March Market News

Market Update Real Versus Reactionary In Today’s Housing Market Recent housing market news has had homeowners on a rollercoaster ride. In November, reports of a slump had homeowners concerned about housing prices. Then January reports announced dramatic increases in December. What’s real and what’s reactionary? We predict a strong 2016 housing market with increased demand ...

Market Update

Real Versus Reactionary In Today’s Housing Market

Recent housing market news has had homeowners on a rollercoaster ride. In November, reports of a slump had homeowners concerned about housing prices. Then January reports announced dramatic increases in December. What’s real and what’s reactionary? We predict a strong 2016 housing market with increased demand and an inventory shortage causing home prices to rise.

Housing Market Reactionary News

The November slump and dramatic increases in December are easily explained. New TRID mortgage regulations pushed closing dates that would have occurred in November into December, making November look slow and December appear to have a huge spike. Now that mortgage companies have adjusted to the new regulations, the correction has been made and will not continue to influence data and create reactionary housing market news.

Housing Market Update

The housing market is doing well and on track for a strong 2016.

  • The Average Days on the Market (how many days homes are on the market before selling) statistic shows that the market is moving well. In most states, homes remain on the market for less than 90 days.
  • The Median Months from Completion to Sold data shows us that new construction homes are selling rapidly.
  • Experts are forecasting a strong 2016.
    • National Association of Realtors (NAR): “Overall resilient US economy and very solid job growth in recent years made 2015 a great rebound year for the housing market. Existing home sales were at the highest pace since 2016 and the pending home sales index came in at an average which was the highest annual reading since, you guessed it, 2006.”
    • National Association of Home Builders reports that single family starts were up over 10% to 715,300 and total housing starts were over a million and up 10.8% compared to 2014.
    • Jonathan Smoke, Chief Economist at “All indicators point to this spring being the busiest since 2006.”

Rising Demand and Inventory Shortage

Your optimal time to list is impacted by rising demand for homes and an inventory shortage. Rising demand is caused by an increase of first-time homebuyers and the entrance of boomerang buyers. Boomerang buyers are those that lost their home through foreclosure or short sale or had a mortgage loan modification between the bubble and the burst.

  • In past issues, we have reported a rise in the number of people moving out of their parents’ basement into a home of their own. This number is continuing to increase dramatically.
  • AEI’s International Center of Housing Risks reports that 57% of all buyers in January were first time homebuyers.
  • As noted in past issues, rising rent costs are making homeownership more attractive and financially possible. Recent reports show that rents are continuing to increase.
  • Boomerang buyers are re-entering the market. Now their credit has cleared, and they are back in the market. It is predicted that 300,000 boomerang buyers will purchase homes in 2016, increasing to 500,000 in 2017 and starting to reduce down to 400,000 in 2018.

An inventory shortage (number of homes on the market) combined with increased demand is driving home prices up.

  • Inventory is measured by the number of months of inventory available each month. In a typical market, six months is the norm.
    • Nine of the twelve months of 2015 showed 5 months or lower.
    • This past month, months of inventory fell below 4 months for the first time in years.
  • The foreclosures and short sales that had been filling inventory are disappearing.

While homeowners appreciate the rise in home prices, rising prices will eventually price potential first-time homebuyers out of the market.

  • According to the most recent NAR report, home prices have increased rather dramatically in every single region.
  • Normal annual appreciation (pre-bubble/bust) would be about 3.5% year over year. Current numbers are at about double the traditional appreciation.
  • Core logic predicts appreciation for every state next year with appreciation rising over 4% for a vast majority of states.

How does the current state of the housing market affect my timing for buying or selling?

If you have been considering putting your house on the market, you may be waiting for spring because you have been told that is the best time to sell. In this market, the opposite is true. Listing your house now puts you in a better position.

  • While demand may increase in the spring, supply will also increase, creating additional competition for your home.
  • New home inventory will also continue to rise in the spring, creating more competition for your home.
  • With less competition, you can ensure a better price for your house, and you can also avoid tricky negotiations over home inspections and price and issues around financing.

If you have been thinking about buying a new home, this is the time to buy. Start your search today.

  • Interest rates are still low enough to make a huge impact on the price of home you can afford. You can afford double the price with today’s interest rates than those available in 1985.
  • Doug Duncan, Senior Vice president and Chief Economist at Fannie Mae: “If in today’s interest rates and house prices, they can find a house that can fit their budget, they should buy.”
  • This month’s report on interest rates is consistent with predictions from last month. Interest rates are on the rise, expected to go up about three quarters of a percentage point over where they are today (using an average of Fannie Mae, Freddie Mac, Mortgage Bank Association, National Association of Realtors predictions). To prevent interest rates impacting the price of home you can afford, start your search as soon as possible before interest rates get higher.
  • Homeownership has a financial advantage over renting. Ralph McLaughlin, Chief Economist at Trulia: “In many markets, mortgage rates would have to be seven, eight, nine, or even 10% for the cost of owning to roughly equate to the cost of renting.”
  • While a shortage exists, that does not mean you cannot find the home of your dreams. Instead, it means that using an experienced real estate agent who knows the market is even more essential.

Appraisal Awareness

Rising home prices are also influencing the appraisal process. Appraisals are often based at least somewhat on recent home sales and tend to move more slowly than the impact demand and inventory has on what buyers are willing to pay. For eleven of the last twelve months, there’s been a fairly large difference between how much homeowners and appraisers believe homes are worth. However, for the last five months, that difference is starting to shrink a little bit. As a seller, be aware that the current state of the market puts us in a position of needing to sell the house twice: first to the buyer, and then to the bank. In a market where prices are doing very well and an inventory shortage exists, homebuyers are often willing to pay more than the bank believes the home is worth.



What does all this mean for you as a homeowner or potential homeowner? If you have been thinking about buying or selling a home, start the process now. Expect home prices and interest rates to continue to rise. And be aware of the impact of the changing state of the market on the appraisal process. If you have questions about the housing market and how it impacts your decision to buy or sell a home or the value of your home, call The Mittelstaedt Team today. We are happy to guide you through the process.

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