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What’s Next for the U.S. Real Estate Market?

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The last several months, real estate in the United States has been red hot.  Low supply of homes, mortgage rates that continue to remain low and a large number of Americans making post-pandemic decisions to move to bigger homes or homes in different geographic areas have all held pave the way for a hot sellers’ market.  However, many know that this is not the first time the real estate market exploded into situations of multiple offers, above asking price, with real estate professionals just trying to keep up.  So, it should be no surprise to many seasoned real estate professionals, that there will be a change in the market at some point.

In an article published by Forbes, a theory about the real estate market phases is detailed.  Real Estate expert Glenn R. Mueller, PhD believes the four phases of the real estate market are Recovery, Expansion, Hyper Supply and Recession.  And, according to Sam Mehrbod PhD, author of the Forbes article, U.S. real estate markets are currently in phase two.  This phase is still a sellers’ market, but heading toward the peak.  On the horizon, potentially, is the third phase.  This phase is a buyers’ market defined as Hyper Supply and buyers become a little more scarce and panic selling can begin.

Mehrbod has suggestions for real estate professionals to help them prepare for the next phase, building a net work to ensure success in any phase of the real estate market.  Its imperative for real estate professionals to continue to build and stay relevant within their networks.  He makes suggestions such as regularly posting relevant and educational content on social media, beginning to build buyer lead lists for future markets, and utilizing marketing funds consistently to allow long term marketing plans. By staying on top of networking and marketing and anticipating what might be coming up next, real estate professionals can be prepared to ride the next wave.

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How Zillow Plans to Make Selling Homes Simpler

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Many Americans interested in, not only the potential value of their home, but also other homes in their neighborhood, the homes of their friends or homes they dream to own someday, search Zillow.com to see the estimated value the site has calculated.  Zillow.com, however, is looking to branch out beyond just providing home price estimates, they have begun to actually buy and sell homes and plan on making the process even easier. 

In an article published by CNN Business, the new division of Zillow, called Zillow Offers has some new features to make the process of selling a home possible with just a few clicks of a mouse. As CNN Business reporter, Clare Duffy, details, “For certain homes, Zillow’s ‘Zestimate’— the online estimate of the home’s value — will now represent an initial cash offer from the company to buy the property. That could mean an even quicker timeline for homeowners looking to close a sale without going through the hassle of a formal listing, or a source of helpful data for would-be sellers who want to know how much money they’ll have to buy their next house.”

The Zillow Offers division of the company has been operating in a handful of markets for about three years now.  They have been requesting information from homeowners in order to determine the cash offer from Zillow.  The new, revamped process, soon to be available in 23 markets, will skip the required questionnaire and photos from the homeowner.  Zillow is confident in the information currently available for many of the homes that the posted Zestimate would be the actual cash offer.  A homeowner could simply contact Zillow to cash in on the Zestimate.  After an inspection and adjustment made based on any repair issues, the sellers could pay a Zillow the seller’s fee and close the deal.

Skeptics doubt the accuracy of the posted home values.  Yet, according to the article, Zillow’s COO Jeremy Wacksman points out, “For homeowners who decline Zillow’s cash offer, the difference between Zillow’s offer and what they end up selling for is typically less than 1%…”

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The 2021 Housing Market Continues to Look Good for Sellers

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A look back at the first few weeks of 2021 and the national real estate market shows that home sales and the number of buyers increased in comparison to the last few weeks of 2020.  Nevertheless, a low inventory of homes continues to create difficulty buying conditions for these would-be homeowners.

In an article published by CNBC.com, reported by Diana Olick, the housing market is compared to the beginning of 2020 where January 2021 is reported to have seen sales 23.7% higher than January of last year.  According to the article, ‘“Home sales are continuing to play a part in propping up the economy,” said Lawrence Yun, chief economist for the NAR. “With additional stimulus likely to pass and several vaccines now available, the housing outlook looks solid for this year.”’

However, the availability of homes, in comparison to January 2020, was down 26%.  This reported 1.9-month supply, compared to a January 2020 3- month supply, is the lowest ever reported. Of course, the low housing inventory coupled with the continued demand has allowed the median home price to increase a little over 14% since last January.

The article goes on to report new home sales and how builders have benefited from the shortages but also face supply and labor issues.  Read the entire article.

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Will the Supply of Homes Catch Up with Increasing Demand?

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The global pandemic brought the U.S. real estate market to a screeching halt during the spring months of March and April.  With stay at home orders in place and uncertainty among Americans about the best ways to stay safe from the spread of COVID-19, many sellers decide to hold off or cancel listing their home for sale.  However, May has brought loosened restrictions for business and social interactions, leaving Americans feeling that it may be safer to resume some activities that had been put on the back-burner.  Specifically, Americans that want to purchase a new home are beginning to ramp up their search and even make offers to purchase homes.

However, the fact remains that the number of homeowners listing their homes had been steadily declining. And despite a small up-tick, the supply for homes continues to be low, down by almost 30% annually as of the first week of May.  Nevertheless, there is a significant number of potential home buyers that are looking to take advantage of low mortgage rates.  Not to mention, many Americans have spent more time in their current homes during stay at home orders, helping them realize they need a larger home, perhaps a home office or more outdoor space.  These factors have helped drive up the demand for homes in many parts of the U.S.

CNBC.com published an article by Diana Olick that describes a major uptick in bidding wars for homes as a result of the mismatched supply and demand.  In fact, the article says, “More than 41% of homes faced a bidding war in the four weeks ending May 10, according to Redfin.”  Realtors in areas such as Boston, San Francisco and Fort Worth, Texas, indicate that more than 60% of purchase offers are met with competition from other buyers.

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Positive Trends in Home Purchases are Encouraging to Real Estate Professionals

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Across the country, Americans have been sheltering in place and practicing social distancing in an effort to help slow the spread of COVID-19.  Many normal activities have been modified or even put on hold.  With the slow reopening of the country, many potential home buyers have emerged and seem to be ready to take the leap into home ownership.

Mortgage applications, according to an article published by CNBC.com, rose for the fourth consecutive week, up by an encouraging 11 percent.  Despite the fact that, overall, mortgage applications are still about 10 percent lower than they were this time in 2019, it appears the gap is closing.

The article, written by Ty Wright, quotes MBA economist Joel Kan, ‘”We expect this positive purchase trend to continue — at varying rates across the country — as states gradually loosen social distancing measures, and some of the pent-up demand for housing returns in what is typically the final weeks of the spring home buying season.”’

Despite the fact that refinance applications have been on the decline, after a very busy early spring, it appears home purchases may fill that gap. In fact, according to the article, mortgage applications are up pretty significantly, “New York led the purchase demand with a 14% jump in those applications. Illinois, Florida, Georgia, California and North Carolina also had double-digit increases last week.” It seems buyers, anxious to return to some normal life activities and move forward with purchasing their first or next home, are encouraged by mortgage rates that are still below 3.5% for a 30 year period.

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How is COVID-19 Impacting Real Estate Sales?

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The impacts of COVID-19 are far-reaching and include not just health concerns, but concerns about jobs and the economy.  An obvious result of the turbulent economy and the alarming rate Americans are losing their jobs is a down turn in the real estate market. 

According to an article published by Market Watch, “…the rapid rise in unemployment as a result of the coronavirus pandemic and its accompanying stay-at-home orders will curtail many Americans’ ability to afford a purchase as big as a home”, states reporter Jacob Passy.  Further, sellers are more hesitant to put their homes on the markets due to uncertainty about pricing and the desire to avoid strangers from entering their homes unnecessarily.As a result, Fannie Mae projects that home sales will fall by almost 15% in 2020. 

Yet, this doesn’t necessarily translate to bad news the prices of homes.  Fannie Mae still expects the median prices of homes to rise for both existing and new homes.  Further, the article states, “The mortgage giant currently expects the U.S. economy and home sales both to rebound in 2021. But that rebound is contingent on the pandemic’s trajectory.” 

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Home Prices are Increasing- Are Homes Less Affordable?

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Real Estate professionals and publications have recently began to educate home owners and potential home buyers with current market trends.  The common message is that there is an increase in home buyers but the supply of homes for sale is declining.  The natural consequence of this low supply and high demand situation is for home prices to increase.   The projected home values are continuing to increase, in fact experts have even adjusted their projections based on current market reports.  According to an article published in The Patch, “CoreLogic increased their 12-month projection for home values from 4.5% to 5.6% over the last few months.”

Naturally, buyers become concerned that home prices are causing them to be priced out of a home or a neighborhood.  However, the increase in home prices can’t be analyzed in a bubble.  Other factors must be taken into account to determine whether or not increasing home prices are really making homes unaffordable. 

In the article, written by Keith Kreis, other factors that should also be taken into consideration are discussed.  For example, mortgage interest rates have dropped since the beginning of 2019 which has increased home affordability by almost 10 percent.  Additionally, American workers are seeing wage growth by as much as 1.5% since last fall.  By taking these additional economic factors into consideration, one might argue that, at this point in time, buying a home is more affordable than its been.

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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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How Do Homeowners Really Feel About Trying To Sell?

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The idea of moving to a new house can be exciting.  Perhaps its to a new town full of possibilities, maybe it’s a bigger house in the suburbs allowing kids to play in a big back yard and have their own bedrooms, it may even be a smaller, easier to maintain house allowing more free time to do the things people love instead of home repairs and yard work.  However, for many Americans, they must first sell their current home before moving on to their next dream home. This phase of the real estate process is the source of angst for many homeowners.

The 2019 Zillow Group Consumer Housing Trend Report revealed many aspects of the home selling process cause stress for the homeowner trying to sell their home.  In an article published by MBA Newslink, it was summarized that, “not knowing if a home will sell within the desired time frame is the largest source of stress for sellers, with 56% calling it a stressful experience. Meanwhile, 53% of sellers worry about not being able to sell their home for the price they want; and 52% were stressed about an offer falling through.”

Sellers worry that they won’t sell their current home in time to comfortably purchase their next home, while others worry that they won’t be able to keep the house in the desired condition to sell the home, and still other homeowners find the idea of leaving their home for showings and open houses a stressful situation.  Home buyers can be so overwhelmed, their stress matches or exceeds the prospect of planning a wedding or getting fired from a job. 

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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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