … and the lenders believe that, it may actually provide more lending opportunity for the banks…” (What the Fed’s Decision Means for Housing; realtormag.realtor.org; December 17, 2015).

Bankrate’s Mark Hamrick pointed out two benefits to the housing market from a rate increase (7 unintended benefits of higher interest rates from the Federal Reserve; bankrate.com; September 11, 2015). The first benefit is increased lending: Banks are incentivized to lend money when rates increase; possibly expanding mortgage lending which could increase the number of qualified home buyers participating in the market. The second benefit is increasing the pool of home buyers: increasing rates could get fence sitters into the market because of rising buyer costs. However, this may be a progressive effect through 2016, as mortgage rates are estimated to gradually increase beyond 4.5% (rising interest rates may also moderate ballooning home prices to prevent another housing bubble).

By Dan Krell
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