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Real Estate Experts Weigh In on Cause of Low Housing Inventory

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Real Estate professionals and analysts have continued to look into why there continues to be a decrease in housing inventory along with rising home prices.  Redfin has determined that more Americans are deciding to stay exactly where they are instead of moving on to another home.  In fact, they have found that, “the typical American homeowner is now staying in their home for five years longer than they did just nine years ago.”

In an article published by Housing Wire, reporter Julia Falcon states that the average homeowner in the U.S. is staying in their home for about 13 years instead of only 8 years as they did in 2010.  There are U.S. cities that blow those statistics out of the water with homeowners deciding to stay in their homes for 20 years or more.  Cities such as Salt Lake City, Houston, San Antonio, and Dallas are in Texas see home owners that have stayed in their homes since the 1950s. 

According to the article, “Redfin agent Christopher Dillard states ‘Because prices have been going up, and folks are gaining more and more equity, it’s hard to justify selling when there aren’t many if any affordable options.’”

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Real Estate Expert’s Grim Outlook on the Housing Market

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Some real estate experts are concerned about the future of the real estate market and their conclusions about the real estate market may make some homeowners take pause.

In an article published by DSNews.com, titled “Residential Real Estate on ‘Shaky Ground’”, an interview with real estate analyst Keith Jurow is summarized.  The article states he doesn’t believe there was really any real estate recovery, In fact, according to Jurow, “the “illusion” stems from lenders and mortgage services not putting foreclosed properties on the market.” 

The market is at risk of due to factors such as subprime mortgages, poor home sales and mortgage defaults, despite many mortgages being modified.  Shockingly, the article notes, “There are currently $800 billion of subprime mortgages still outstanding, many of which have not been paid at all in the last five years.”

Jurow’s alarming conclusion is homeowners considering selling before the market gets much worse.  Read the entire article.

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Why Would a Real Estate Broker Publish Agent Commissions?

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At the start of September 2019, real estate firm Redfin made a change to the way they communicate with their customers and potential customers.   They have made the decision to provide more information on the homes they have listed for sale, specifically detailing how much the buyer’s agent will make upon the sale of the listed home.

According to an article published by Forbes, “…nearly 40% of recent home buyers don’t understand how their real estate agent was paid,”  while 13% indicated they had “no idea” how much or how the agent was paid upon closing.  With the recent announcement of the Northwest Multiple Listing Service, allowing brokers to share details of the commission deals, Redfin decided to get out in front of the trend sure to spread to other regional areas.

Perhaps buyers have become more interested in the ways commissions are negotiated after a few law suits alleging “….collusion, inflated commissions, and price-fixing, among other things.” To head off any concerns and to satisfy buyer’s desire for transparency, some agents feel that this up-front approach helps ease the minds of their customers.  As one Redfin broker, Paul Reid of Boise, ID,  stated, “Showing consumers the commission a seller is offering a buyer’s agent is a great win for making real estate more transparent. When a buyer has a better understanding of how his agent is being paid and the costs the seller is incurring, he can make a more informed decision on what to offer.”

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How Has the First Time Home Buyer Profile Changed Over Time?

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If asked to describe the profile of the average “first-time home buyer”, many Americans may use descriptions such as young, newly married, young children or children on the way.  There is an idea that many have about who these would-be buyers are, what stage of life they are in and it appears it is an out-of-date perception. 

Researcher at Harvard completed a study of first time home buyers over a span of 20 years, from 1997-2017 and found some significant changes in the demographics of first time home buyers over those years.  In the paper detailing the study findings, it was stated, “While discussions of first-time home buying often tie home ownership entry to life-stage changes like marriage and the birth of a first child, a growing share of first-time home buyers do not fit this profile”.

An article published by The Wire summarizes the most telling comparison of how many first-buyers were unmarried in 1997, which was 23% of all first time home buyers, compared to a 12% increase by the time 2017 rolled around.  That year, 35% of first time home buyers had never been married.  Married home buyers made up 61% of the first time home buyers in 1997, but only 52% of first-time home buyers in 2017 were married. 

What hasn’t changed much in the span of the study, the age of first time home buyers which decreased from 34 to 32 between 1997 and 2017.  The findings reveal facts that, “suggest that there may be a fundamental shift in the way that young households are approaching first-time home purchases, such as an increased willingness to purchase homes individually or with unmarried partners”. 

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Why is the Number of First Time Home Buyers Declining?

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With reports of continued low mortgage rates, many might assume the housing market would be booming with home sales.  However, it would seem that some other economic factors are affecting potential home buyers’ decisions.

The number of adults planning to purchase a home has dropped 2% since last year, and the number of first time home buyers among the groups looking to purchase a home is down 5%, from 63% in 2018 to 58% this year.  According to an article published by CNBC.com, written by Anne Cusak, a lack of affordable home coupled with worries about the economy and personal economic stability are to blame.

According to Rose Quint, the National Association of Home Builders assistant vice president for survey research, “…potential buyers are held back by the lowest levels of affordability in a decade.”  Many first time home buyers are limited in their budget; as home prices increase, they aren’t necessarily able to keep up.  Since the lower end of the real estate market has seen the fastest price increase, these home buyers are being priced out. 

Even if the home prices are within reach and the mortgage rates continue to stay low, prospective buyers are less than eager to jump in when they feel their personal finances are on shaky ground.  Cusak notes, “Buying a home is an incredibly emotional experience, and potential buyers will often pull back when they have the slightest fear of losing their jobs or losing any income.”

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What Regrets Are Most Common Among New Home Buyers?

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In an article published by TheMReport.com, a study from Zillow revealing some of the top regrets of home buyers are described.  To begin, it seems that younger, and possibly less experienced, home buyers are more likely to feel some sort of remorse after purchasing a house.  In fact, 81% of home owners under 34 years old have some sort of regret. 

The article states, “Zillow notes that the lower level of satisfaction among younger buyers could be due to their inexperience with the home buying process. Additionally, many of these buyers are likely still living in their first home, and 29% of young homeowners regret rushing the process, compared with 12% of older buyers.” Another source of regret for buyers is a higher than desired mortgage rate and the type of mortgage they were able to secure. 

Very few homeowners, however, report wishing they would have simply rented instead of buying.  “The American Dream of homeownership is still alive and well, and younger buyers who are building families and forging their careers must stretch their budgets to achieve it,” said Zillow Director of Economic Research Skylar Olsen.

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Is the Real Estate Market Starting to Turn?

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The 2019 spring real estate market is in full swing and many home owners and prospective home buyers may be wondering what this year’s market has in store for them.  Will home buyers be able to list their home and quickly receive a full-priced offer, maybe even multiple offers?  Will prospective home buyers be competing against many other buyers and have to make quick and above list price offers? 

Despite the fact that there are reports indicating we are on the horizon of another hot real estate market season, data from Trulia predicts something quite different. Trulia has collected data that reflects home prices have been in a steady decline since the beginning of 2018.  This trend is the first indicator that the housing market may be entering into a “cyclical downturn”.  In an article published by Housing Wire, Alcynna Lloyd quotes Trulia, “’Cyclical housing market downturns occur roughly every 10 years, and they typically don’t happen overnight. Instead, they play out steadily over a few years, first showing up in sales volumes and later—usually a year or two later—in prices,’ Trulia writes.”

Fear not, however, that we are in store for a declining market similar to the one that occurred a decade ago.  The article goes on to detail the findings of the Trulia analysis, indicating home prices should only slightly decline and are more likely to just see “flat-to-modest housing price growth”.  Yet, home owners should expect their home to sell not quite as quickly and should certainly be prepared to enter in more vigorous negotiations with buyers in order to finalize a sale.

Since these changes are not expected to be extreme or immediate, more likely gradual and result in slow steady declines or even flat growth, only time will tell how this potential change plays out.

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Generous Incentives Available for Home Buyers

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Before deciding to purchase a home, it would be wise to research incentive programs offered by lenders; programs can offer qualified home buyers a few thousand dollars to put toward down payments, closing costs, and other fees associated with purchasing a home.

An article published by Housing Wire details a program offered by Bank of America which, according to reporter Ben Lane, can provide as much as $10,000 to a borrower.   In fact, the article states, “Bank of America is committing $5 billion to help boost homeownership for “low- to moderate-income and multicultural homebuyers and communities” across the country, the bank announced Tuesday.” 

Their Neighborhood Solutions program can provide up to $10,000 to qualified borrowers to apply toward closing costs.   Additionally, the America’s Home Grant program is being expanded to offer lender credits up to $7500.  These are funds that the bank is not requiring be repaid by the borrower. 

In additional to credits towards purchase, buyers can look for competitive mortgage rates and low down payment requirements geared toward low and moderate income borrowers.  According to D. Steve Boland, head of consumer lending at Bank of America. “We know many of our clients want the power to own their first home, which can sometimes be challenging. One of the ways we’re helping is through our suite of affordable homeownership solutions and professional resources, which aid them in overcoming barriers and put sustainable homeownership within reach.”

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Studies reveal positive news for home buyers in 2019

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The spring real estate market is in full swing.  Sellers have begun the process of listing their homes with the hopes of a quick sale.  Buyers search listings, schedule showings and begin to decide on a home to purchase.  So far, in 2019, it appears home buyers are making the decision on which home to purchase faster than they were last year at this time.

In fact, a study completed by Redfin, revealed that in 2019 buyers’ time to close is three days less than in 2018.  According to an article published by the MReport, “Some of the factors responsible for home buyers being able to close on their homes faster in 2019 compared to previous years included, a rise in housing supply, a slower growth rate of home prices, and a less competitive market, according to Redfin.”

The fact that the supply of homes for sale has increased and there are more buyers than sellers often means that sellers will accept the first offer they receive.  Unfortunately, some sellers just have to wait longer to receive that offer while competing against a larger number of other sellers.  The article reports that homes are spending about two days more on the market compared to 2018.

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Predictions on Interest Rates for 2019 May Disappoint Buyers

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When purchasing a home, there are a number of variables that may influence or even dictate which home the buyer can afford.  Obviously the price of the home, the property taxes for a specific home as well as how much money the buyer has to use as a down payment all are important factors for home buyers to consider when zeroing in on a home to purchase.   However, there is another variable that truly can vary and that is the mortgage interest rate.

For the past several years, buyers in the US have been spoiled by rates that hovered near record low interest rates.  Small upticks in the rates may have alarmed some home buyers that disappointed to see how it changed their monthly payment.  Obviously, as the interest rates for mortgages increase, the monthly payment also increases and it could be a deal breaker for some buyers.  This is why it is important for prospective home buyers to continue to be aware of interest rates fluctuations.

Unfortunately, based on an article published in Keeping Current Matters “Where are Interest Rates Headed in 2019?”, Freddie Mac is expecting rates to continue to increase throughout 2019.  Nevertheless, even if rates inch closer to 5.3 by the end of 2019,  a glance back at the history of rates in the US over the past 40 or so years may offer a bit of relief.  It is still nowhere near the 18% homeowners in the 1980s had to work with.

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