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How Scary is the Housing Affordability Index?

How Scary is the Housing Affordability Index? | Simplifying The Market

How Scary is the Housing Affordability Index?

Some industry pundits are saying that the housing market may be heading for a slowdown. One of the data points they use is the falling numbers of the Housing Affordability Index, as reported by the National Association of Realtors (NAR).

Here is how NAR defines the index:

“The Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national level based on the most recent price and income data.”

Basically, a value of 100 means a family earning the median income earns enough to qualify for a mortgage on a median priced home, based on the price and mortgage interest rates at the time. Anything above 100 means the family has more than enough to qualify.

The higher the index the easier it is to afford a home.

Why the concern?

The index has been declining over the last several years as home values increased. Some are concerned that too many buyers could be priced out of the market. Here is a snapshot of the index since 2009:

How Scary is the Housing Affordability Index? | Simplifying The Market

But, wait a minute…

Though the index has decreased over the last four years, we must realize that at that time there was an overabundance of housing inventory and as many as one out of three listings was a distressed property (foreclosure or short sale). All prices dropped dramatically and distressed properties sold at major discounts. Then, mortgage rates fell like a rock.

The market is recovering and values are coming back nicely. That has caused the index to fall.

However, let’s remove the crisis years and look at the current index as compared to the index from 1990 – 2008. We can see that, even though prices have increased, historically low mortgage rates have put the index in a better position than every year for the nineteen years prior to the crash.

How Scary is the Housing Affordability Index? | Simplifying The Market

Bottom Line

The Housing Affordability Index is in great shape and should not be seen as a challenge to the real estate market’s continued recovery.

Housing Market Slowing Down? Don’t Tell Builders!

Housing Market Slowing Down? Don’t Tell Builders! | Simplifying The Market

Housing Market Slowing Down? Don’t Tell Builders!

Many experts have been calling upon home builders to ramp up construction to help with the lack of existing inventory for sale. For the past two months, new home sales have surged, with July’s total coming in at the highest since October 2007.

The latest estimates from the US Census Bureau and Department of Housing and Urban Development show that sales in July were 31.3% higher than this time last year, and 12.4% higher than last month, at a seasonally adjusted annual rate of 654,000. 

Zillow’s Chief Economist, Svenja Gudell, echoed the reaction of some as she commented:

“July(‘s) new home sales data was a surprise, but a welcome one. For years, the market has been practically begging builders to both ramp up their efforts overall and to put more focus on serving the less expensive end of the market. Today's data confirms both are happening in earnest.”

The National Association of Home Builder’s (NAHB) Chairman, Ed Brady, didn’t seem as surprised:

“This rise in new home sales is consistent with our builders’ reports that market conditions have been improving. As existing home inventory remains flat, we should see more consumers turning to new construction.”

NAHB’s Chief Economist, Robert Dietz, believes this is just the start for new home sales if market conditions continue:

“July’s positive report shows there is a need for new single-family homes, buoyed by increased household formation, job gains and attractive mortgage rates. This uptick in demand should translate into increased housing production throughout 2016 and into next year.”

The existing home sales numbers for July will be released today and will shed more light on the overall health of the housing market.

Bottom Line

New home sales hit their highest mark in over 9 years. Buyers are out in force to find a home that fits their needs. Many are turning to new construction, as the inventory of existing homes has not been able to keep up with demand.

Luxury Home Sales & the Impact of the Stock Market

Luxury Home Sales & the Impact of the Stock Market | Simplifying The Market

Luxury Home Sales & the Impact of the Stock Market

In a recent postCoreLogic looked at the correlation between stocks and the sales of upper-end properties ($1 Million+ sales price). The report revealed:

 

 “The powerful ‘wealth effects’ generated by the rapid rise in equities between 2009 and 2015 drove a large rise in the sales of homes that sold for $1 million or more.

Historically, sales of homes priced $1 million or more averaged 1.2 percent of all home sales. The spread between high-end sales and equities widened during the housing bubble but then moved more closely in unison. By the time the equity markets had peaked in May 2015, the $1 million or more share of the market had nearly doubled, averaging 2.2 percent for the remainder of the year.”

This makes sense. As people see their wealth increasing, they feel more confident in their purchasing power. And, of course, that would also impact their decisions regarding real estate. The stock market dipped earlier this year and there was quite a bit of anecdotal evidence that the upper-end market was beginning to soften.

As we can see in the chart below, the market is again flourishing. That may rejuvenate the luxury market as we move through the rest of the year.

Luxury Home Sales & the Impact of the Stock Market | Simplifying The Market

As we proceed through 2016 and enter 2017, the strength of the stock market will be a key factor in the strength of the luxury market. If the stock market falters, look for high-end sales to slow. If the market advances, as it has shown signs of doing most recently, the high-end market will advance.

Home Sales Up in Every Price Range over $100K!

Homes Sales Up in Every Price Range over $100K! | Simplifying The Market

Home Sales Up in Every Price Range over $100K!

The National Association of Realtors’ most recent Existing Home Sales Report revealed that home sales were up rather dramatically over last year in five of the six price ranges they measure.

Homes priced between $100-250K showed a modest increase at 3.4%. This not only points to the lower inventory of homes available for sale in this price range but also speaks to the overall strength of the housing market.

Sales of homes over $250,000 increased by double digit percentages with sales in the $750,000- $1 million range showing the largest increase, up 16.7%!

As prices in many markets continue to accelerate, it is no surprise to see the percentage of homes in the higher price ranges increasing.

Here is the breakdown:

Homes Sales Up in Every Price Range over $100K! | Simplifying The Market

What does that mean to you if you are selling?

Houses are definitely selling. If your house has been on the market for any length of time and has not yet sold, perhaps it is time to sit with your agent and see if it is priced appropriately to compete in today’s market.

What Does Home Mean to You?

What Does Home Mean to You? | Simplifying The Market

What Does Home Mean to You?

No matter what shape or size your living space is, the concept and feeling of home can mean different things to different people. Whether it’s a certain scent or a favorite chair, the emotional reasons why we choose to buy our own home are, more often than not, the more powerful or compelling ones.

Every year, The Joint Center for Housing Studies at Harvard University conducts a survey to find driving factors behind why Americans decide to buy a home.

The top 4 reasons to own a home cited by participants of the survey were not financial. 

1. It means having a good place to raise children & provide them with a good education

From the best neighborhoods to the best school districts, even those without children at the time of purchase may have this in the back of their mind as a major reason for choosing the location of the home that they purchase.

2. You have a physical structure where you & your family feel safe

It is no surprise that having a place to call home with the means for comfort and security is the number two reason.

3. It allows you to have more space for your family

Whether your family is expanding, or an older family member is moving in, having a home that fits your needs is a close third on the list. 

4. It gives you control over what you do with your living space, like renovations and updates

Looking to actually try one of those complicated wall treatments that you saw on Pinterest? Tired of paying an additional pet deposit for your apartment building, or do you want to finally adopt that puppy or kitten you’ve seen online 100 times? Who’s to say that you can’t in your own home?

The 5th reason on the list, is the #1 financial reason to buy a home as seen by respondents:

5. Owning a home is a good way to build up wealth that can be passed along to my family

Either way you are paying a mortgage. Why not lock in your housing expense now with an investment that will build equity that you can borrow against in the future?

Bottom Line

Whether you are a first time homebuyer or a move-up buyer who wants to start a new chapter in your life, now is a great time to reflect on the intangible factors that make a house a home.

Americans Believe Real Estate is Best Long-Term Investment

Americans Believe Real Estate is Best Long-Term Investment | Simplifying The Market

Americans Believe Real Estate is Best Long-Term Investment

According to Bankrate’s latest Financial Security Index Poll, Americans who have money to set aside for the next 10 years would rather invest in real estate than any other type of investment.

 

Bankrate asked Americans to answer the following question:

“Which would be the best way to invest money you did not need for more than 10 years?”

Real Estate came in as the top choice with 25% of all respondents, while cash investments (such as savings accounts and CD’s) came in second with 23%. The chart below shows the full results:

Americans Believe Real Estate is Best Long-Term Investment | Simplifying The Market

Sterling White, co-founder of Holdfolio, gave one reason as to why real estate may have ranked so high.

"Houses are tangible. You can physically see and feel the product. So you know where your money is going."

July’s poll also found that for the “26th consecutive month, Americans’ sense of financial well-being improved when taking into account debt, savings, net worth, job security, and overall financial situation.”

Bottom Line

There are several reasons, both financial and non-financial, as to why homeownership makes sense. It is nice to see that Americans have returned to a belief in homeownership as the best investment.

A Homeowner’s Net Worth is 45x Greater Than a Renter’s!

A Homeowner’s Net Worth is 45x Greater Than a Renter’s! | Simplifying The Market

A Homeowner’s Net Worth is 45x Greater Than a Renter’s!

Every three years, the Federal Reserve conducts a Survey of Consumer Finances in which they collect data across all economic and social groups. The latest survey, which includes data from 2010-2013, reports that a homeowner’s net worth is 36 times greater than that of a renter ($194,500 vs. $5,400).

In a Forbes article, the National Association of Realtors’ (NAR) Chief Economist Lawrence Yun predicts that in 2016 the net worth gap will widen even further to 45 times greater.

The graph below demonstrates the results of the last two Federal Reserve studies and Yun’s prediction:

A Homeowner’s Net Worth is 45x Greater Than a Renter’s! | Simplifying The Market

 

Put Your Housing Cost to Work for You

Simply put, homeownership is a form of ‘forced savings.’ Every time you pay your mortgage, you are contributing to your net worth. Every time you pay your rent, you are contributing to your landlord’s net worth.

The latest National Housing Pulse Survey from NAR reveals that 85% of consumers believe that purchasing a home is a good financial decision. Yun comments:

“Though there will always be discussion about whether to buy or rent, or whether the stock market offers a bigger return than real estate, the reality is that homeowners steadily build wealth. The simplest math shouldn’t be overlooked.”

Bottom Line

If you are interested in finding out if you could put your housing cost to work for you by purchasing a home, let’s get together to discuss your next steps.

4 Reasons to Buy This Summer!

4 Reasons to Buy This Summer! | Simplifying The Market

4 Reasons to Buy This Summer!

Summer is here! The temperature isn't the only thing heating up right now, so too is the housing market in many areas of the country! Here are four great reasons to consider buying a home today instead of waiting.

1. Prices Will Continue to Rise

CoreLogic’s latest Home Price Index reports that home prices have appreciated by 5.9% over the last 12 months. The same report predicts that prices will continue to increase at a rate of 5.3% over the next year. The Home Price Expectation Survey polls a distinguished panel of over 100 economists, investment strategists, and housing market analysts. Their most recent report projects home values to appreciate by more than 3.2% a year for the next 5 years.

The bottom in home prices has come and gone. Home values will continue to appreciate for years. Waiting no longer makes sense.

2. Mortgage Interest Rates Are Projected to Increase 

Freddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year mortgage have remained around 4%. Most experts predict that they will begin to rise over the next 12 months. The Mortgage Bankers AssociationFreddie Mac & the National Association of Realtors are in unison, projecting that rates will be up almost a full percentage point by this time next year.

An increase in rates will impact YOUR monthly mortgage payment. A year from now, your housing expense will increase if a mortgage is necessary to buy your next home. 

3. Either Way You are Paying a Mortgage

As a paper from the Joint Center for Housing Studies at Harvard Universityexplains:

“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return. That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

4. It’s Time to Move On with Your Life

The ‘cost’ of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise.

But what if they weren’t? Would you wait?

Look at the actual reason you are buying and decide whether it is worth waiting. Whether you want to have a great place for your children to grow up, you want your family to be safer or you just want to have control over renovations, maybe now is the time to buy.

If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could lead to substantial savings.

3 Reasons to Buy Luxury Property THIS Year!!

3 Reasons to Buy Luxury Property THIS Year!! | Simplifying The Market

3 Reasons to Buy Luxury Property THIS Year!!

The housing market is hot, with prices rising as demand far outpaces supply in almost every region. However, when it comes to luxury real estate, things are quite different. In the upper-end market, inventory is plentiful in most locations.

For that reason, prices haven’t skyrocketed as they have in the lower and mid-tier markets. This, coupled with sensational mortgage rates, means that this may be the perfect time to purchase the luxury property you have always desired.

Let’s break it down into the three major reasons to act now:

1. There are more homes from which to choose

According to a recent Wall Street Journal article, inventory in the upper end is increasing, while it is decreasing at the lower and mid-tier price ranges. Here is a graph showing the average increase/decrease in inventory for the first four months of this year as compared to last year:

3 Reasons to Buy Luxury Property THIS Year!! | Simplifying The Market

2. Prices are becoming more reasonable

In a separate article, the Wall Street Journal also talked about prices in the luxury market. They explained that downward price adjustments have been more common in the luxury market than in markets with lower prices. They went on to say:

“The growing number of price cuts suggests luxury-home sellers are becoming more realistic about property values as sales have slowed, said several real-estate veterans.”

Not only will you have more to choose from, but you may also be able to get the property at a reduced price.

3. Mortgage rates are at historic lows

In the past, one of the drawbacks to purchasing a luxury property was the larger mortgage rate on “jumbo” loans which are often required on high end properties.

However, HSH.com just revealed that jumbo rates just set new record lows:

“While conforming fixed-rate mortgages eased a little this week, 30-year fixed-rate jumbos declined enough to break into new record low territory (3.66%), besting the previous low set in April by two basis points.”

Bottom Line

More choices, better prices and historically low mortgage rates may make this the perfect time for you to own one of those luxury properties you and your family have always fantasized about.

Gap Between Homeowner’s & Appraiser’s Opinions Narrows Slightly

Gap Between Homeowner’s & Appraiser’s Opinions Narrows Slightly | Simplifying The Market

Gap Between Homeowner’s & Appraiser’s Opinions Narrows Slightly

In today’s housing market, where supply is very low and demand is very high, home values are increasing rapidly. One major challenge in such a market is the bank appraisal.

If prices are surging, it is difficult for appraisers to find adequate, comparable sales (similar houses in the neighborhood that closed recently) to defend the price when performing the appraisal for the bank.

Every month, Quicken Loans measures the disparity between what a homeowner believes their house is worth as compared to an appraiser’s evaluation in their Home Price Perception Index (HPPI). Here is a chart showing that difference for each of the last 12 months.

Gap Between Homeowner’s & Appraiser’s Opinions Narrows Slightly | Simplifying The Market

The gap between the homeowner vs. appraiser’s opinion has started to head in the right direction (closer to even), as June saw a slight decrease from May’s -1.95% to -1.89% nationally.

Homeowners in the western part of the country, however, have been pleasantly surprised as their homes have appraised higher than they expected. Denver received its highest HPPI last month as homes came in an average of 3.28% higher than the homeowner believed it would. Nine of the twelve metro areas that had a positive HPPI last month were located in the west.

Quicken Loans’ Chief Economist, Bob Walters explains:

“The hot housing markets along the West Coast are growing quicker than owners realize, giving way to higher than expected prices for buyers and more home equity for existing owners.  

On the other hand, the housing markets are more balanced in the East and Midwest, leading owners to be slightly over-enthusiastic about their home’s appreciation.”

Bottom Line 

Every house on the market has to be sold twice; once to a prospective buyer and then to the bank (through the bank’s appraisal). With escalating prices, the second sale might be even more difficult than the first. If you are planning on entering the housing market this year, let’s get together to talk about what’s happening in our area.

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