Sales Contracts Hit Highest Level in Months

Sales Contracts Hit Highest Level in Months

The National Association of Realtors (NAR) just announced that the February Pending Home Sales Index reached its highest reading since July 2015.

What is the Pending Home Sales Index (PHSI)?

NAR’s PHSI is “a forward-looking indicator based on contract signings”. The higher the Pending Home Sales Index number, the more contracts have been signed by buyers that will soon translate to sales. February’s Index rose 3.5% month-over-month to 109.1.

What does this mean for the market?

Lawrence Yun, NAR’s Chief Economist explained:

“After some volatility this winter, the latest data is encouraging in that a decent number of buyers signed contracts last month, lured by mortgage rates dipping to their lowest levels in nearly a year and a modest, seasonal uptick in inventory.”

“Looking ahead, the key for sustained momentum and more sales than last spring is a continuous stream of new listings quickly replacing what’s being scooped up by a growing pool of buyers. Without adequate supply, sales will likely plateau.”

So What Does This Mean For Buyers?

There is a lot of competition out there right now for your dream home. Prices are going to continue to climb, act now before you are priced out of your future home.

What Does This Mean For Sellers?

If you are on the fence about listing your home for sale and debating whether now is the time to move on with your plans of relocating… don’t wait!

There are more buyers that are ready, willing and able to buy their first, second, third, vacation, or investment property now than there has been in years! The supply of homes for sale is not keeping up with the demand of these buyers.

Listing your home for sale now will give you the most exposure to buyers and the best sales price.

Bottom Line

Whether you are planning on buying or selling a house this year, waiting to act no longer makes sense.

Home Prices Are Rising, But This is Not a Real Estate Bubble

Home Prices Are Rising, But This is Not a Real Estate Bubble

Real Estate Bubble

I recently reported that home prices are continuing to rise across most of the nation. This has created concern in some pundits that a housing bubble, like we saw ten years ago, is forming again. I want to explain why these concerns seem to be quite unfounded.

The current increase in home values can be easily explained by the theory of supply and demand. Right now, the number of families looking to purchase a home is greater than the supply of homes on the market.

Here is a chart that explains how the months’ supply of housing inventory impacts home values:

Yes, Home Prices Are Rising. No, a New Housing Bubble is NOT Forming | Simplifying The Market

According to the latest Existing Home Sales Report from the National Association of Realtors, there is currently a four-month supply of inventory. That puts us in the blue section of the above graphic. Home prices should be appreciating.

The difference in 2006…

A decade ago, the demand for housing was artificially boosted by lending standards that were far too lenient. Today, the strength of the demand for housing is legitimate, as lending standards are nowhere near what they were a decade ago.

For proof of this, let’s look at a graph of the Mortgage Bankers’ Association’s Mortgage Credit Availability Index:

Yes, Home Prices Are Rising. No, a New Housing Bubble is NOT Forming | Simplifying The Market

The higher the number, the easier it was to get a mortgage. We can see that from June 2005 to June 2007, mortgage standards were much more lenient than they have been over the last nine years.

Bottom Line

Today’s price increases, unlike those a decade ago, are the result of qualified buyer demand exceeding the current inventory of homes available for sale. Once the supply increases, prices will level out, however, until then we will continue to see prices rise steadily.

Housing Market Set to Spring Forward This Year

Housing Market Set to Spring Forward This Year

Housing Market

Just like our clocks this weekend in the majority of the country, the housing market will soon “spring forward!” Similar to tension in a spring, the lack of inventory available for sale in the market right now is what is holding back the market.

Many potential sellers believe that waiting until Spring is in their best interest, and traditionally they would have been right.

Buyer demand has seasonality to it, which usually falls off in the winter months, especially in areas of the country impacted by arctic temperatures and conditions.

That hasn’t happened this year.

Demand for housing has remained strong as mortgage rates have remained near historic lows.

The National Association of Realtors (NAR) recently reported that the top 10 dates sellers listed their homes in 2015 all fell in April, May or June.

Those who act quickly and list now could benefit greatly from additional exposure to buyers prior to a flood of more competition coming to market in the next few months.

Bottom Line

If you are planning on selling your home in 2016, let’s meet up to evaluate the opportunities in your market.

Real Estate is a Great Investment

Real Estate is a Great Investment

This morning I had an interesting exchange with a potential client where they were telling me how they had read that real estate is no longer a good investment and they cited an economist named Alex Tabarrok. I gave them my best reply at the time, but I wanted to give them a more informed response, and rather than just use my own anecdotal evidence, I really wanted to provide them with information from other professionals in the field of economics. I have stated and reported many times that the American Dream of homeownership is alive and well, and tomorrow, I’ll touch on the personal benefits to homeownership, however, here is what I came up with for today:

In a recent blog post on Marginal Revolution, economist Alex Tabarrok discussed homeownership as an investment.

Here is what Mr. Tabarrok had to say:

“Housing is overrated as a financial investment. First, it’s not good to have a significant share of your wealth locked into a single asset. Diversification is better and it’s easier to diversify with stocks. Second, unless you are renting the basement, houses don’t pay dividends. Stocks do. You can hope that your house will accumulate in value but don’t count on it. Indeed, you should expect that as an investment your house will appreciate less than does the stock market. You didn’t expect to get a great investment and a place to live in the meantime, did you?”

Here is my rebuttal:

Eric Belsky, the Managing Director of the Joint Center of Housing Studies at Harvard University expanded on the top financial benefits of homeownership in his paper –The Dream Lives On: the Future of Homeownership in America.

Let’s use some quotes from Belsky’s study to address comments by Mr. Tabarrok:

Tabarrok:  

“Housing is overrated as a financial investment.”

Belsky:

“Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”

Tabarrok:

You can hope that your house will accumulate in value but don’t count on it. Indeed, you should expect that as an investment your house will appreciate less than does the stock market.”

Belsky:

“Homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”

Tabarrok:

“You didn’t expect to get a great investment and a place to live in the meantime, did you?”

Belsky:

“Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.

Homeowners are able to deduct mortgage interest and property taxes from income…On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.”

Bottom Line

I realize that homeownership makes sense for many Americans for an assortment of social and family reasons. It also makes sense financially. If you are considering a purchase this year, contact myself or a professional in your area who can help you evaluate your ability to do so.

Low Inventory Causes Home Prices to Rise

Low Inventory Causes Home Prices to Rise

The National Association of Realtors (NAR) released their latest Quarterly Metro Home Price report earlier this month. The report revealed that home prices are not only continuing to rise but that the increases are accelerating. Lawrence Yun, Chief Economist at NAR, discussed the impact of low inventory on buyers in the report:

“Without a significant ramp-up in new home construction and more homeowners listing their homes for sale, buyers are likely to see little relief in the form of slowing price growth in the months ahead.”

Here are the percentage increases of home prices for the last two quarters:

Low Inventory Causes Home Prices to Accelerate | Simplifying The Market

What this means to sellers

Rising prices are a homeowner’s best friend. As reported by CoreLogic in a recent blog post:

“With demand strong and inventory thin, the share of homes selling for the list price or more has also returned to pre-bust levels. With inventory tight, homes are more likely to sell above the asking price.”

What this means to buyers

In a market where prices are rising, buyers should take into account the cost of waiting. Obviously, they will pay more for the same house later this year. However, as Construction Dive reported, the amounts of cash necessary to buy a home will also increase.

“These factors have created a situation where the market keeps moving the goalposts in terms of the down payment necessary for first-time homebuyers to get into a home.”

Bottom Line

If you’re thinking of selling and moving down, waiting might make sense. If you are a first time buyer or a seller thinking of moving up, waiting probably doesn’t make sense.