A Look at Housing Supply and What It Means for Sellers

  One of the hottest topics of conversation in today’s real estate market is the shortage of available homes. Simply put, there are many more potential buyers than there are homes for sale. As a seller, you’ve likely heard that low supply is good news for you. It means your house will get more attention, and likely, more offers. But as life begins to return to normal, you may be wondering if that’s something that will change. While it may be tempting to blame the pandemic for the current inventory shortage, the pandemic can’t take all the credit. While it did make some sellers hold off on listing their houses over the past year, the truth is the low supply of homes was years in the making. Let’s take a look at the root cause and what the future holds to uncover why now is still a great time to sell. Where Did the Shortage Come From? It’s not just today’s high buyer demand. Our low supply goes hand-in-hand with the number of new homes built over the past decades. According to Sam Khater, VP and Chief Economist at Freddie Mac: “The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes.” Data in a recent report from the National Association of Realtors (NAR) tells the same story. New home construction has been lagging behind the norm for quite some time. Historically, builders completed an average of 1.5 million new housing units per year. However, since the housing bubble in 2008, the level of new home construction has fallen off (see graph below): The same NAR report elaborates on the impact of this below-average pace of construction: “. . . the underbuilding gap in the U.S. totaled more than 5.5 million housing units in the last 20 years.”  “Looking ahead, in order to fill an underbuilding gap of approximately 5.5 million housing units during the next 10 years, while accounting for historical growth, new construction would need to accelerate to a pace that is well above the current trend, to more than 2 million housing units per year. . . .” That means if we build even more new houses than the norm every year, it’ll still take a decade to close the underbuilding gap contributing to today’s supply-and-demand mix. Does that mean today’s ultimate sellers’ market is here to stay? We’re already starting to see an increase in new home construction, which is great news. But newly built homes can’t bridge the supply gap we’re facing right now on their own. In the State of the Nation’s Housing 2021 Report, the Joint Center for Housing Studies of Harvard University (JCHS) says: “…Although part of the answer to the nation’s housing shortage, new construction can only do so much to ease short-term supply constraints. To meet today’s strong demand, more existing single-family homes must come on the market.” Early Indicators Show More Existing-Home Inventory Is on Its Way When we look at existing homes, the latest reports signal that housing supply is growing gradually month-over-month. This uptick in existing homes for sale shows things are beginning to shift. Based on recent data, Odeta Kushi, Deputy Chief Economist at First American, has this to say: “It looks like existing inventory is starting to inch up, which is good news for a housing market parched for more supply.” Lawrence Yun, Chief Economist at NAR, echoes that sentiment: “As the inventory is beginning to pick up ever so modestly, we are still facing a housing shortage, but we may have turned a corner.” So, what does all of this mean for you? Just because life is starting to return to normal, it doesn’t mean you missed out on the best time to sell. It’s not too late to take advantage of today’s sellers’ market and use rising equity and low interest rates to make your next move. Bottom Line It’s still a great time to sell. Even though housing supply is starting to trend up, it’s still hovering near historic lows. Let’s connect to discuss how you can list your house now and use the inventory shortage to get the best possible terms for you.

Diving Deep into Today's Biggest Buyer Concerns

Last week, Fannie Mae released their Home Purchase Sentiment Index (HPSI). Though the survey showed 77% of respondents believe it’s a “good time to sell,” it also confirms what many are sensing: an increasing number of Americans believe it’s a “bad time to buy” a home. The percentage of those surveyed saying it’s a “bad time to buy” hit 64%, up from 56% last month and 38% last July. The latest HPSI explains: “Consumers also continued to cite high home prices as the predominant reason for their ongoing and significant divergence in sentiment toward homebuying and home-selling conditions. While all surveyed segments have expressed greater negativity toward homebuying over the last few months, renters who say they are planning to buy a home in the next few years have demonstrated an even steeper decline in homebuying sentiment than homeowners. It’s likely that affordability concerns are more greatly affecting those who aspire to be first-time homeowners than other consumer segments.” Let’s look closely at the market conditions that impact home affordability. A mortgage payment is determined by the price of the home and the mortgage rate on the loan used to purchase it. Lately, monthly mortgage payments have gone up for buyers for two key reasons: Mortgage rates have increased from 2.65% this past January to 2.9%. Home prices have increased by 15.4% over the last 12 months. Based on these rising factors, a home may be less affordable today, but it doesn’t mean it’s not affordable. Three weeks ago, ATTOM Data released their second-quarter 2021 U.S. Home Affordability Report which explained that the major ownership costs on the typical home as a percent of the average national wage had increased from 22.2% in the second quarter of 2020 to 25.2% in the second quarter of this year. They also went on to explain: “Still, the latest level is within the 28 percent standard lenders prefer for how much homeowners should spend on mortgage payments, home insurance and property taxes.” In the same report, Todd Teta, Chief Product Officer with ATTOM, confirms: “Average workers across the country can still manage the major expenses of owning a home, based on lender standards.” It’s true that monthly mortgage payments are greater than they were last year (as the ATTOM data shows), but they’re not unaffordable when compared to the last 30 years. While payments have increased dramatically during that several-decade span, if we adjust for inflation, today’s mortgage payments are 10.7% lower than they were in 1990. What’s that mean for you? While you may not get the homebuying deal someone you know got last year, that doesn’t mean you shouldn’t still buy a home. Here are your alternatives to buying and the trade-offs you’ll have with each. Alternative 1: I’ll rent instead. Some may consider renting as the better option. However, the monthly cost of renting a home is skyrocketing. According to the July National Rent Report from Apartment List: “…So far in 2021, rental prices have grown a staggering 9.2%. To put that in context, in previous years growth from January to June is usually just 2 to 3%. After this month’s spike, rents have been pushed well above our expectations of where they would have been had the pandemic not disrupted the market.” If you continue to rent, chances are your rent will keep increasing at a fast pace. That means you could end up spending significantly more of your income on your rental as time goes on, which could make it even harder to save for a home. Alternative 2: I’ll wait it out. Others may consider waiting for another year and hoping that purchasing a home will be less expensive then. Let’s look at that possibility. We’ve already established that a monthly mortgage payment is determined by the price of the home and the mortgage rate. A lower monthly payment would require one of those two elements to decrease over the next year. However, experts are forecasting the exact opposite: The Mortgage Bankers Association (MBA) projects mortgage rates will be at 4.2% by the end of next year. The Home Price Expectation Survey (HPES), a survey of over 100 economists, investment strategists, and housing market analysts, calls for home prices to increase by 5.12% in 2022.   Based on these projections, let’s see the possible impact on a monthly mortgage payment: By waiting until next year, you’d potentially pay more for the home, need a larger down payment, pay a higher mortgage rate, and pay an additional $3,696 each year over the life of the mortgage. Bottom Line While you may have missed the absolute best time to buy a home, waiting any longer may not make sense. Mark Fleming, Chief Economist at First American, says it best: “Affordability is likely to worsen before it improves, so try to buy it now, if you can find it.”  

Save Time and Effort by Selling with an Agent

  Selling a house is a time-consuming process – especially if you decide to do it on your own, known as a For Sale By Owner (FSBO). From conducting market research to reviewing legal documents, handling negotiations, and more, it’s an involved and highly detailed process that requires a lot of expertise to navigate effectively. That’s one of the reasons why the percentage of people selling their own house has declined from 19% to 8% (See graph below): To help you understand just how much time and effort it takes to sell on your own, here’s a look at a few of the things you need to think about before putting that “For Sale” sign up in your yard. 1. Making a Good First Impression While it may sound simple, there are a lot of proven best practices to consider when prepping a house for sale. Do you need to take down your personal art? What’s the right amount of landscaping to boost your curb appeal? What wall colors are most appealing to buyers? If you do this work on your own, you may invest capital and many hours into the wrong things. Your time is money – don’t waste it. An agent can help steer you in the right direction based on current market conditions to save you time and effort. Since we’re in a hot sellers' market, you don’t want to delay listing your house by focusing on things that won’t change your bottom line. These market conditions may not last, so lean on an agent to capitalize on today's low inventory while you can. 2. Pricing It Right Real estate professionals have mission-critical information on what sells and how to maximize your profit. They’re experienced when it comes to looking at recent comparable homes that have sold in your area and understanding what price is right for your neighborhood. They use that data to price your house appropriately, maximizing your return. In a FSBO, you’re operating without this expertise, so you’ll have to do your own homework on how to set a price that’s appropriate for your area and the condition of your home. Even with your own research, you may not find the most up-to-date information and could risk setting a price that’s inaccurate or unrealistic. If you price your house too high, you could turn buyers away before they’re even in the front door, or run into problems when it comes time for the appraisal. 3. Maximizing Your Buyer Pool (and Profit) Contrary to popular belief, FSBOs may actually net less profit than sellers who use an agent. One of the factors that can drive profit up is effective exposure. Simply put, real estate professionals can get your house in front of more buyers via their social media followers, agency resources, and proven sales strategies. The more buyers that view a home, the more likely a bidding war becomes. According to the National Association of Realtors (NAR), the average house for sale today gets 5 offers. Using an agent to boost your exposure may help boost your sale price too. 4. Navigating Negotiations When it comes to selling your house as a FSBO, you’ll have to handle all of the negotiations. Here are just a few of the people you’ll work with: The buyer, who wants the best deal possible The buyer’s agent, who will use their expertise to advocate for the buyer The inspection company, which works for the buyer and will almost always find concerns with the house The appraiser, who assesses the property’s value to protect the lender As part of their training, agents are taught how to negotiate every aspect of the real estate transaction and how to mediate potential snags that may pop up. When appraisals come in low and in countless other situations, they know what levers to pull, how to address the buyer and seller emotions that come with it, and when to ask for second opinions. Navigating all of this on your own takes time –a lot of it. 5. Juggling Legal Documentation Speaking of time, consider how much free time you have to review the fine print. Just in terms of documentation, more disclosures and regulations are now mandatory. That means the stack of legal documents you need to handle as the seller is growing. It can be hard to know and truly understand all the terms and requirements. Instead of going at it alone, use an agent as your shield and advisor to help you avoid potential legal missteps. Bottom Line Selling your house on your own is a lot of responsibility. It’s time consuming and requires an immense amount of effort and expertise. Before you decide to sell your house yourself, let’s discuss your options so we can make sure you get the most out of the sale.  

Why You May Want To Cash in on Your Second Home

When stay-at-home mandates were enforced last year, many households realized their homes didn’t really fulfill their new lifestyle needs. An office (in some cases two), a media room, space for children to learn, a gym, and a large yard are all examples of amenities that became highly desirable almost overnight. Zelman & Associates recently reported that sales of primary residences grew by 9% in 2020. That increase in demand was met by the lowest supply of homes for sale in history. High demand and low supply caused prices to skyrocket over the past twelve months. Here are three home price indexes released most recently that show how home values have risen: FHFA Agency House Price Index shows a 13.9% increase CoreLogic Home Price Insights Report shows an 11.3% increase S&P Case-Shiller U.S. National Home Price Index shows a 13.2% increase Prices increased by double digits in every region of the country and in 19 of 20 major metros. Chicago was the only exception, where prices still rose by 9%. What does this mean to those who purchased a second home during the pandemic? Many people didn’t want to give up a home in the city or close to their office. Instead, they purchased a larger second home farther away and moved there to stay safe and have more space. According to the same Zelman report, sales for second homes rose an astonishing 27% in 2020. That large second-home retreat on a lake or in the mountains would demand a higher price than the average house. Let’s assume a buyer purchased such a home for $500,000. Assuming the middle 13.2% appreciation shown above, that home would now be worth about $566,000. Those who bought second homes to improve their lifestyle during the height of the pandemic, or those who just wanted to be in a safer environment, also made a great investment. What should these homeowners do now as the pandemic is receding, and the economy is reopening? The buyers of those second homes now have a decision to make. Many will move back to the original home they still own (the one that’s closer to work, friends, and family). Should they keep the second home? That could depend on answers to questions like these: Now that you may have to go back to the office (at least a few days a week) and students are required to physically attend school, would you still use the second house enough to warrant the expenses of an additional home? Would you go to the second home on most weekends, or would you return to the movie theater, attend sporting events, eat out at fine restaurants, or spend your time traveling again? Bottom Line If you purchased a larger second home during the pandemic, you were able to make day-to-day life much easier for those important to you. You also made it much safer. However, with those goals already accomplished, you now need to decide whether to continue paying the extra expenses or sell the house and cash in your profit. If you decide selling makes sense, let’s connect today to discuss the value of your second home.