Freddie Mac: 2015 Home Sales to Hit 2007 Levels

According to Freddie Mac’s latest U.S. Economic & Housing Market Outlook, U.S. home sales in 2015 will show increase to the numbers associated with a normal real estate market. Here is their projection:

“We are projecting a 4 percent rise in sales to 5.6 million, which would mark the highest level of annual sales since 2007.”

And their optimism was seconded by both the National Association of Realtors (NAR) and the Mortgage Bankers Association (MBA).

It seems that an improving economy and jobs market will mean a very healthy housing market.

Do You Fit the Description of the Typical First Time Homebuyer?

There are many people sitting on the sidelines trying to decide if they should purchase a home or sign a rental lease. Some might wonder if it makes sense to purchase a house before they are married and have a family. Others may think they are too young. And still others might think their current income would never enable them to qualify for a mortgage.

We want to share what the typical first time homebuyer actually looks like based on the National Association of REALTORS most recent Profile of Home Buyers & Sellers. Here are some interesting revelations on the first time buyer:

Bottom Line

You may not be much different than many people who have already purchased their first home.

Home Values Compared to the Peak of 2006-2007

There is no doubt that the housing market has recovered from the meltdown that occurred just a few short years ago. However, in some states home values still have not returned to the prices we saw in 2006 and 2007. Here is a breakdown showing where current prices are in each state as compared to peak prices.

Will Higher Interest Rates Kill HOME SALES?

The Mortgage Bankers Association, the National Association of Realtors, Fannie Maeand Freddie Mac are each projecting mortgage interest rates to increase substantially over the next twelve months. What will that mean to the housing market in 2015?

Last week, we posted a graph showing that home prices appreciated each of the last four times mortgage interest rates dramatically increased. Today, we want to talk about the impact higher rates might have on the number of home sales.

The reason many experts are calling for a rise in rates is because they see a stabilizing economy. With the economy beginning to improve, they expect the employment situation to regain some ground lost during the recession, incomes to grow and for consumer confidence to improve.

What will that mean to home sales next year?

In its November 2014 U.S. Economic & Housing Market Outlook, Freddie Mac explains:

“While higher interest rates generally detract from housing activity, when they occur with strong job and income growth the net result can be increases in household formations, construction, and home sales. Our view for 2015 is exactly that, namely, income and job growth offset the negative effect of higher interest rates and translate into gains for the nation’s housing market.”

Bottom Line

Even with mortgage rates increasing, home sales and home appreciation should be just fine in 2015.

Confusing Real Estate News? An Agent Can Help

Below are the headlines from three separate news releases issued over a one month period:

11/3/2014 - Millions of Potential New Households Waiting Out the Recovery

11/11/2014 - Experts: First-Time Homebuyers' Weak Finances Holding Back Housing Market

And then, the contrarian view:

12/2/2014 - In 2015, Millennials Will Be Biggest Home Buying Group

It sure seems that the group that released the first two stories emphatically disagrees with the organization that published the last news release.

Amazingly, the same entity published all three reports. What?

It seems the company (a well-respected provider of housing information) reported that those forming new households are not looking to buy a home. They actually surveyed over one hundred housing experts who agreed. But 30 days later, they reported that millennials (most new households) will be the biggest group of home buyers this year. All in one month!!

All the headlines could actually be true. However, a consumer reading them might be misled. This is evidence of how difficult it is to actually understand the intricacies of today’s housing market. Even the experts can seem confused.

Bottom Line

If you are thinking of either buying or selling a home, it is probably best to engage a local real estate professional to help you successfully navigate the ins-and-outs of today’s real estate transaction.

Later today, we will be hosting a webinar titled 3 Ways to Guarantee Success in 2015which will cover this issue in more depth. You can reserve your seat here.

Housing market poised for steady gains

San Diego County’s housing market should see stable price gains and increased demand as the economy continues to grow in 2015, according to a pair of real-estate forecasts released this week. 

The forecasts, by Realtor.com and Trulia, indicate the days of investor-led fixing and flipping that led to double digit annual price gains during the recovery from the Great Recession are over and won’t return. Instead, wage growth, employment, supply and demand will continue to push the market forward, with annual gains in prices at about 4 percent, about double inflation, said Jonathan Smoke, chief economist for Realtor.com. A lack of affordability will remain an issue despite some wage increases, Smoke said, in part because he expects interest rates to rise about 0.5 percent. 

“San Diego falls into a short list of markets where I would say demonstrably already that demand outpaces supply,” Smoke said. “That very tight supply condition puts it in a market that has next to zero chance of seeing prices decline.”

Jed Kolko, the chief economist for Trulia, noted that people expected interest rates to rise last year, and that never happened. He listed San Diego as one of the nation’s 10 markets to watch next year, with Fresno the only other California metropolitan area to make the list. Others making the positive list are Boston, Dallas, Nashville and New York.

“They have strong fundamentals for the housing market without the risk that prices look overvalued,” Kolko said. “These are the markets who are in that sweet spot where the conditions are ripe for a strong year, without much downside risk.”

Smoke said demand will increase as the millennial generation, of 19-to-35 year olds, continues to get older and moved toward starting a family. He said San Diego should see 5 percent household formation growth over the next five years, with construction activity increasing to help with some supply. Kolko said he also sees millennials moving out of their parents’ homes for the first time, but most are going to rent. Still, there’s not enough housing supply to match demand, with inventory in San Diego running a little more than two months, about half of what economists would like to see. 

Smoke and Kolko said higher lending standards and saving for a 20 percent downpayment are challenges facing millennials who want to buy. 

In October, the median price for a home sold in the county was $440,000, up 6.6 percent from a year earlier, CoreLogic DataQuick reports. The annual rate of appreciation on homes in the county has declined since peaking at 24.1 percent in June 2013, when foreclosure resales and fix-and-flip activity paced the market.

The Real Estate Market Has Turned The Corner

As we finish 2014, it appears the real estate market is once again on solid footing and ready to advance forward over the next few years. The strength of the market can be viewed using two metrics: projected home values and projected house sales.

We recently reported that the Home Price Expectation Survey revealed future home values will continue to appreciate nicely. Today we want to look at projections on the number of home sales (existing and new construction) we will see over the next two years. We researched what the National Association of Realtors (NAR), Freddie Mac and the Mortgage Bankers’ Association (MBA) are projecting for the housing industry going forward.

Here is what we found:

All three entities see the number of home sales increasing in both 2015 and 2016. This is further proof the housing market is back.

Will an Increase in Interest Rates Crush Home Prices?

There are some who are calling for a substantial drop in home prices should mortgage interest rates begin to rise rapidly. Intuitively that makes sense. The cost of a home is determined by the price of the home and the price of financing that home. If mortgage interest rates increase, less people will be able to buy. The logic says prices will fall if demand decreases.

However, history shows us that this has not been the case the last four times mortgage interest rates dramatically increased.

Here is a graph showing what actually did happen:

We will have to wait and see what happens as we move forward. But, a fall in prices should rates go up is not guaranteed.

Freddie Mac: Buy Sooner Rather than Later

In a recent video update on the housing market, Frank Nothaft, Freddie Mac’s chief economist, stated that with both mortgage interest rates and home prices projected to increase in 2015 buying now makes sense.

“If you are planning to buy a home in the next year, it’s better to do it sooner rather than later.”

Here are the latest mortgage interest rate projections from four major housing entities: Fannie Mae, Freddie Mac, the Mortgage Bankers Association (MBA) and the National Association of Realtors (NAR):

Thinking of Selling & Moving Up?

This advice isn’t limited to just the first-time buyer. If you are considering moving up to the home your family has always wanted, waiting also makes no sense.

Home Prices Continue to Rise

“Broad-based Slowdown for Home Prices”

That is a headline you might have seen over the past weekend. And though it is true, we must understand the story behind the headline. Case Shiller reports on the year-over-year difference in home values. Their latest report revealed that the rate of appreciation has slowed – not that prices are falling!! Here is exactly what they said:

“The 20-City Composite gained 4.9% year-over-year, compared to 5.6% in August.”

Prices are still up this month over last year’s values (4.9%) just not as much as they were last month (5.6%).

Home Prices are NOT Falling. 

As a matter of fact, the latest Home Price Expectation Survey by Pulsenomics (a survey of a nationwide panel of over one hundred economists, real estate experts and investment & market strategists) showed that home prices will continue to appreciate for the next several years.

Bottom Line

Both first time buyers and families thinking of moving-up to their dream home can be assured that their investment in their new home makes sense.

Proof that NOW is a Good Time to Sell

Most homeowners believe that the winter is not a good time to sell. This belief is based on the fact that historically the number of buyers decreases in the winter and then increases dramatically during the spring buying market. Though this is still true, there is an interesting pattern developing over the last few months.

The number of prospective purchasers actively looking at a home (foot traffic) has remained strong going into the fall. As a matter of fact, the foot traffic far exceeds the numbers reported for the same months last year (see chart):

At the same time, the National Association of Realtors revealed that the months’ supply of housing inventory has decreased from 5.5 months to 5.3. That equates to less competition for homeowners selling today as compared to next spring when many homeowners will decide to put their home on the market.

Bottom Line

Since buying activity is still strong, this might be a great time to put your house on the market.

4 More Reasons to Sell Now

As we discussed last week one reason to sell now is demand is still strong. With inventory levels also still below historic numbers, you could be missing out on a great opportunity for your family.

1. There Is Less Competition Now

Housing supply just dropped to 5.1 months, which is under the 6 months’ supply that is needed for a normal housing market. This means that, in many areas, there are not enough homes for sale to satisfy the number of buyers in that market. This is good news for home prices. However, additional inventory is about to come to market.

There is a pent-up desire for many homeowners to move, as they were unable to sell over the last few years because of a negative equity situation. Homeowners are now seeing a return to positive equity as real estate values have increased over the last two years. Many of these homes will be coming to the market in the near future.

Also, new construction of single-family homes is again beginning to increase. A study by Harris Poll revealed that 41% of buyers would prefer to buy a new home while only 21% prefer an existing home (38% had no preference).

The choices buyers have will continue to increase over the next few months. Don’t wait until all this other inventory of homes comes to market before you sell.

2. The Process Will Be Quicker

One of the biggest challenges of the 2014 housing market has been the length of time it takes from contract to closing. Banks are requiring more and more paperwork before approving a mortgage. Any delay in the process is always prolonged during the winter holiday season. Getting your house sold and closed before those delays begin will lend itself to a smoother transaction.

3. There Will Never Be a Better Time to Move-Up

If you are moving up to a larger, more expensive home, consider doing it now. Prices are projected to appreciate by over 23.5% from now to 2019. If you are moving to a higher priced home, it will wind-up costing you more in raw dollars (both in down payment and mortgage payment) if you wait. You can also lock-in your 30 year housing expense with an interest rate in the low 4’s right now. Rates are projected to be over 5% by this time next year.

4. It’s Time to Move On with Your Life

Look at the reason you decided to sell in the first place and determine whether it is worth waiting. Is money more important than being with family? Is money more important than your health? Is money more important than having the freedom to go on with your life the way you think you should?

Only you know the answers to the questions above. You have the power to take back control of the situation by putting your home on the market. Perhaps, the time has come for you and your family to move on and start living the life you desire.

That is what is truly important.

5 Reasons to Hire a Real Estate Professional

Whether you are buying or selling a home, it can be quite an adventurous journey. You need an experienced Real Estate Professional to lead you to your ultimate goal. In this world of instant gratification and internet searches, many sellers think that they can For Sale by Owner or FSBO.

The 5 Reasons You NEED a Real Estate Professional in your corner haven’t changed, but have rather been strengthened due to the projections of higher mortgage interest rates & home prices as the market continues to recover. 

1. What do you do with all this paperwork?

Each state has different regulations regarding the contracts required for a successful sale, and these regulations are constantly changing. A true Real Estate Professional is an expert in their market and can guide you through the stacks of paperwork necessary to make your dream a reality.

2. Ok, so you found your dream house, now what?

According to the Orlando Regional REALTOR Association, there are over 230 possible actions that need to take place during every successful real estate transaction. Don’t you want someone who has been there before, who knows what these actions are to make sure that you acquire your dream?

3. Are you a good negotiator?

So maybe you’re not convinced that you need an agent to sell your home. However, after looking at the list of parties that you need to be prepared to negotiate with, you’ll realize the value in selecting a Real Estate Professional. From the buyer (who wants the best deal possible), to the home inspection companies, to the appraiser, there are at least 11 different people that you will have to be knowledgeable with and answer to, during the process.

4. What is the home you’re buying/selling really worth?

It is important for your home to be priced correctly from the start to attract the right buyers and shorten the time that it’s on the market. You need someone who is not emotionally connected to your home to give you the truth as to your home’s value. According to the National Association of REALTORS, “the typical FSBO home sold for $184,000 compared to $230,000 among agent-assisted home sales.” Get the most out of your transaction by hiring a professional. 

5. Do you know what’s really going on in the market?

There is so much information out there on the news and the internet about home sales, prices, mortgage rates; how do you know what’s going on specifically in your area? Who do you turn to in order to competitively price your home correctly at the beginning of the selling process? How do you know what to offer on your dream home without paying too much, or offending the seller with a low-ball offer?

Dave Ramsey, the financial guru advises:

“When getting help with money, whether it’s insurance, real estate or investments, you should always look for someone with the heart of a teacher, not the heart of a salesman.”

Hiring an agent who has their finger on the pulse of the market will make your buying/selling experience an educated one. You need someone who is going to tell you the truth, not just what they think you want to hear.

Bottom Line:

You wouldn’t replace the engine in your car without a trusted mechanic. Why would you make one of your most important financial decisions of your life without hiring a Real Estate Professional?

Debunking 4 Myths about Buying a Home

A recent study by the Joint Center for Housing Studies at Harvard University revealed when renters were asked why they do no plan to own in the future, financial constraints were a more common response than the perceived lifestyle benefits they may receive from renting. Today, we want to go over those financial challenges and see if we can put some fears to rest and also clear up some misconceptions. Here are the top four financial hurdles that cause renters not to buy:

You Cannot Afford a Home

Well over 50% of renters consider this as a financial barrier to homeownership. However, study after study has shown us that there are major misunderstandings about what is required to purchase a home.

The biggest misconception is the amount of a down payment required. A recent surveyrevealed that 44% of respondents believed that a 20% down payment was required. In actuality, mortgages are available with as little as 5% down (and even 3% in certain situations).

The same survey showed that 30% of respondents believe that only individuals with ‘high incomes’ can obtain a mortgage. In actuality, there are several programs intentionally created to help moderate income families buy a home of their own (look at the FHA program for example).

You Do Not Have Good Enough Credit to Get a Mortgage

The survey mentioned above showed that 64% of respondents believe they must have a “very good” credit score to buy a home. Most people don’t realize that the average credit score for closed loans has actually dropped 24 points in the last two years. For more information on credit scores click here.

It’s Not a Good Time to Buy a Home

Determining when is the right time to buy a home from a pure financial calculation can be difficult. There are two elements of the cost of a home: the price of the house and the mortgage interest rate. When considering a purchase, you want to have at least an indication where prices and mortgage rates are headed. According to over 100 experts, house values are expected to increase by almost 20% between now and 2018. And Freddie Mac recently projected that mortgage rates would be as much as one full point higher by this time next year.

With both prices and interest rates projected to increase, now is the perfect time to buy a home.

It’s Cheaper to Rent than Buy

This is a myth that doesn’t want to die. However, Trulia recently reported that, in fact, buying is actually dramatically cheaper than renting. Here is what they said:

“Homeownership remains cheaper than renting nationally and in all of the 100 largest metro areas. In fact, buying is 38% cheaper than renting now, compared with 35% cheaper than renting one year ago.”

Bottom Line

If you are even thinking about buying, get the facts from a trained professional. You may be pleasantly surprised by what you find out.

4 Reasons to Buy Before Winter

It's that time of year, the seasons are changing and with them bring thoughts of the upcoming holidays, family get togethers, and planning for a new year. Those who are on the fence about whether now is the right time to buy don't have to look much farther to find four great reasons to consider buying a home now, instead of waiting.

1. Prices Will Continue to Rise

The Home Price Expectation Survey polls a distinguished panel of over 100 economists, investment strategists, and housing market analysts. Their most recent report released recently projects appreciation in home values over the next five years to be between 11.2% (most pessimistic) and 27.8% (most optimistic).

The bottom in home prices has come and gone. Home values will continue to appreciate for years. Waiting no longer makes sense.

2. Mortgage Interest Rates Are Projected to Increase

Although Freddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year mortgage have softened recently, most experts predict that they will begin to rise later this year. The Mortgage Bankers Association, Fannie Mae, Freddie Mac and the National Association of Realtors are in unison projecting that rates will be up almost a full percentage point by the end of next year.

An increase in rates will impact YOUR monthly mortgage payment. Your housing expense will be more a year from now if a mortgage is necessary to purchase your next home. 

3. Either Way You are Paying a Mortgage

As a recent paper from the Joint Center for Housing Studies at Harvard University explains: “Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return. That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

4. It’s Time to Move On with Your Life

The ‘cost’ of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise. But, what if they weren’t? Would you wait? Look at the actual reason you are buying and decide whether it is worth waiting. Whether you want to have a great place for your children to grow up, you want your family to be safer or you just want to have control over renovations, maybe it is time to buy.

Bottom Line

If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could lead to substantial savings.

San Diego Snap Shot for November

SAN DIEGO - Week of November 2nd, 2014

Single Family Homes

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This Week The median list price in SAN DIEGO, CA this week is $622,000. The 2064 properties have been on the market for an average of 74 days. Inventory is up and Market Action is trending down recently. While days-on-market appears to be trending lower, the overall conditions are weakening a bit. Supply and Demand Home sales continue to outstrip supply and the Market Action Index has been moving higher for several weeks. This is a Seller's market so watch for upward pricing pressure in the near future if the trend continues.

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Median Price

The market seems to have paused around this plateau. The Market Action Index is a good leading indicator for the durability of this trend.

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Inventory of Properties Listed for Sale

Inventory has been climbing lately. Note that rising inventory alone does not signal a weakening market. Look to the Market Action Index and Days on Market trends to gauge whether buyer interest is keeping up with available supply.

Here are a few reasons why you should consider making a home purchase today, and not wait until tomorrow.

Here are a few reasons why you should consider making a home purchase today, and not wait until tomorrow. Supply is shrinking. With inventory declining, finding the home of your dreams may become more difficult going forward. The best homes in the best locations sell first. Don’t miss the opportunity to get that “once-in-a-lifetime” buy. Home prices are increasing. Take advantage of lower median home prices today. According to the National Association of Realtors, the median sales price of existing single-family homes rose 11.4% in 2013 alone. Prices are getting a boost not just from shrinking inventory but also low mortgage interest rates. Interest rates are still low. You can still find a 30-year fixed rate loan under 5.5%, however, you never know when rates will begin to rise. Tax deductions. You may be able to deduct mortgage interest and real estate taxes from your home if you itemize. Talk to your tax professional now to see what tax benefits you can take advantage of. Rent is skyrocketing. According to Bloomberg, average monthly rents have risen by 3.4% compared to this time last year. Owning your own home means not having to worry about rent increases. Now could be the best time for you to purchase a home. Contact me today!

Top 10 Home-Selling Mistakes

HGTV's FrontDoor.com identified what it believes to be the top 10 home-selling mistakes.

10. Waiting until spring to sell. People buy homes all year, so play up the home's seasonal amenities and take advantage of serious buyers looking in the off-season.

9. Not understanding the real estate contract. Go over the fine print of the agreement with your real-estate agent or attorney before signing to make sure you understand your responsibilities as well as any demands the buyer has made.

8. Going it alone without researching first. Selling a home for-sale-by-owner take time, and requires you to do paperwork, marketing and showings. Make sure you're up for the work involved in return for saving on the real-estate agent commission fee.

7. Ignoring lowball offers. If buyers submit a low offer, don't reject it completely. Counteroffer to see if they are willing to negotiate.

6. Wasting time on an unqualified buyer. Make sure a potential buyer is prequalified for a loan before accepting an offer.

5. Skimping on marketing. Mix traditional advertising, including a sign in the yard and an ad in a homes magazine, with Web techniques, including online photos and video.

4. Sabotaging the showing. Leave the home when it is being shown to prospective buyers so they can more easily focus, and make sure the home is accessible w! ith convenient showing hours and a lockbox for agents.

3. Not prepping for the sale. Visit open houses in the neighborhood to get a sense of what the competition offers, then make fixes and updates, declutter and clean to outshine them.

2. Overimproving. Don't make so many upgrades that you price your home out of the appropriate range for the area and fail to recoup your investment.

1. Overpricing. Your home should be priced in line with homes in the area that are of similar age, style and size.

If you want a FREE home evaluation feel free to call us at 619.449.1919

Buying a Home with as Little as 3-5% Down Payment

We have recently reported on the misconception that many buyers have regarding the down payment necessary to purchase a home. Multiple studies reveal that 40-50% of Americans believe you need between 15-20% of a down payment to be eligible to purchase a home.

This misconception came about as the government just last year debated new guidelinesfor residential mortgages because of the housing collapse in 2007. Some were arguing that there should be a minimum of 20% or even 30% down payment on all mortgage loans. However, those standards were never implemented.

To counter this misunderstanding, Christina Boyle, Freddie Mac’s VP and Head of Single-Family Sales & Relationship Management, in a recent Executive Perspectives explained that a person “can get a conforming, conventional mortgage with a down payment of as little as 5 percent”.

3% Down Payments Available Soon?

Just last week, Federal Housing Finance Agency Director Mel Watt announced that mortgages requiring only a three percent down payment may soon be available:

“To increase access for creditworthy but lower-wealth borrowers, FHFA is also working with the Enterprises to develop sensible and responsible guidelines for mortgages with loan-to-value ratios between 95 and 97 percent. Through these revised guidelines, we believe that the Enterprises will be able to responsibly serve a targeted segment of creditworthy borrowers with lower-down payment mortgages by taking into account “compensating factors.”

Bottom Line

If you are saving for either your first home or that perfect move-up dream house, make sure you know all your options. You may be pleasantly surprised. To see all your options call us today at 619.449.1919.