It is common knowledge that a large number of homes sell during the spring buying season. For that reason, many homeowners hold off putting their home on the market until then. The question is whether or not that will be a good strategy this year.
The other listings that do come out in the spring will represent increased competition to any seller. Do a greater number of homes actually come to the market in the spring compared to the rest of the year? The National Association of Realtors (NAR) recently revealed which months and days of the year most people list their home. Here is a graphic showing the results:
The circles represent the ten most popular listing dates in 2014. We can see that all ten days are in the second quarter of the year. The months in red represent which months most people put their home on the market. Again, the three months in the second quarter are most active for listings. Last year, the number of homes available for sale in January was 1,880,000.
That number spiked to 2,350,000 by July!
What does this mean to you?
With the job situation improving and mortgage interest rates projected to rise later in the year, buyers are not waiting until the spring. They are out looking for a home right now. If you are looking to sell this year, waiting until the spring to list your home means you are putting your house on the market at a time you will have the greatest competition for your buyer. It may make sense to beat that rush of housing inventory to the market and list your home today.
Heading into 2015 many people have their sights set on buying a home. The personal reasons differ for each buyer, with many basic similarities. Eric Belsky, the Managing Director of the Joint Center of Housing Studies at Harvard University expanded on the top 5 financial benefits of homeownership his paper – The Dream Lives On: the Future of Homeownership in America.
Here are the five reasons, each followed by an excerpt from the study:
1.) Housing is typically the one leveraged investment available.
“Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, 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.”
2.) You’re paying for housing whether you own or rent.
“Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.”
3.) Owning is usually a form of “forced savings”.
“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.”
4.) There are substantial tax benefits to owning.
“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.”
5.) Owning is a hedge against inflation.
“Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.”
We realize that homeownership makes sense for many Americans for an assortment of social and family reasons. It also makes sense financially.
If you are thinking about purchasing a home right now, you are surely getting a lot of advice. Though your friends and family have your best interests at heart, they may not be fully aware of your needs and what is currently happening in real estate. Let’s look at whether or not now is actually a good time for you to buy a home.
There are three questions you should ask before purchasing in today’s market:
1. Why am I buying a home in the first place?
This truly is the most important question to answer. Forget the finances for a minute. Why did you even begin to consider purchasing a home? For most, the reason has nothing to do with finances. A study by the Joint Center for Housing Studies at Harvard University reveals that the four major reasons people buy a home have nothing to do with money:
- A good place to raise children and for them to get a good education
- A place where you and your family feel safe
- More space for you and your family
- Control of the space
What non-financial benefits will you and your family derive from owning a home? The answer to that question should be the biggest reason you decide to purchase or not.
2. Where are home values headed?
When looking at future housing values, Home Price Expectation Survey provides a fair assessment. Every quarter, Pulsenomics surveys a nationwide panel of over one hundred economists, real estate experts and investment & market strategists about where prices are headed over the next five years. They then average the projections of all 100+ experts into a single number.
Here is what the experts projected in the latest survey:
- Home values will appreciate by 4% in 2015.
- The cumulative appreciation will be 23.5% by 2019.
- Even the experts making up the most bearish quartile of the survey still are projecting a cumulative appreciation of over 15.1% by 2019.
3. Where are mortgage interest rates headed?
A buyer must be concerned about more than just prices. The ‘long term cost’ of a home can be dramatically impacted by an increase in mortgage rates.
The Mortgage Bankers Association (MBA), the National Association of Realtors, Fannie Mae and Freddie Mac have all projected that mortgage interest rates will increase by approximately one full percentage over the next twelve months.
Only you and your family can know for certain the right time to purchase a home. Answering these questions will help you make that decision.
Now that the housing market has stabilized, more and more homeowners are considering moving up to the home they have always dreamed of. In most areas, prices are still below those of a few years ago. Also, interest rates are still near 4%.
However, sellers should realize that waiting to make the move while mortgage rates are projected to increase probably doesn’t make sense. As rates increase, the price of the house you can buy will decrease. Here is a chart detailing this point:
There are many people deciding on whether to sign a new lease on a rental property or take the dive into homeownership. Every situation is different. However, with rents, home values and mortgage interest rates projected to rise, buying now might make a lot more sense than waiting until next year.
Here are others who seem to agree:
“Economists see several reasons why 2015 might be a banner year for homebuying — and not just in San Francisco and Miami.”
“If you have been thinking about purchasing a home, the first half of 2015 might be a good time.”
“As rent increases, it simply makes more sense to buy a home.”
Buying earlier in the year probably makes more sense than putting off the decision.
Every home must be sold TWICE! Once to the buyer, and once to the bank appraiser if a mortgage is involved.
The second sale may have just become more difficult.
A new program announced by Fannie Mae may slow down the home-sale closing process by causing more disputes over prices between sellers and buyers.
In a recent Washington Post article they explained the basics of the program:
“Starting Jan. 26, Fannie plans to offer mortgage lenders access to proprietary home valuation databases that they can use to assess the accuracy and risks posed by the reports submitted by appraisers.”
“The Fannie data will flag possible errors in the appraiser’s work before the lender commits to fund the loan, will score the appraisal for overall risk of inaccuracy and may provide as many as 20 alternative “comps” — properties in the area that have sold recently and are roughly comparable to the house the lender is considering for financing but were not used by the appraiser.”
Using the additional information provided by Fannie Mae, the lender can then ask for an explanation from the appraisal company for any discrepancies and request an amended appraisal.
This added step in the process of determining the price of the home to be bought/sold, could add time to the closing process and cost to the appraisal for the additional work.
Why is this happening?
Fannie Mae wants lenders to make informed decisions when agreeing to the amount of a loan that a buyer will be approved for.
“Excessive valuations create the risk of future losses to lenders and investors if the borrower defaults and the house goes to foreclosure.”
What is the process now?
As a seller:
You’ve put your house on the market, picked an agent who has helped you determine that the best price to list your home for is $250,000, and found a buyer willing to pay that price. The appraiser comes to the home and agrees your home is worth the asking price and writes their report. Everything is working perfectly!
As a buyer:
You’ve found your dream home, in the right neighborhood, in the right school district, with the perfect yard, at the high end of your budget, but all the pluses are worth it. You agree on a price and start daydreaming about living in your new home.
What happens after January 26th?
The lender submits the appraisal report to the new Fannie Mae program and they come back with “lower-risk comps” that value the home at $230,000. The lender then turns to the appraisal company to justify the $20,000 difference, adding time and frustration to the process.
If the lender does not agree with the reasons for the price difference they will not lend the buyer the amount they need to purchase their dream home and the amicable, agreeable sale turns into a heated justification of the higher price. The buyer may even have to give up on the home if the funding isn’t there.
An article by Housing Wire shares the appraiser’s point of view:
“The bottom line, appraisers say, is this could lead to delays to closings and higher costs, as well as a depression of prices in markets where prices are rising.
Appraisers complain that if they have to justify every step of their comps for their valuation, rather than those coming from the one-size-fits-all evaluation from Fannie, it will delay closing, throw off buyer and seller timetables, and delay real estate broker commissions.”
The fear of some real estate practitioners is that if appraisers feel as though they are constantly being second-guessed, they may become more conservative in their assessments, impacting home values and slowing growth in the market.