The price of any item is determined by the supply of that item, and the market demand. The National Association of Realtors (NAR) released their latest Existing Home Sales Report this week.
Inventory Levels & Demand
Amidst reporting on the fact that sales of existing homes rose 1.2% from January, and outpaced year-over-year figures for the fifth consecutive month, was the news that total unsold housing inventory is at 4.6-month supply.
Within the next five years, Baby Boomers are projected to have the largest household growth of any other generation during that same time period, according to the Joint Center for Housing Studies of Harvard. Let’s take a look at why…
In Merrill Lynch’s latest study, “Home in Retirement: More Freedom, New Choices” they surveyed nearly 6,000 adults ages 21 and older about housing.
Crossing the “Freedom Threshold”
Throughout our lives, there are often responsibilities that dictate where we live. Whether being in the best school district for our children, being close to our jobs, or some other factor is preventing a move, the study found that there is a substantial shift that takes place at age 61.
The study refers to this change as “Crossing the Freedom Threshold”. When where you live is no longer determined by responsibilities, but rather a freedom to live wherever you like. (see the chart below)
As one participant in the study stated:
“In retirement, you have the chance to live anywhere you want. Or you can just stay where you are. There hasn’t been another time in life when we’ve had that kind of freedom.”
On the Move
According to the study, “an estimated 4.2 million retirees moved into a new home last year alone.” Two-thirds of retirees say that they are likely to move at least once during retirement.
The top reason to relocate cited was “wanting to be closer to family” at 29%, a close second was “wanting to reduce home expenses”. See the chart below for the top 6 reasons broken down.
Not Every Baby Boomer Downsizes
There is a common misconception that as retirees find themselves with less children at home that they will instantly desire a smaller home to maintain. While that may be the case for half of those surveyed, the study found that three in ten decide to actually upsize to a larger home.
Some choose to buy a home in a desirable destination with extra space for large family vacations, reunions, extended visits, or to allow other family members to move in with them.
“Retirees often find their homes become places for family to come together and reconnect, particularly during holidays or summer vacations.”
If your housing needs have changed or are about to change, meet with a local real estate professional in your area who can help with deciding your next step.
The busy spring real estate season is here. Are you thinking of selling your house? Are you dreading having to deal with strangers walking through the house? Are you concerned about getting the paperwork correct?
Hiring a professional real estate agent can take away most of the challenges of selling. A great agent is always worth more than the commission they charge just like a great doctor or great accountant.
You want to deal with one of the best agents in your marketplace. To do this, you must be able to distinguish the average agent from the great one.
Here are the top 5 demands to make of your Real Estate Agent when selling your house:
1. Tell the truth about the price
Too many agents just take the listing at any price and then try to the ‘work the seller’ for a price correction later. Demand that the agent prove to you that they have a belief in the price they are suggesting. Make them show you their plan to sell the house at that price – TWICE! Every house in today’s market must be sold two times – first to a buyer and then to the bank.
The second sale may be more difficult than the first. The residential appraisal process has gotten tougher. A survey showed that there was a challenge with the appraisal on 24% of all residential real estate transactions. It has become more difficult to get the banks to agree on the contract price. A red flag should be raised if your agent is not discussing this with you at the time of the listing.
2. Understand the timetable with which your family is dealing
You will be moving your family to a new home. Whether the move revolves around the start of a new school year or the start of a new job, you will be trying to put the move to a plan.
This can be very emotionally draining. Demand from your agent an appreciation for the timetables you are setting. Your agent cannot pick the exact date of your move, but they should exert any influence they can, to make it work.
3. Remove as many of the challenges as possible
It is imperative that your agent knows how to handle the challenges that will arise. An agent’s ability to negotiate is critical in this market.
Remember: If you have an agent who was weak negotiating with you on the parts of the listing contract that were most important to them and their family (commission, length, etc.), don’t expect them to turn into a super hero when they are negotiating for you and your family with the buyer.
4. Help with the relocation
If you haven’t yet picked your new home, make sure the agent is capable and willing to help you. The coordination of the move is crucial. You don’t want to be without a roof over your head the night of the closing. Likewise, you don’t want to end up paying two housing expenses (whether it is rent or mortgage). You should, in most cases, be able to close on your current home and immediately move into your new residence.
5. Get the house SOLD!
There is a reason you are putting yourself and your family through the process of moving.
You are moving on with your life in some way. The reason is important or you wouldn’t be dealing with the headaches and challenges that come along with selling. Do not allow your agent to forget these motivations. Constantly remind them that selling the house is why you hired them. Make sure that they don’t worry about your feelings more than they worry about your family. If they discover something needs to be done to attain your goal (i.e. price correction, repair, removing clutter), insist they have the courage to inform you.
Good agents know how to deliver good news. Great agents know how to deliver tough news. In today’s market, YOU NEED A GREAT AGENT!
Today, Freddie Mac is scheduled to start buying mortgages with down payments of only three percent – the first time down payments have been this low on Freddie Mac loans in nearly five years. The program is called Freddie Mac Home Possible AdvantageSM.
In a recent Executive Perspectives, Dave Lowman EVP, Single-Family Business Freddie Mac, explained the potential impact this program will have on the housing market:
“There’s a new reason Realtors and lenders may expect more qualified borrowers at the closing table during this spring’s home buying season. In addition to low mortgage rates and rising job growth, the down payment hurdle is starting to shrink for creditworthy borrowers, including first-time homebuyers.”
And the mortgage industry agrees with Mr. Lowman. In a recent survey of mortgage originators by the National Association of Realtors (NAR), it was revealed that most loan officers believe the move to a lower down payment will increase access to mortgage credit. Here are that survey’s findings:
Many potential buyers are “ready and willing” to buy a home but have been afraid they may not be “able” because of a lack of adequate savings for a down payment. Check with a local real estate or mortgage professional to understand what the new rules may mean to you.
Billionaire money manager John Paulson was interviewed at the Delivering Alpha Conference presented by CNBC and Institutional Investor. During his session he boldly stated:
“I still think, from an individual perspective, the best deal investment you can make is to buy a primary residence that you’re the owner-occupier of.”
Who is John Paulson?
Paulson is the person who, back in 2005 & 2006, made a fortune betting that the subprime mortgage mess would cause the real estate market to collapse. He understands how the housing market works and knows when to buy and when to sell. What do others think of Paulson?
According to Forbes, John Paulson is:
“A multibillionaire hedge fund operator and the investment genius.”
According to the Wall Street Journal, Paulson is:
“A hedge fund tycoon who made his name, and a fortune, betting against subprime mortgages when no one else even knew what they were.”
Why does he believe homeownership is such a great investment?
Paulson breaks down the math of homeownership as an investment:
“Today financing costs are extraordinarily low.”
The latest numbers from Freddie Mac show us that you can still get a 30-year mortgage for under 4%.
“And if you put down, let’s say, 10 percent and the house is up 5 percent,” as many experts predict, “then you would be up 50 percent on your investment.”
How many are seeing a 50% return on a cash investment right now?
Paulson goes on to compare the long term financial benefits of owning verses renting:
“And you’ve locked in the cost over the next 30 years. And today the cost of owning is somewhat less than the cost of renting. And if you rent, the rent goes up every year. But if you buy a 30-year mortgage, the cost is fixed.”
Whenever a billionaire gives investment advice, people usually clamor to hear it. This billionaire gave simple advice – if you don’t yet live in your own home, go buy one.
There are many benefits to homeownership, one of top ones, is being able to protect yourself from rising rents and lock in your housing cost for the life of your mortgage.
The National Association of Realtors (NAR) just released their findings of a study in which they studied “income growth, housing costs and changes in the share of renter and owner-occupied households over the past five years in metropolitan statistical areas throughout the US.”
Don’t Become Trapped
The study revealed that over the last five years, a typical rent rose 15%, while the income of renters grew by only 11%. If you are currently renting, this disparity in growth could get you caught up in a cycle where increasing rents continue to make it impossible for you to save for a necessary down payment.
The top 5 markets where renters have seen the highest increase in rents since 2009 are:
- New York, NY (50.7%)
- Seattle, WA (32.4%)
- San Jose, CA (25.6%)
- Denver, CO (24.1%)
- St. Louis, MO (22.3%)
Homebuyers, who were able to purchase their home over the same five-year period and lock in their housing costs, were able to grow their net worth as home values have increased and their mortgage balances have gone down.
Know Your Options
Perhaps you have already saved enough to buy your first home. HousingWire reported that analysts at Nomura believe:
“It’s not that Millennials and other potential homebuyers aren’t qualified in terms of their credit scores or in how much they have saved for their down payment.
It’s that they think they’re not qualified or they think that they don’t have a big enough down payment.” (emphasis added)
According to Freddie Mac:
“Depending on their credit history and other factors, many borrowers can expect to make a down payment of about 5 to 10%. And new 3% down financing options for qualified borrowers could mean a down payment as little as $6,000 for a $200,000 home.”
Don’t get caught in the trap so many renters are currently in. If you are ready and willing to buy a home, find out if you are able. Have a professional help you determine if you are eligible to get a mortgage.