After over a year of moderating home prices across the US, it appears home value appreciation is about to reaccelerate. Skylar Olsen, Director of Economic Research at Zillow, explained in a recent article:
“A year ago, a combination of a government shutdown, stock market slump and mortgage rate spike caused a long-anticipated inventory rise. That supposed boom turned out to be a short-lived mirage as buyers came back into the market and more than erased the inventory gains. As a natural reaction, the recent slowdown in home values looks like it’s set to reverse back.”
CoreLogic, in their January 2020 Market Pulse Report, agrees with Olsen, projecting home value appreciation in all fifty states this year. Here’s the breakdown:
- 21 states appreciating 5% or more (Reno-Sparks appreciated 12.2%)
- 26 states appreciating between 3-5%
- Only 3 states appreciating less than 3%
Many believe when real estate values are increasing, owning a home becomes less affordable. That misconception is not necessarily true.
In most cases, homes are purchased with a mortgage. The current mortgage rate is a major component of the affordability equation. Mortgage rates have fallen by almost a full percentage point since this time last year.
Another major piece of the equation is a buyer’s income. The median family income has risen by 5% over the last year, contributing to the affordability factor.
Black Knight, in their latest Mortgage Monitor, addressed this exact issue:
“Despite the average home price increasing by nearly $13,000 from just over a year ago, the monthly mortgage payment required to buy that same home has actually dropped by 10% over that same span due to falling interest rates…
Put another way, prospective homebuyers can now purchase a $48K more expensive home than a year ago while still paying the same in principal and interest, a 16% increase in buying power.”
If you’re thinking about purchasing a home, realize that homes may still be affordable even though prices are increasing. As the Black Knight report concluded:
“Even with home price growth accelerating, today’s low-interest-rate environment has made home affordability the best it’s been since early 2018.”
It’s hard to listen to today’s news without hearing about the uncertainty surrounding global markets, the spread of the coronavirus, and tensions in the Middle East, just to name a few. These concerns have caused some to question their investment plans going forward. As an example, in Vanguard’s Global Outlook for 2020, the fund explains, “Slowing global growth and elevated uncertainty create a fragile backdrop for markets in 2020 and beyond.”
Is there a silver lining to this cloud of doubt?
Some worry this could cause concern for the U.S. housing market. The uncertainty, however, may actually mean good news for real estate. Mark Fleming, Chief Economist at First American, discussed the situation in a recent report, “Global events and uncertainty…impact the U.S. economy, and more specifically, the U.S. housing market…U.S. bonds, backed by the full faith and credit of the U.S. government, are widely considered the safest investments in the world. When global investors sense increased uncertainty, there is a ‘flight to safety’ in U.S. Treasury bonds, which causes their price to go up, and their yield to go down.”
Last week, in a HousingWire article, Kathleen Howley reaffirmed Fleming’s point, “The death toll from the coronavirus already has passed Severe Acute Respiratory Syndrome, or SARS, that bruised the world’s economy in 2003… That’s making investors around the world anxious, and when they get anxious, they tend to sell off stocks and seek the safe haven of U.S. bonds. An increase in competition for bonds means investors, including the people who buy mortgage-backed bonds, have to take lower yields. That translates into lower mortgage rates.”
The yield from treasury bonds is the rate investors receive when they purchase the bond. Historically, when the treasury rate moves up or down, the 30-year mortgage rate follows. Here’s a powerful graph showing the relationship between the two over the last 48 years:
How might concerns about global challenges impact the housing market in 2020? Fleming explains, “Even a small change in the 10-year Treasury due to increased uncertainty, let’s say a slight drop to 1.6 percent, would imply a 30-year, fixed mortgage rate as low as 3.3 percent. Assuming no change in household income, that would mean a house-buying power gain of $21,000, a five percent increase.”
The Bottom Line.
For a multitude of reasons, 2020 could be a challenging year. It seems, however, real estate will do just fine. As Fleming concluded in his report, “Amid uncertainty, the house-buying power of U.S. consumers can benefit significantly.”
When the number of buyers in the housing market outnumbers the number of homes for sale, it’s called a “seller’s market.” The advantage tips toward the seller when the home is priced at or near market value, and as low inventory heats up, so too does the competition among those searching for a place to call their own. This can create multiple offer scenarios and bidding wars, making it tough for buyers to land their dream homes, unless they are coming in a with a big wad of cash. When financing your home purchase, here are three reasons why pre-approval should be your first step in the buying process:
- Gain A Competitive Advantage. Low inventory, like we have today, means homebuyers need every advantage they can get to make a strong impression and close the deal. One of the best ways to get one step ahead of other buyers is to get pre-approved for a mortgage before you make an offer. For one, it shows the sellers you’re serious about buying a home, which is always a plus in your corner. In addition, having pre-approval from a LOCAL lender that the we know and trust, and that the listing agent recognizes, may give you a huge advantage over the competition. Sellers and their Realtors tend to look more favorably on experienced lenders we know over online “quickie” loans.
- Accelerate the Home Buying Process. Pre-approval can also speed up the home buying process, so you can move faster when you’re ready to make an offer. In a competitive arena like we have today, being ready to put your best foot forward when the time comes may be the leg-up you need to cross the finish line first and land the home of your dreams.
- Know What You Are Qualified to Borrow. When you have provided all of the essential information to get pre-approved by a local lender, you also have a better sense of your budget, what you can afford, and ultimately how much you’re eligible to borrow for your mortgage. Ultimately, you’re less apt to have your heart set on a home that may be out of your reach.
If you are preparing to purchase a home in the near future, we are happy to refer you with a highly skilled and knowledgeable loan officer to get you moving in the right direction. The loan officer will pre-approve you based on the following criteria, also know as “The 4 C’s”:
- Capacity: Your current and future ability to make your payments
- Capital or Cash Reserves: The money, savings, and investments you have that can be sold quickly for cash
- Collateral: The home, or type of home, that you would like to purchase
- Credit: Your history of paying bills and other debts on time
While there are still many additional steps you’ll need to take in the home buying process, it’s clear why pre-approval is always the best place to begin. It’s your chance to gain the competitive edge you may need if you’re serious about owning a home. Let’s get together today to make sure you’re on the fastest path to homeownership. Call me at 775-233-0682 to get started.
If you’re planning to sell your home in the near future, and want to sell it as quickly as possible at the highest price possible, we strongly recommend following these 3 Most Important Steps:
1. Make Repairs/Maintain: Examine every inch of your house and look for things that need to be repaired or replaced. You may go as far as hiring a home inspector to provide a full report so you have no surprises during escrow. Below are some of the most common repairs made when selling your house. Here is a list of some of the most common items needing attention prior to selling:
- Ripped/tore/bend screens. Repair/replace as needed.
- Sticky glass slider tracks and window tracks/frames. Lube them &/or replace parts or whole door.
- Cracked light switches. Replace.
- Leaking faucets. Repair/replace.
- Leaking bathtub drains. Repair/replace.
- Dirty air filters. Change them.
- Broken or removed smoke detectors. Replace.
- Failed caulking and/or grout in shower/bath. Remove and re-caulk.
- Failed caulking on windows. Check inside and out and seal as needed.
- Broken vacuum seals on windows, they have moisture between the panes. Call glass company to take a look and replace.
- Cracked/chipped shower pan and/or bathtub. Repair (recommend Miracle Method in Reno)
- Light fixtures that have failed. Repair/replace.
- Water in the crawl space. Determine where it is coming from, eliminate it from entering, dry out and vent properly. If necessary, install a gutters on the house, and improve grading or install French drain. Under some circumstances, installing a sump pump may be necessary.
- Failed or missing vapor barrier. Install new vapor barrier.
- Earth/dirt-to-wood contact… Eliminate contact.
- Replace doorbell
- Old door handle/lock. May want to replace to freshen the first impression.
- Failing paint where needed. Prep and paint, especially the front door/door frame & facia and window trim.
- Holes and cracks in stucco. Seal and paint with Elastomeric material.
2. Clean It: Make your house sparkle! Whether you do it yourself or hire a cleaning service, this is a must! It is best to take care of this BEFORE listing and showing your home. Then, when you are about to close escrow, it will be easier to just do the final touches. Don’t neglect the following:
- Window Tracks and Frames
- Window coverings
- Walls (rub out scuffs with a Mr. Clean Magic Eraser or My Barkeeper’s Friend)
- Doors and door frames (Mr. Clean Magic Eraser)
- Baseboards (Mr. Clean Magic Eraser or My Barkeeper’s Friend)
- Corners of walls and ceilings (spider webs)
- Light Fixtures
- Toilets, mirrors, tubs, showers, counters
- Inside and outside of all cabinets, cupboards and drawers (use Murphy’s Oil or The Method Almond Oil from Target)
- Inside and outside all appliances (oven, stove, microwave, dishwasher, refrigerator, trash compactor… all appliances that will be visible during showings)
- Under sinks
- Garage (sweep it out, eliminate belongings you don’t need, and organize)
3. Stage and Prep for Photography and Showings: If your home is already vacant, we can bring in a range of staging pieces, from full furniture sets to essential decorative accessories. When occupying the home while you are selling, decluttering, organizing and moving belongings around may be recommended. This process is one of my areas of expertise, and one of the most important steps prior to professional photography by Matt Waclo Photography. Professional photography is included in my listing services and is critical for making the best first impression possible.
For guidance regarding these essential steps for selling your home, please feel free to contact me directly at 775-233-0682 or email me at firstname.lastname@example.org.
Around this time each year, many homeowners decide to wait until after the holidays to list their houses. Similarly, others who already have their homes on the market remove their listings until the spring. Let’s unpack the top reasons why listing your house now or keeping it on the market this winter may be the best choice you can make.
Here are Seven Great Reasons Not to Wait:
1. Relocation buyers are out there now. Many companies are still hiring throughout the holidays, and they need their new employees to start as soon as possible.
2. Purchasers who are looking for homes during the holidays are serious buyers and are ready to buy now.
3. You can restrict the showings on your home to days and times that are most convenient for you. You will remain in control.
4. Homes show better when decorated for the holidays.
5. There is minimal competition for you as a seller right now. Over the past few months and year-over-year, we’ve seen the supply of homes for sale decreasing.
6. The desire to own a home doesn’t stop during the holidays. Buyers who were unable to find their dream homes during the busy spring and summer months are still searching, and your home may be the answer.
7. Late fall and early winter make up the “sweet spot” for sellers. The supply of listings increases substantially after the holidays. Also, in many parts of the country, new construction will continue to surge and reach new heights in 2020, which will lessen the demand for your house next year.
The following post was written by Julien Leclair-Dionne, Forbes Councils Member, on Oct. 25, 2019 (Forbes.com) Julien LeClair-Dionne is a successful real estate investor, coach, broker and founder of HomeFluent, a technology-driven real estate company.
One of the questions I’ve been receiving the most often over the last year is, “Is now a good time to invest in real estate with all this talk of recession and housing downturn? Not to mention the market crashing and the real estate bubble busting!”
With everything happening in the world right now, from trade wars to Brexit and everything in between, it’s no wonder that investors and potential homebuyers are worried and want to avoid making a costly mistake more than ever.
What’s even more frustrating is that no one seems to agree or give a straight answer. Will there actually be a recession or not? Are we on the brink of a recession or a few years in waiting? Will it be short in duration or a long-term dilemma? Will it be a vast or a minor one? And more importantly, will it make real estate prices drop or not?
So, what should you do?
The first thing to realize is that a recession is always coming. Anyone who owns their home or invests in rental properties will weather any number of recessions over many years. For the past four years, I have been frequently hearing that the sky will fall and that the market could crash at any moment. This could have easily paralyzed me and stopped me from investing. However, it also would have stopped me and dozens of other investors from realizing the amazing gains that are entirely tangible over this period.
There are opportunities and deals to be had in every market. Successful investors who know how to work a recession never sit on the sidelines, but rather know how to recognize those opportunities.
How could this next recession impact you?
When I talk to people about their fear of a recession, what they’re most concerned about is for real estate prices to drop as significantly as they did in 2008. Canadian investors in particular are expressing concern about seeing more price drops, as was recently experienced in Vancouver.
In my opinion, that’s unlikely to happen. In 2008, real estate prices dropped significantly not as a result of the recession, but because the housing collapse is what caused the recession in the first place. Real estate performed relatively well in prior recessions.
In addition, market statistics are usually comprised of the entire country or an entire province or state. But when investing in real estate, investors are only concerned about what happens in a specific city, to a specific property type, in a specific neighborhood. In other words, when in a recession, not every property gets impacted equally. So, when investing in rental properties, a drop in property value usually does not have a big impact on rental rates.
Also consider where else you may be investing your money if you decide that investing in real estate might be too risky. Investing in the stock market is often riskier, with a much lower payoff. Keeping the money in a checking account won’t protect it against inflation. Buying low-risk mutual funds and bonds might be a good strategy for some of your portfolio, but it could make you miss out on big opportunities. Since no one knows when a recession will be coming with certainty, you must make smart decisions while considering the impact they will have. While precise market timing may be impossible, there are a few ways you can prepare.
Nine Ways To Beat The Recession
Here are nine strategies and things to remember to help investors win in the next recession:
1. Fundamentals are always important. You’ve probably heard that investors make money when buying, not when selling, the property, and that’s especially important when there’s economic uncertainty. A great deal at the top of the market cycle will protect your investment if and when a market correction happens.
2. Having goals and a long-term strategy will help you weather multiple recessions and reduce your risk significantly. Focus on the bigger picture.
3. In real estate, cash flow is king. A property that cash flows today is likely to cash flow during a recession. Even if on paper the value of your investment properties drops, if they cash flow positively, you’ll emerge from the recession a happy investor.
4. Buy quality properties in high-demand areas. I don’t believe in recession-proof properties, but good properties in great locations will do better in a potential market downturn.
5. Always analyze properties, and only buy at prices that make sense.
6. Keep healthy cash reserves and don’t over-leverage yourself.
7. Don’t panic and sell at the bottom of the market. Even if prices drop, they will recover. Economic cycles make property values go up and down, but over time, real estate historically always goes up.
8. Make a recession an opportunity. It may be possible to score a great deal on an investment property.
9. Always be ready. Opportunity can knock at any moment!
So, is it a bad time to invest in real estate?
If you buy the right property, at the right price, in the right area, I believe your investment will perform very well — even when a recession strikes. Because it will strike, but you will be expecting it. And you will be ready.
No one knows for sure when the next recession will occur. What is known, however, is that the “talked about” upcoming economic slowdown will not be caused by a housing market crash, as was the case in 2008. There are those who disagree and are comparing today’s real estate market to the market in 2005-2006, which preceded the crash. In many ways, however, the market is very different now. Here are three suppositions promoted by some, and why they don’t hold up.
SUPPOSITION #1 : A critical warning sign last time was the surging gap between the growth in home prices and household income. Today, home values have also outpaced wage gains. As in 2006, a lack of affordability will kill the market.
COUNTERPOINT #1: The “gap” between wages and home price growth has existed since 2012. If that is a sign of a recession, why didn’t we have one sometime in the last seven years? Also, a buyer’s purchasing power is MUCH GREATER today than it was thirteen years ago. The equation to determine affordability has three elements: home prices, wages, AND MORTGAGE INTEREST RATES. Today, the mortgage rate is about 3.5% versus 6.41% in 2006.
SUPPOSITION #2: In 2018, as in 2005, housing-price growth began slowing, with significant price drops occurring in some major markets. Look at Manhattan where home prices are in a “near free-fall.”
COUNTERPOINT #2: The only major market showing true depreciation is Seattle, and it looks like home values in that city are about to reverse and start appreciating again. CoreLogic is projecting home price appreciation to reaccelerate across the country over the next twelve months.
Regarding Manhattan, home prices are dropping because the city’s new “mansion tax” is sapping demand. Additionally, the new federal tax code that went into effect last year continues to impact the market, capping deductions for state and local taxes, known as SALT, at $10,000. That had the effect of making it more expensive to own homes in states like New York.
SUPPOSITION #3: Prices will crash because that is what happened during the last recession.
COUNTERPOINT #3: It is true that home values sank by almost 20% during the 2008 recession. However, it is also true that in the 4 previous recessions, home values depreciated only once (by less than 2%). In the other three, residential real estate values increased by 3.5%, 6.1%, and 6.6%.
Price is determined by supply and demand. In 2008, there was an overabundance of housing inventory (a 9-month supply). Today, the national housing inventory is less than half of that (a 4-month supply).
THE BOTTOM LINE: We need to realize that today’s real estate market is nothing like the 2008 market. Therefore, when a recession does eventually occur, it will very likely NOT resemble the last one.
Whether it is your first time or your fifth, it is always important to know all the facts when it comes to buying a home. With the large number of mortgage programs available that allow buyers to purchase homes with down payments below 20%, you can never have too much information about Private Mortgage Insurance (PMI).
So… what exactly is PMI?
Freddie Mac defines PMI as…
“An insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.
Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”
As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. Freddie Mac goes on to explain that:
“The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $30 and $70 per month for every $100,000 borrowed.”
According to the National Association of Realtors, the average down payment for all buyers last year was 13%. For first-time buyers, that number dropped to 7%, while repeat buyers put down 16% (no doubt aided by the sale of their homes). This just goes to show that for a large number of buyers last year, PMI did not stop them from buying their dream homes.
Here’s an example of the cost of a mortgage on a $200,000 home with a 5% down payment & PMI, compared to a 20% down payment without PMI:
The larger the down payment you can make, the lower your monthly hosing cost will be. But Freddie Mac urges you to remember:
“It’s no doubt an added cost, but it’s enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”
If you have questions about whether you should buy now or wait until you’ve saved a larger down payment, let’s get together to discuss our market’s conditions and help you make the best decision for you and your family. I can also connect you with lenders who have your best interested at the height of their priority.
Here are four reasons to consider buying today instead of waiting:
1. Prices will likely continue to rise.
CoreLogic’s latest U.S. Home Price Insights reports that home prices have appreciated by 3.7% over the last 12 months. The same report predicts that prices will continue to increase at a rate of 4.8% over the next year.
Home values will continue to appreciate. Waiting may 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 fixed rate mortgage have started to level off around 4.3%. Most experts predict that rates will rise over the next 12 months. The Mortgage Bankers Association, Fannie Mae, Freddie Mac, and the National Association of Realtors are in unison, projecting rates will increase 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 mortgage.
Some renters have not yet purchased a home because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that unless you are living with your parents rent-free, you are paying a mortgage – either yours or your landlord’s.
As an owner, your mortgage payment is a form of ‘forced savings’ which allows you to have equity in your home that you can tap into later in life. As a renter, you guarantee your landlord is the person with that equity.
Are you ready to put your housing cost to work for you?
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?
Examine the actual reason you are buying and decide if it is worth waiting. Whether you want to have a great place for your children to grow up, greater safety for your family, or you just want to have control over renovations, now could be 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.
So, you’ve been searching for that perfect house to call “home” and you’ve finally found it! The price is right, and in such a competitive market, you want to make sure you make a good offer so that you can guarantee that your dream of making this house YOURS comes true!
Below are 4 steps provided by Freddie Mac to help buyers make offers, along with some additional information for your consideration:
1. Determine Your Price
“You’ve found the perfect home and you’re ready to buy. Now what? Your real estate agent will be by your side, helping you determine an offer price that is fair.”
Based on your agent’s experience and key considerations (like similar homes recently sold in the same neighborhood or the condition of the house and what you can afford), your agent will help you to determine the offer that you are going to present.
Getting pre-approved will not only show home-sellers that you are serious about buying, but it will also allow you to make your offer with confidence because you’ll know that you have already been approved for a mortgage in that amount.
2. Submit an Offer
“Once you’ve determined your price, your agent will draw up an offer, or purchase agreement, to submit to the seller’s real estate agent. This offer will include the purchase price and terms and conditions of the purchase.”
Talk with your agent to find out if there are any ways in which you can make your offer stand out in this competitive market! A licensed real estate agent who is active in the neighborhoods you are considering will be instrumental in helping you put in a solid offer.
3. Negotiate the Offer
“Oftentimes, the seller will counter the offer, typically asking for a higher purchase price or to adjust the closing date. In these cases, the seller’s agent will submit a counteroffer to your agent, detailing their desired changes, at this time, you can either accept the offer or decide if you want to counter.
Each time changes are made through a counteroffer, you or the seller have the option to accept, reject or counter it again. The contract is considered final when both parties sign the written offer.”
If your offer is approved, Freddie Mac urges you to “always get an independent home inspection, so you know the true condition of the home.” If the inspector uncovers undisclosed problems or issues, you can discuss any repairs that may need to be made with the seller or even cancel the contract altogether.
4. Act Fast
The inventory of homes listed for sale has remained well below the 6-month supply that is needed for a “normal” market. Buyer demand has continued to outpace the supply of homes for sale, causing buyers to compete with each other for their dream homes.
Make sure that as soon as you decide that you want to make an offer, you work with your agent to present it as quickly as possible.
Whether buying your first home or your fifth, having a local real estate professional who is an expert in his or her market on your side is your best bet in making sure the process goes smoothly. Let’s talk about how we can make your dream of homeownership a reality!