Millennials: A Driving Force of Home Sales in the Near Future??

The cover story of last month’s Barron’s Magazine discussed the Millennial generation and the impact they will have on the economy including the housing sector. There have been many contrasting views about this age group and their feelings on whether or not homeownership is a part of their personal American Dream.

Here are few questions about this generation that have been debated over the last several years… along with some current findings.

Is the Number of Millennials Large Enough to Make an Impact?

The Barron’s article quantifies their potential impact:

“Millennials sometimes called Generation Y, and defined by many demographers as ranging from ages 18 to 37 — make up the largest population cohort the U.S. has ever seen. Eighty-six million strong, it is 7% larger than the baby-boom generation, which came of age in the 1970s and ’80s. And the Millennial population could keep growing to 88.5 million people by 2020, owing to immigration, says demographer Peter Francese, an analyst at the MetLife Mature Market Institute.”

Do Millennials Even Believe in Homeownership?

There have been many recent studies showing this generation’s belief in homeownership is as strong as previous generations. Just last month, Gallup released a poll, American Dream of Owning Home Lives On, Even for Young, which revealed that 91% of young adults between 18 and 29 years old either own a home or plan to buy one. The report says:

“Nearly 7 in 10 Americans aged 18 to 29 currently do not own a home, but plan on buying one… Coupling this with the 21% of younger Americans who say they already are homeowners leaves few adults under 30 who say they don’t own a home and have no plans on buying one.”

What about Student Debt?

Barron’s explains the challenge may not be as crippling as some think.

“There is almost $1 trillion of student debt outstanding in the U.S. today, which could limit the purchasing power of Millennials…But, total figures are misleading. The average student loan among Gen Y-ers is $25,000, and the median loan is nearly $14,000, according to the Federal Reserve Bank of Kansas City. Less than 1% of student loans are larger than $100,000.”

Are They Ready to Leave Mom & Dad’s?

The economy forced many young adults to return home after college to live with their parents. Barron’s explains that, as the economy improves, this anomaly will correct itself:

“As the millennials’ employment situation improves, more young adults living at home will pack their bags and move out. That could spur an increase in U.S. household formation, which turned negative in 2007-08. Since then, the number of newly created households has recovered to about a million a year, still well below an annual average of 1.5 million since the 1970s, according to Census Bureau data.”

According to the latest CoreLogic Market Pulse Report, this correction is already occurring. They explain:

“The recession curtailed household formations, causing doubling-up in living arrangements and driving young potential buyers back to their parents. More recent data shows a shift with household formations returning in force.”

Also, Freddie Mac recently projected new household formations to again return to the 1.5 million levels in 2013.

Will They Prefer Owning over Renting?

The Barron’s story gives a good reason why they might:

“Greater financial security could mean an increase in the birth rate, which typically slumps during economic downturns. Francese sees the average birth rate for U.S. women rising to 2.1-2.2 in coming years from a depressed 1.9 recently. ‘A lot of Millennials put off having babies, and now they will get to work,’ he says. That suggests they will also start buying homes.”

CoreLogic believes that the first time homebuyer is poised to return to the market this year. They explain:

“As new renter-households are formed, rental prices are bid up, making the prospect of owning more attractive to existing renters. Sustained low interest rates add to the appeal for current renters to convert to homeownership. The expectation this spring is that more renters will take advantage of historically low interest rates and low home prices to become homeowners.”

Things are looking promising. Now we just need the ever-healing hand of time to prove the projections correct. All in all, it’s a pretty good guess that Millennials will play a very large role in the recovery of the housing market.

 

Adapted from the KCM Blog on May 7, 2013

Buyers: Get Your Offer Accepted!

The National Association of Realtors just released their Pending Sales Report which revealed that buyer demand is at its highest point in three years. At the same time, the supply of homes for sale has dramatically dropped in the last several months. That has created a real estate market not seen since boom times of the last decade. We are beginning to see bidding wars in most price points in almost every market.

The challenge becomes how to help buyers make an offer that will ensure that they are the winning bidder when they finally find that perfect home. To better the chances of an offer being accepted, a buyer should consider three things:

You only get one chance to make a first impression.

Sellers develop their own personal feelings about the buyers that come through their house during the selling process. Those feelings often impact the seller’s thinking when deciding which offer to accept. Put your best foot forward right from the first time you meet the homeowner. Make a great impression, and you are more likely to be rewarded.

10% different can be 100% better.

This marketing axiom applies to a buyer’s offer. What can you do to set yourself apart from the other offers? We are not just talking about price here. Think outside the proverbial box. Thinking of creative ways to take some pressure off of the seller is just one example.

This is not 2011!

Two years ago, inventory levels as well as the direction of home prices and mortgage interest rates all favored the buyer. Things have dramatically changed since then. The buyer must understand the scope of these changes and what impact they will have should the buyer decide to pass on a current opportunity.

In today’s current market situation, it is important that a buyer be well versed before diving into it. There are tricks of the trade that an experienced real estate professional will know that buyers can use to their advantage, and rightfully should. Agents are your biggest asset in negotiations and advice. Use that leverage to get yourself into the home of your dreams!

 

Adapted from the KCM Blog on May 2, 2013

Buyers Ask “How do I stand out from the competition?”

The spring season tends to flood the housing market with buyers, and in markets with low inventory levels, the competition is stiff. As home prices continue to recover and interest rates remain at near-record lows, some houses are receiving multiple offers. To win the bid, buyers need to stand out from the crowd. According to the National Association of Realtors, houses sold in 71 days in January, down from 99 days a year ago.

Since markets are moving fast, experts recommend buyers have their loan pre-approved and down payment ready before starting their search.  “The market is changing,” says Cara Ameer, broker associate and Realtor at Coldwell Banker Vanguard Realty based in Ponte Vedra Beach, Fla. “Inventory is low and demand is high—a buyer needs to know exactly what their parameters are.”

Multiple bids are becoming the norm, so be ready to compete and do your homework to seal the deal. The longer the negotiations, the more chance you could lose out to someone else who made a better offer, says Ameer. Be reasonable without being difficult because until an offer is signed, sealed and delivered, other buyers can bid on the property.

While you have to have a competitive mindset in the current market, you still have to maintain your budget. “You don’t want to end up paying more for the house than it’s worth, [and] you don’t want to unduly stretch yourself just to get into a property” says Daren Blomquist, vice president at RealtyTrac. It’s also important to avoid cutting corners like skipping the inspection or engaging in a bidding war.

To help you become a homeowner in this competitive market, I recommend the following tips for being the most attractive:

Plan Ahead

“You have to plan about four months before you’re going to buy,” says Michael Corbett, Trulia’s real estate expert. Check your credit for accuracy and avoiding making any big purchases or taking on any big debt during this time.

“[Debt] brings down your credit score and increases your debt-to-income [ratio] which are two critical things banks look at when qualifying and pre-approving you for a loan,” says Corbett. If your debt-to-income ratio is too high, it is recommend that you pay down as much debt as you can to lower this ratio.

Set Your Home Price

It’s simple. Don’t look at a $300,000 home if all you can afford is $250,000. Less supply on the market increases the likelihood for multiple offers, and you won’t reasonably be able to compete. If properties are selling at 95% of asking price, don’t think you’ll get a deal at 85% of asking price. The market just doesn’t work that way anymore.

If you do spot a great deal on a house, don’t wait days to make an offer. Since time isn’t on your side, learn how to spot a great deal by researching an area’s home prices. This is something I often do on behalf of my clients, so when the data is presented, it’s important to acknowledge the findings and use them to your advantage.

Being educated will help you negotiate and could prevent you from paying more for a house than it’s actually worth. In terms of negotiations, it’s typically not wise to become too emotionally involved. Instead, use facts and statistics to support your offer.

Know that Cash is King

The more cash you have, the more appealing you are as a buyer. Putting 20% or more down makes you look more financially stable and gives sellers comfort that you will qualify for a mortgage.

Cash can cover a multitude of problems when you make an offer, whether it’s difficulty with the mortgage process or a lower-than-expected appraisal. “A buyer can contribute more cash to cover the different between the appraisal and offer price,” says Blomquist.

Appraisers use surrounding properties for comps, says Ameer, and if there are only foreclosures, that’s a bad hand to be dealt. You can always review the appraisal for discrepancies and suggest different comps but don’t go into it expecting the value to change.

Get Pre-approved Before You Search

Getting prequalified for a mortgage gives a ballpark for what you can afford to buy and will streamline your search process. Getting pre-approved will also help you to compete with an all cash buyer. When you know what you can afford and are pre-approved, you shouldn’t be shopping outside of your price range. It makes you a much stronger buyer when you can turn in that preapproval letter with your offer.

If you are financing your house with a mortgage, have a pre-approval letter with you. If you are paying cash, have proof of funds ready to present with your offers. This makes the seller feel more at ease with your financial capabilities.

Limit Your Contingencies

Having as few contingencies as possible can help make you a more alluring buyer. “Don’t overcomplicate your offer to the seller,” says Ameer. Certain contingencies based on your ability to get a mortgage, the appraisal and home inspection are standard, but piling on more could make the seller less inclined to work with your offer.

Making your offer contingent upon selling your house first will make you a less appealing buyer. If you need to sell your house before buying a new one, then sell your home first and rent or move in with family or friends while you look for your new home. As a seller, you’ll sell that home quickly. Then as a buyer, you are much more appealing than a buyer contingent on a sale or one that requires more financing.

Add a Personal Touch

It might be a good idea to send a letter to the seller explaining why you want the house. “You become a person who really loves and appreciates the home instead of just a number,” says Corbett. Sending a letter is just one extra little thing that will help level the playing field.

Be Flexible with Closing Dates

“Let the seller know that you would be flexible on the closing timeline,” says Corbett. Find out when the seller would ideally like to close on the house and see if you can match it.

Adapted from an Article on foxbusiness.com written by Andrea Murad on March 21, 2013

5 Tips for First-Time Buyers

Buying a first home can be a scary, confusing and stressful process. Many would-be buyers are understandably nervous at the prospect of making the largest purchase of their lives. Rather than diving in and hoping for the best, you should prepare carefully before you begin the house search.

Following some useful tips will help you turn an overwhelming and intimidating experience into an exciting search that yields the right home!

1) Establishing a Realistic Price Range

A common mistake among first-time home buyers is purchasing more house than they can afford. You should not rely on banks to determine what you can comfortably spend on a new home. Banks are adept at determining the amount of monthly debt in the form of mortgage, insurance, credit card, student loan and auto loan payments. They have no way of knowing, however, what you spend each month on groceries, entertainment and utilities. You are the best judge of your personal finances.

You should make a list of all monthly expenses, excluding rent or your current mortgage payment. Whatever is left after monthly expenses is the amount available for a mortgage payment and housing expenses such as taxes, insurance and home maintenance. Careful consideration of your budget saves time by weeding out homes that you cannot afford and guards against overspending.

2) Seeking Pre-approval

Getting pre-approved for a mortgage prevents a deal on a dream home from falling apart due to failure to obtain financing. You should compare loans from several lenders to see which one best suits your needs. A pre-approval letter will give you some power to negotiate on a home’s price because the seller will view a pre-approved offer more favorably than an offer that comes without lender pre-approval.

Keep in mind that pre-approval is different from pre-qualification. During pre-qualification, the lender estimates what you can afford. Preapproval is a more involved process in which the lender looks at your credit report and performs an extensive financial background check. At this point, you will get a good idea of the mortgage interest rate as well.

3) Setting Priorities

You should compile a list of what you need and want in a house. Needs might include the number of bedrooms, square footage, high-quality schools and commute time. These needs are aspects of the house that either cannot be changed or cannot be changed without substantial cost to you.

Wants, on the other hand, are something you would like and that can be changed. Wants may include a pool or hot tub, landscaping, finished basement or hardwood floors. Making a list of wants and needs helps you focus on what is really important in a house, narrowing the list of prospective homes. Ideally, the new house will include all of the needs and a few wants.

4) Choosing the Right Neighborhood

Crime statistics, insurance rates, property taxes and school quality can be important considerations for you. Because the neighborhood makes up a large part of a home’s value, take your time to find exactly what suits your needs. You should also consider job commute, traffic during rush hour and proximity to amenities such as shopping, churches and libraries.

Driving through the neighborhood at various times during the day and night will provide a more complete picture of the location. It might be helpful to talk to potential neighbors, who can be a good source of information regarding the neighborhood and residents in the community. Take note that bad neighbors can bring down the value of a house.

5) Finding the Right Home Inspector

You will also need a professional home inspection. Even new houses may present costly problems evident only to a home inspector.

It’s best to talk to several inspectors before hiring one. You should ask about the inspector’s qualifications, scope of the inspection, how long it will take and the nature of the report you will receive at the end of the process. Main areas covered by the inspection should include quality of construction, integrity of the foundation and condition of plumbing, electrical, heating and cooling systems. If the inspection uncovers serious issues, such as cracks in the foundation, you may decide to back out of the contract or ask the seller to repair the problem.

These are just a few things to consider as a first-time home buyer. Of course, working with an experienced real estate agent makes all the difference because we’ve been through the process multiple times and know what to look out for. We are here to help you navigate the road to homeownership with the least amount of stress to you and your family.

 

Adapted from the KCM Blog on April 17, 2013

Reason to Sell Now #3: New Construction Will Be Your Biggest Competition!

Over the last several years, most homeowners selling their home did not have to compete with a new construction project around the block. There was simply no call for it at the time. However, as the market is recovering, more and more builders are jumping back into the mix. As an example, the National Association of Realtors revealed, relative to last year, year-to-date new home sales are up 19%.

These ‘shiny’ new homes will again become competition as they can be an attractive alternative to many of today’s home purchasers.

Here are the numbers regarding new construction about to come to market from the Census Bureau:

BUILDING PERMITS

• Single-family authorizations in February were at a rate of 600,000.
• This is 25.5% above February 2012.

HOUSING UNDER CONSTRUCTION

• Single-family housing starts in February were at a rate of 618,000.
• This is 18.5% above February 2012.

HOUSING COMPLETIONS

• Single-family housing completions in February were at a rate of 574,000.
• This is 32.9% above February 2012.

As mentioned, new construction can be strong competition to a seller of an existing home. It may make sense to list your home before this new inventory makes its way to market.

 

Adapted from the KCM Blog on April 10, 2013

Reason to Sell Now #2: Inventory is Low, Less Competition for a Great Price!

A seller’s ability to sell their home in today’s real estate market will be determined by both the supply of homes for sale and the demand for that housing. In real estate, supply is represented by the current month’s supply of homes for sale (the number of homes for sale divided by the number of homes sold in the previous month).

While there is no steadfast rule that will apply to pricing in every category of housing, here is a great guideline:

• 1-4 months’ supply creates a sellers’ market where there are not enough homes to satisfy buyer demand. Appreciation is guaranteed.
• 5-6 months’ supply creates a balanced market. Historically home values appreciate at a rate a little greater than inflation.
• 7-8 months’ supply creates a buyers’ market where the number of homes for sale exceeds the demand. Depreciation follows.

What is happening across the country right now?

In most parts of the country, supply is dropping like a rock. According to the National Association of Realtors, total housing inventory is below a five months’ supply. This is almost 20% below inventory numbers of just a year ago and at levels we haven’t seen since 2005.

Based on the table above, we can see that the supply/demand ratio is showing a sellers’ market where prices appreciate. This has created positive movement in housing values in most parts of the country.

Sellers have a great opportunity right now. Historically, inventory increases dramatically as we approach summer. Selling now while demand is high and supply is low may garner you your best price.

 

From the KCM Blog on April 9, 2013

Reason to Sell Your House Today #1: Demand is WAAAAAY Up!

When selling anything, owners can only hope there is a strong demand for that which they are selling. The great news for today’s home sellers is that the current housing market is experiencing a stronger demand than we have seen in some time.

The spring housing market of 2013 is projected to be one of the best in years.

Home Sales

The National Association of Realtors (NAR) reports monthly on both pending sales (houses going into contract) and existing home sales (actual closed sales).

In the first quarter of 2013, pending sales have consistently outperformed the numbers reported in 2012. Contract activity has been above year-ago levels for the past 22 months. Before this year, the last time the index showed a higher reading was in April 2010, shortly before the deadline for the home buyer tax credit.

NAR also revealed that closed home sales have been above year-ago levels for 20 consecutive months and sales are at the highest level since the tax credit period of 2009-2010.

Impact on Sellers

This increase in demand has created bidding wars for properly priced homes across the country. This has resulted in two favorable changes for home sellers:

1. They are receiving offers closer to (if not greater than) the list price.
2. The average days it takes to sell a home has dropped by over 20% from last year.

If you are thinking about selling your home, don’t miss out on the strong demand that exists in this current spring market. It won’t last forever!

 

Adapted from the KCM Blog on April 8, 2013

More Market Analysts are Jumping on the Price Appreciation Train!

It was reported that several analysts had upgraded their projections for home price appreciation in 2013. A few days later, the Wall Street Journal revealed that two additional analysts had also upgraded their forecasts.

Zelman & Associates

“Ivy Zelman, chief executive of research firm Zelman & Associates, said Wednesday she was now expecting prices to rise by 7% this year, up from earlier estimates of 6%, 5%, and 3%…She’s also calling for a 5% gain next year because she says the supply shortages and growing demand that fueled last year’s turnaround show no signs of easing.“

Her reasons:

“The shortage of housing capacity continues to resonate. Just as deflation was a national headwind that stretched deeper into the economy than anyone would have imagined, we believe that appreciation can carry broad, positive implications for the consumer and economy beyond many expectations.”

John Burns Real Estate Consultants

“John Burns, who runs a real-estate consulting firm in Irvine, Calif., is calling for a 9% gain in home prices this year, up from a 5% forecast late last year.”

 His reasons:

“Strong investor demand and low interest rates that have boosted the purchasing power of buyers.”

These two experts join a long list of housing analysts who have now called for a major rebound in housing prices in 2013. Only time will tell if their projections are correct, but we can certainly expect to see a steady climb upwards at the very least.

 

Adapted from the KCM Blog on April 1, 2013

Buyers: Think Carefully About Your Offers!

Limited inventory and a very strong demand for housing has created an environment where bidding wars are commonplace in today’s real estate market. Homes priced properly are getting multiple offers within a short time of coming to market. This brings about a dilemma for real estate professionals: How should we advise our client who is about to make an offer when other offers will also be presented?

Over the last several years, there wasn’t any pressure on the buyer to adjust their offer for three reasons:

1. There were plenty of homes for sale
2. Prices were falling
3. Mortgage interest rates were falling

They buyer could find another home easily for probably less money and a lower mortgage rate. There was no downside to not ‘upping the ante’. However, in today’s market, things have dramatically changed.

HOUSING INVENTORY

A normal real estate market has between 5-6 months worth of inventory. Over the last several years, the inventory of homes for sale had skyrocketed to 10 months. Most buyers in almost any price range had a multitude of houses to choose from. Today, the national month’s supply of inventory has fallen below five months. In many markets, there is not enough housing inventory to satisfy the current demand.

Conclusion: If the buyer loses the house they are bidding on, there is no guarantee they will find a similar home anytime soon.

HOME PRICES

Because of the limited inventory, home prices are again appreciating. The Case Shiller Pricing Index revealed that house prices rose by 6.8% in 2012. Experts are projecting home prices to increase by 5% to 8% in 2013.

Conclusion: If the buyer doesn’t get this house, there is a good likelihood that a similar home will cost more in the future.

MORTGAGE RATES

The ‘cost’ of a home to a buyer is determined by the price of the house and the expense associated with the financing. Mortgage rates are projected to inch up in 2013. In a recent forecast, the Mortgage Bankers Association predicted that rates could climb as high as 4.3% by the end of the year.

Conclusion: If interest rates do inch up, the ‘cost’ of the next home could be impacted significantly.

Bottom Line

If a buyer truly loves the house they are bidding on, it probably makes sense to raise their bid now instead of waiting for another dream house to appear.

 

Adapted from the KCM Blog on March 28, 2013

Reason #2 to Buy Now: Interest Rates are Expected to Climb

A big component in the cost of a home is the mortgage interest rate a purchaser pays. Understanding where rates are headed will help in making a decision whether to buy now or wait.

So, Where Are Rates Headed?

No one can know for sure. The Fed has been artificially holding rates down to stimulate the economy. However, as the economy improves, many experts expect rates to creep up. As an example, HSH Associates, the nation’s largest publisher of mortgage and consumer loan information, recently explained:

“The stronger the economy becomes, the higher rates may grind; the Federal Reserve is keeping them low to goose the economy, but an economy responding to the Fed’s medicine will soon see less of a need for it in order to function. If not otherwise manipulated, higher rates are the natural result of a growing economy, as rising demand for available credit supply and concerns about inflation allow costs to rise.”

The Mortgage Bankers Association (MBA) agrees. They were quoted in Housing Wire late last year regarding their thoughts on where rates would be headed in 2013.

“After reaching record lows in 2012, mortgage rates are expected to creep up slowly in 2013, the Mortgage Bankers Association predicted.”

In the MBA’s latest Mortgage Finance Forecastthey forecast that the 30 year interest rate will be 4.3% by the end of the year. This represents an increase of almost a full percentage point from the 3.4% rate available at the end of 2012.

For example, using the graphic on the right you can see the impact a one percent increase in rate will have on the monthly principal and interest payment on a $200,000 mortgage.

Freddie Mac’s Weekly Primary Mortgage Market Survey reveals that rates have increased by 2/10ths of a percentage point already this year.

As I mentioned, no one knows for sure where rates will be a year from now. But, many experts think they may be as much as a point higher. With rising residential real estate prices and the possibility of higher mortgage rates, waiting to buy a home makes no sense, in my opinion.

 

Adapted from the KCM Blog on March 27, 2013