Valuing a House: What Is It Really Worth?

In this article:

There are three values for any home on the market: What the seller thinks it’s worth, what the buyer thinks it’s worth and what a professional appraiser will think it’s worth. The key to a successful purchase is to get those three numbers to align.

You never want to assume that the asking price of a home is also its fair market value. Home values are somewhat subjective and always changing, so understanding how home values are calculated and what factors impact them can help you make a sound real estate investment.

Buyers should always do their research, taking time to determine the market value of a home before making an offer. Otherwise, you risk overpaying.

What is market value?

Simply put, market value is what a fully informed, willing buyer would pay for a home. It’s an amount informed by prices other buyers have recently paid for nearby, similar homes — called comparable homes.

What are comps in real estate?

Comps (short for comparables) are similar, recently sold properties that agents and appraisers use to help determine the value of a home. Comps are used for multiple purposes: to determine the listing price of a home about to list on the market, to help buyers determine a fair offer price and to help an existing homeowner find out the current value of their property and potential equity.

Comps usually consider five key criteria when calculating a home’s value:

Timeline: In a typical market, comps include homes sold in the past three to six months.

Location: Comps should be pulled from the same neighborhood, and in close proximity to the home in question. In an urban area, comps are usually within a mile or so. In rural areas, the radius comps are pulled from will be larger.

Home size: Comps should have the same number of bedrooms and bathrooms, same number of stories and a similar square footage. The lot size and presence of a garage or basement should be similar, too.

Features: Comparable homes should have similar amenities and level of finishes and updates.

Age: The homes being compared should be roughly the same age. Newer homes have newer designs, layouts, systems and appliances, which can increase value.

How comps determine home value

In order to determine a home’s value using comps, three to five comps are collected and grouped together. Then, a report is generated determining a market value, based on the sale prices and details of these homes. You could get two types of reports, based on who is doing the calculations:

  • Comparative Market Analysis (CMA): This is a report typically generated by a real estate agent, used to come up with an accurate list price/estimate of a home’s sale price.
  • Appraisal: This is a report generated by a licensed appraiser and it’s typically used for financing approval.

Keep in mind that the market value you receive from your agent or an appraiser can differ depending on a few factors.

Market speed: If your local real estate market is moving slowly, you might have to depend on comps that are older or less relevant, which could affect the results.

Comp selection: When multiple relevant comps are available, different agents or appraisers might choose to use different comps, which can affect the outcome slightly.

Valuation of features: The agent or appraiser will add or subtract value based on the features of a specific home, and different agents or appraisers may assign slightly different values to home features.

Subjective human nature: CMAs and appraisal reports depend on humans to evaluate and calculate the home’s value, which means you won’t get the same outcome every time. Remember, the true value of a home is how much a buyer is willing to pay for it.

What’s valuable to one buyer isn’t valuable to another

The value of some home features just comes down to individual buyer preferences. If a swimming pool is factored into the price of a home but you plan to just fill it in and re-landscape, it doesn’t make sense to pay extra for it. If you love new carpeting, it may be worth paying a little more for a house with new, high-end, wall-to-wall carpet. But if you’re going to tear it out to install hardwoods, it’s not. If your idea of home cooking is popping something in the microwave, you probably don’t want to pay a premium for a gourmet kitchen when a nice, reasonably sized one would suit you just fine.

Does the Zestimate determine fair market value?

Buyers can look at the value of a house on Zillow using the Zestimate. Zillow’s estimated home value should be used as a starting point, but it shouldn’t be the only data you use in determining a home’s value. The Zestimate is based on a sophisticated and proprietary algorithm which calculates both public and user-submitted data to estimate a valuation range for homes.

The Zestimate is not a replacement for an appraisal, CMA or another home value estimator.

Key factors that influence home value

Home values are usually based on comps, but it’s important to consider a home’s key factors when choosing comps to use. For instance, if a similar, nearby home sold recently, but it’s in a slightly better location, it’s probably worth more. How much more? That’s up to the buyer to determine.

Location

Many features of a home can be changed by the owner — like finishes and even home size. But, you can’t change where the home is located. That’s why location is such an important factor in a home’s value. Outside of standard market appreciation, a home’s land will only increase in value if the area around it improves. For example, 60% of buyers say being in a walkable neighborhood is very or extremely important, according to the Zillow Group Consumer Housing Trends Report 2019.

Here are key location factors that can increase a home’s value:

  • Proximity to urban core
  • Cul-de-sac location or dead end (less traffic)
  • Farther away from railroad tracks, airports, freeway noise and power lines
  • Near parks or green spaces
  • Sidewalks and walkability
  • Proximity to public transit
  • Waterfront, water or mountain views

Job market

When the job market is strong and incomes are growing, people may look to buy a home, or move into a newer or larger home, increasing the demand for homes and boosting competition among buyers.

Property taxes

Budgeting buyers look at their monthly housing payments including taxes, so homes with very high property taxes can be out of reach for some buyers. However, property taxes help pay for public services that benefit the local community. As a buyer, you’ll have to determine the value of savings versus local benefits.

Interest rates

Buyer demand tends to be higher when long-term interest rates are lower, as low interest rates give buyers more purchasing power. Conversely, when interest rates are high, buyers may have a harder time paying off other debt, which can impact their ability to buy a home. When demand is lower, housing prices follow suit.

Home maintenance

While not directly related to a home’s value, buyers may also want to consider any maintenance needs they’ll have to pay, especially in the first year of ownership. For example, will they have to replace the water heater or service the HVAC system?

Buyers of Zillow-owned homes can rest assured that the main systems of the home have been evaluated and serviced by professionals prior to purchase.

The consequences of valuing a home incorrectly

For buyers, the biggest risk in valuing a home incorrectly is overpaying. Other consequences include loosing financing after appraisal or not getting your offer accepted at all.

Overpaying

If you value a home too high, you may set yourself up to be underwater on your investment, especially if market conditions are volatile. Plus, the more you borrow, the more you have to repay!

Low appraisal

Even if you and the seller agree on a price, the appraiser’s valuation will determine the amount your lender will loan for the property. When you agree to pay too much, it can be hard to get financing. If the appraisal comes in too low, it’s possible you will have to come up with a larger down payment, or you risk the deal falling apart.

Missing the opportunity

There’s also some risk in valuing a home too low. If you miscalculate, the seller may not accept your low offer and you may have to move on to another home.

What’s worth more: the home or the land?

Generally speaking, if you’re purchasing a newer or well-maintained home, the home is likely worth more than the land today. But in 50 years, without upkeep, the land would probably be worth more. The physical structure, appliances and materials usually depreciate over time, assuming everything in the home is left original.

Of course, most owners continue to update and repair their homes over the years. So, the longer you stay, the more you will inevitably have to improve to maintain the value of the home itself. The cost of labor and materials inflates steadily over time, so the value of improvements is moderately predictable.

The value of land however, is much more volatile and difficult to predict. A home within close proximity to desirable shops, restaurants, schools, city centers or attractions will generally have a higher value compared to a home farther from these perks. But those amenities and their desirability can change over time.

If you’re buying a home with a view or near a long-standing city center then odds are good that its value will appreciate, but land value is never guaranteed.

Source: zillow.com

Homie’s Greater Phoenix, AZ Housing Market Update January 2021

Phoenix January 2021 Market Report

2021 is already starting off strong for the Arizona housing market. Check out the January happenings!

Monthly Sales

According to data from the ARMLS ® from January 1, 2021 to January 31, 2021, the Phoenix metro area had 7,076 monthly sales, an +11.8% year-over-year increase, landing at 7,076. This number is a 26.8% drop from the previous month’s sales, however.

Monthly Sales

Data From ARMLS®

List Price

With a +10.8% increase from January of 2020, the average list price in Phoenix this January was $471.4K. Median prices also rose in January, landing at $347.7K, a +12.2% increase from December.

New List Prices

Data From ARMLS®

Sale Price

Sale prices continue to rise faster and faster. With an increase of +20.6% between January 2020 and January 2021, the average list price this month was $439.6K. Median sale prices also rose with +17.3% year-over-year increase. The January median sale price was $340.0K. This increase is 3% larger than the previous month’s increase in median sale price. Both median and average sale prices are expected to rise again in February.

Sales Prices

Data From ARMLS®

Days on Market (DOM)

The Average Cumulative Days on Market in January was 46. This is a three-day increase from the previous month, however, it’s an 18-day decrease from January 2020, showing the market is still quite hot, especially for this time of year.

Average Days on Market

Data From ARMLS®

A Message From Wayne Graham, Head of Real Estate

All indications point to the Phoenix market continuing to be strong in 2021. We have a strong start to the year coming off a record year in 2020. The demand for homes is high as interest rates are still low so we expect homes to continue to sell quickly. Now is the time to jump into the Phoenix market and take advantage of record sales and high demand.

Want to Know Your Home’s Value?

Are you thinking of selling soon? Are you wondering how these market trends affect your home? We can help you determine your home’s value. Click here to request your free home value report prepared by a Homie pro.

Turn to a Homie

Whether you’re buying or selling, our team of experienced professionals will help you make the most of your real estate experience. Click to start selling or buying with your dedicated Homie agent.

Source: homie.com

Buyer’s vs. Seller’s Market: What Do They Mean?

When you’re buying a house, it’s important to know what type of market you’re in: a buyers market or a sellers market. Each type of housing market offers its own set of unique opportunities and drawbacks depending on what side of the equation you’re on.

In a buyers market, the market is more favorable toward buyers due to an abundance of inventory, a low demand for housing or other factors that cause home sales to be slower than normal. This type of market works in the buyer’s favor because they can ask for extra concessions, lowball the offer or generally push the purchase to be more favorable to them. A sellers market, on the other hand, means that you’ll be competing with other buyers for the homes on the market. In this case, the seller calls the shots due to high demand for homes.

Though much of the country would be considered a sellers market right now due to extremely low interest rates on mortgage loans, that could always change in the near future. The pendulum swings constantly, and it’s not always clear where it will stop. So, if you’re considering a new home purchase in the near future, here’s what you need to know about a buyers or sellers market to make the most of the market you happen to be in.

In this article

What is a buyer’s market?

A buyers market is when there are more houses for sale than there are buyers. People aren’t buying at a fast enough rate to keep the market from flooding with inventory — which drives the market to be more friendly to the buyers that do exist.

[Read: Mortgage Rates Hit Another 50-Year Low. Should You Buy?]

In a buyers market, sellers must often lower the asking price on their homes to be competitive. If they don’t, they run the risk of their house sitting on the market for too long, which can cause financial issues or issues with getting a loan for the house they’re moving to. Therefore, not only do homebuyers get to enjoy deflated prices in a buyer’s market, but they also stand a good chance of having their lowball offers being considered.

What is a seller’s market?

A sellers market is the opposite of a buyer’s market, and occurs when there are more buyers than there are sellers. When this happens, sellers obviously have the upper hand. Any reasonably priced house is likely to get multiple offers or even instigate a bidding war in highly desirable neighborhoods or cities.

In this type of market, most homes don’t last long before being snatched up by buyers — especially if mortgage loan interest rates are as low as they are right now. Many homes are sold as is and could even get an offer that’s well above asking price. If you have a home to sell, putting it on the market during a seller’s market will likely get you more than you paid for it and help propel you to your next home.

[Read: How to Negotiate Mortgage Closing Costs]

How to determine if it’s a buyers market or a sellers market

If you want to determine whether you’re in a buyers or sellers market, there are a few tricks you can use to figure it out. These include:

  • Analyze the inventory. Use a listing website and look at the county, neighborhood or area you plan to purchase in. Pay particular attention to information like time on the market and the final sales price. If you see a large number of homes are being sold as soon as they hit the market, you are most likely in a sellers market. If sold homes are few and far between, you’re in a buyers market. It’s possible to get even more precise. You can divide the number of homes on the market by the number of homes sold the last 30 days. If the quotient is over seven, you’re in a buyer’s market. Five sold homes or below equals a sellers market.
  • Determine the amount of time homes are sitting. Homes sell quickly in a sellers market if they are priced right and are in good condition — or in some cases, they may sell even if they need a ton of work and aren’t priced as low as you’d expect. The opposite is true of a buyers market.
  • Determine market trends. Are home prices rising or falling? A downward trend suggests a buyers market while an upwards trend indicates a sellers market. The good news is that you don’t have to do the research yourself. You can easily find market reports online or ask a licensed real estate agent to pull some comps for you.
  • Figure out whether the homes are selling for asking price. If a lot of the offers in the area you’re looking at are selling for more than their asking price, that is obviously good news for sellers and bad news for buyers. If the comps indicate that the homes are selling for well below the list price, then you know you’re in a buyers market. You can also look at current listings to determine whether you’re in a buyers or sellers market. Do you notice a lot of listed homes with price cuts? This suggests that homes in this area have sat on the market for longer than expected and that buyers are in control.

Tips for a buyer’s market

A buyer’s market offers unique perks for would-be homeowners. However, if you’re a seller, you’ll have to both lower your expectations and clear a few hurdles along the way.

[Read: 5 Tips for Navigating the Mortgage Underwriting Process During Covid-19]

Tips for sellers:

  • Don’t ask for too much. If your home is priced in the right range, you could still get a buyer in a reasonable amount of time. However, don’t price your home too low to try and unload it, since buyers will still push the envelope in this type of market, no matter what you list your home at.
  • Tackle needed repairs that won’t break the bank. With so many options to choose from, buyers won’t have a reason to take on a fixer-upper unless you’re selling it at a huge discount. Any decent agent will be able to tell you what your house needs to get attention — so listen to them and make repairs or upgrades when possible.
  • Be prepared for lowball offers. Don’t take lowball offers personally and be prepared for them. Figure out what you’re willing to negotiate on before you list your home. If you aren’t willing to negotiate, your home may sit there for a while.

Tips for buyers:

  • Be aggressive: Don’t be afraid to make an offer that’s well below the asking price — especially if the home has been on the market for a while. All the buyer can do is turn you down — and if you’re in a buyers market, it’s less likely that would happen.
  • Negotiate with the seller. You have nothing to lose by negotiating. There are tons of other options on the market if this offer falls through. So, unless you’re at risk of losing the house of your dreams, you can go back and forth with the seller without worrying that you’ll kill the deal over bad feelings.
  • Ask for repairs and closing costs. The worst thing that might happen is the seller will say no. At the very least, you can expect a reasonable counter offer to come of it — and best case, you’ll end up with some contributions from the seller to make your home purchase cheaper.

Tips for a seller’s market

A seller’s market is a great time to cash in if you’re a seller. If you’re a buyer, be prepared to compete with tons of other buyers and maybe offer more than you originally intended.

Tips for sellers:

  • Don’t worry about cosmetic repairs. As long as your home is in decent condition, it’s very likely to get multiple offers. You don’t need to dump a bunch of money into painting the bathroom a neutral color or upgrading the siding. Buyers will still likely be interested in your home.
  • Test the waters on the price. Believe it or not, you can scare buyers away with an overly ambitious listing price, but that doesn’t mean you shouldn’t test the waters a little bit. Try listing your home for over what you think it’s worth. Even with a high listing price, you may get a bidding war from buyers — especially if you’re in a highly desirable area and also in a sellers market.

Tips for buyers:

  • Check listing sites every day. It’s not uncommon for homes to get offers on the first day of listing in a sellers market. Be prepared to live on sites like Realtor and Zillow — and employ the help of a real estate professional who can send you the new listings as soon as they hit the market.
  • Work with a top notch agent. In a sellers market, you’ll need an aggressive agent who is able and willing to drop to show you a house. If you don’t have an agent like this, you’re going to miss out.
  • Get preapproved. You need to be able to make an offer at any time to be competitive with other buyers. Speak with a lender before you speak with an agent to get preapproved — this will strengthen your offer and make you stand out against others.
  • Know your maximum price. Bidding wars are common in a sellers market. Your emotions can put you in financial ruin if you aren’t careful, so you need to know when to back out. Set a maximum price cap and stick to it. Also keep in mind that you can refinance later on if you need to.
  • Don’t ask for too much. You’re competing with a lot of buyers in this type of market. Asking for too much in closing costs and repairs will likely result in the seller not considering your offer.

Compare top mortgage lenders

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

Mortgages in Forbearance Fell in January 2021

The COVID-19 pandemic has shaken up all areas of the U.S. economy in a number of ways, and the mortgage industry has been no exception. Since the start of the pandemic, the number of mortgages in forbearance have increased significantly — due, in major part, to the high unemployment numbers as well as the federal relief programs meant to help protect homeowners who are struggling financially.

 While the forbearance and delinquency numbers in January 2021 look more optimistic than they did at other points in the past, experts still predict it will be a while before the rates return to pre-pandemic numbers. Here’s what you should know about this issue.

In this article

Current state of forbearance as of January 2021

According to data from the Mortgage Bankers Association, about 5.46% of all mortgages — or roughly 2.7 million homeowners — were in forbearance during the second week of January, down slightly from 5.53% the week prior.

Forbearance numbers have ebbed and flowed over the past 10 months, in major part because of the economic changes caused by the pandemic. The latest decrease in forbearances came after a three-week increase caused by the economic slowdown in December.

There are still tons of people still struggling to make their mortgage payments, however, and two important federal relief programs are set to end soon — which could cause big issues for homeowners who are struggling to pay their mortgages.

The foreclosure moratoriums for Fannie Mae are set to end January 31, while the foreclosure protections for Freddie Mac loans are set to end on Febuary 28. Further compounding the issue is the fact that the deadline to request forbearance on a government-backed loan is currently February 28.

If your mortgage is backed by Fannie Mae, Freddie Mac or another government agency and you’re still facing financial hardship due to COVID-19, be sure to request mortgage relief before the deadline. You can request up to 180 days of forbearance if you need it.

2020 forbearance trends and the COVID-19 pandemic

When the pandemic hit and unemployment numbers increased, many homeowners struggled to make their mortgage payments. In response, the federal government provided mortgage relief as part of the CARES Act, a $2.2 trillion stimulus bill to provide relief during the COVID-19 pandemic.

Included in the bill was a provision to protect homeowners with mortgages that are backed by a government agency or government-sponsored enterprises (GSE) such as Fannie Mae or Freddie Mac. Under the CARES Act, borrowers who fit the criteria couldn’t have their home foreclosed on. Those experiencing a financial hardship could also request forbearance in 180-day increments for a total period of 12 months.

During the first couple of months of the pandemic, the number of homeowners with forbearances grew rapidly. At the start of the pandemic in early March, only 0.25% of loans were in forbearance. By the first week of April, that number had risen to 3.74%.

The percentage of mortgage loans in forbearance peaked at 8.6% in June, representing about 4.2 million mortgages. While the numbers ebbed and flowed throughout the rest of 2020, the rate of mortgages in forbearance generally declined.

As unemployment and forbearance rates remained high throughout the year, government agencies extended deadlines on forbearance requests and extended foreclosure moratoriums. As of Jan. 2021, borrowers have until Feb. 28 to request forbearance on their government-backed loan, and their mortgage cannot be foreclosed on until the same date. For Fannie Mae and Freddie Mac loans, there is no deadline to request forbearance, but the foreclosure moratorium ends Jan. 31, 2021.

Despite the relief provided by the federal government, mortgage delinquencies still remain high. Part of the problem is that the federal protections only apply to those with a government or GSE-backed mortgage. As a result, many homeowners aren’t eligible, and some may not realize there are programs available to help.

[ Read: Best Refinance Rates ]

Before COVID-19, the number of mortgages that were delinquent was fairly steady at about 3.6%. By mid-2020, that number had risen to more than 8%. Mortgage experts expect that delinquency rates won’t return to pre-pandemic levels until early 2022.

How the housing market was affected by COVID and government forbearance programs

Despite the increase in unemployment and mortgage delinquencies throughout 2020, the past year has still been booming for the housing market.

First, the Federal Reserve slashed interest rates in 2020 to help keep the economy moving during the pandemic. As a result, mortgage rates have reached all-time lows over the past year, significantly increasing the demand for homes and refinances.

The public health crisis also caused many families to flee urban areas in favor of suburban neighborhoods or smaller towns. This pattern has caused housing demand and prices to spike in those areas due to an influx of new residents.

The government relief programs have also kept the housing supply low, despite the high demand. Thanks to the foreclosure moratorium and forbearance program, many homeowners have been able to stay in their homes when they otherwise may have had to sell. As a result, the housing market supply hasn’t increased like it generally does during an economic crisis.

What to expect for the rest of 2021

There’s no way to know exactly what is to come for the remainder of 2021. The past 12 months have been a tumultuous time for the economy as a whole, including the housing market.

The first thing worth noting is that many of the federal protections for homeowners are set to end soon. The foreclosure moratorium will end Jan. 31 for mortgages backed by Fannie Mae and Freddie Mac and Feb. 28 for mortgages backed by a government agency. Additionally, the deadline for homeowners to request forbearance from a government agency is Feb. 28.

Despite the protections currently in place, the delinquency rate for federally-backed loans has remained significantly higher than the rate for mortgages overall. Once the current relief programs end, it’s possible that many of the loans currently in forbearance will become delinquent, ultimately causing them to go into foreclosure.

[ Read: Best Investment Property Mortgage Rates ]

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

22 Cities Where Home Appreciation Is Spiking

Couple looking at their old home
Photo by Hurst Photo / Shutterstock.com

Extreme demand for homes is pushing home values up at a rate not seen since before the Great Recession, a new Zillow report finds.

Several trends — including new millennial homebuyers, record-low interest rates, trends related to the coronavirus pandemic and the relatively small pool of homes for sale — have converged to heat up the market. The hot sellers’ market is a contrast to flat growth in rental prices nationally, as we reported in “Rent Prices Have Dropped in These 9 Formerly Hot Markets.”

The Zillow Home Value Index rose 9.1% from January 2020 to January 2021, the report says. Year-over-year home value growth hasn’t been this high since June 2006.

That rate may even pick up a bit: Zillow economists expect values to rise 10.1% from January 2021 to January 2022.

The demand has shortened the length of time that homes stay on the market, to a median of just 18 days as of mid-January. Compare that to 46 days at the same time last year and the year before.

A demographic bomb is a factor in the hot market. Millennials — defined by Zillow as Americans ages 25-34 — are entering their peak homebuying years. The number of these millennials increased by 12% — or, about 4.9 million people — between 2010 and 2020.

The generation’s size adds to the housing demand. Also, younger buyers are less likely than older ones to sell a previous home when they buy, which is expected to help keep the pool of homes for sale tight.

Government-stoked low mortgage rates — averaging 2.74% for a fixed-rate 30-year mortgage in January — are driving demand as buyers try to seize the opportunity to either pay less for a home or buy a more expensive one than they otherwise could.

Says Zillow:

“An extraordinary number of home buyers, with budgets supercharged by rock-bottom mortgage interest rates, are competing over a limited supply of homes for sale.”

The pandemic is a final factor. Many workers are now clocking in virtually instead of at the office, driving some to seek larger homes and others to move to smaller, more-affordable markets, Zillow says.

While home values increased in all of the 50 largest metro areas in the U.S. from January 2020 to January 2021, some have seen steeper growth rates than others.

Here are the 22 major markets where home values grew 10% or more, along with their typical home price and their home price growth rate:

  • Phoenix: $335,975 (up 17.1% from January 2020 to January 2021)
  • San Jose, California: $1,314,799 (up 14.2%)
  • Austin, Texas: $384,446 (up 13.7%)
  • Salt Lake City: $436,390 (up 13.7%)
  • San Diego: $689,361 (up 13.5%)
  • Seattle: $594,223 (up 12.8%)
  • Tampa, Florida: $257,499 (up 12.8%)
  • Milwaukee: $219,381 (up 12.1%)
  • Cincinnati: $208,352 (up 12%)
  • Providence, Rhode Island: $357,761 (up 12%)
  • Riverside, California: $433,226 (up 11.7%)
  • Buffalo, New York: $193,583 (up 11.4%)
  • Sacramento, California: $478,817 (up 11.3%)
  • Indianapolis: $204,141 (up 11.3%)
  • Memphis, Tennessee: $174,063 (up 11.3%)
  • Cleveland: $176,069 (up 11.1%)
  • Charlotte, North Carolina: $265,397 (up 10.9%)
  • Columbus, Ohio: $234,276 (up 10.8%)
  • Philadelphia: $277,775 (up 10.6%)
  • Kansas City, Missouri: $227,059 (up 10.6%)
  • Pittsburgh: $178,282 (up 10.4%)
  • Detroit: $198,979 (up 10.3%)

If you’re in the market for a new home or refinancing for your existing home, check out the mortgage rate comparison tools in Money Talks News’ Solutions Center.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

Homebuilders preparing for big 2021, data suggests

Overall housing starts in January totaled 1.58 million units, a decline of 6% from December, according to the latest statistics from the U.S. Census Bureau. But there’s reason for optimism from homebuilders – a huge spike in building permits.

“Despite a modest month-over-over decline, single-family housing starts are up 17.5% from one year ago,” said Odeta Kushi, deputy chief economist at title insurance firm First American. “Single-family permits, a leading indicator of future starts, are up nearly 30% from one year ago. It’s still not enough to significantly narrow the gap between supply and demand, but it’s a step in the right direction.”

A total of 1.881 million residential building permits were issued last month to homebuilders, roughly 1.2% above December’s tally but more than 22% greater than were issued a year ago.

Interestingly, the overall decrease in housing starts last month was driven by single-family starts, which decreased by 12.2% from the prior month, while multi-family starts increased by 17.1% from last month. A seasonal dip was to be expected, experts said, but the widespread distribution of a COVID-19 vaccine should give the economy – and the housing industry – a shot in the arm in 2021.

Doug Duncan, Fannie Mae’s senior vice president and chief economist, said the vaccine combined with President Joseph Biden’s $1.9 trillion fiscal stimulus will drive consumer interest in locking-in historically low mortgage rates, thus driving the amount of home sales upward.


Making housing more affordable by bridging the affordable supply gap

In the last few years, the number of existing single-family homes for sale has decreased. But home prices have increased. To make homeownership a possibility for everyone, there needs to be a higher supply of affordable homes.

Presented by: Fannie Mae

“We assume that the proposed fiscal stimulus of around $1.9 trillion will be passed in mid-March, and that growth will accelerate sharply beginning in the second quarter,” Duncan said. “If 2020 was the year of the virus, then 2021 will more than likely be the year of the vaccine. Whether the vaccines are effective, including with the new virus strains, and how broadly and timely they can be distributed remain key questions.”

Economists are wary, Duncan said, of a potential boom-or-bust scenario for the housing industry in the new year: the combination of rising interest rates from record-low levels, a high national debt, and the risk of rising inflation.

“Very strong growth in the second half of 2021 could push inflation, and thereby rates, up significantly in 2022, thus invoking a Fed response of tightening and a significant deceleration later in 2022,” Duncan said. “This is not our base case scenario, but we see it as a significant risk moving forward.”

Added John Pataky, TIAA Bank executive vice president: “With rates creeping up and homebuilding still partially restricted by the pandemic, the housing market’s next phase of growth may be much more of a grind.”

Privately-owned housing starts in January hit an adjusted rate of 1.336 million, down 2.3% from December but up 2.4% from January 2020.

Single-family authorizations in January were at 1.269 million, up 3.8% from December.

January housing starts increased in the Northeast (+2.3%), but decreased in the Midwest (-12.3%), the West (-11.4%), and the South (-2.5%).

Where homebuilders go from here is of great interest to industry experts: Construction rates are expected to climb in the opening quarter of 2021 and possibly into the summer thanks to high-lumber prices and low land inventory, but the demand for homes is expected to remain high thanks to low interest rates and the hope of President Joseph Biden’s $15,000 first-time homebuyer tax credit.

“Lumber now costs more than double what it did this time last year – a fact that that has reportedly caused some builders to stop some projects mid-way,” said Matthew Speakman, Zillow economist. “Land and labor shortages also continue to hinder the ability to take on new projects.”

Still, Speakman noted, homebuilders’ earned some benefit of the doubt with the way they handled hurdles in 2020.

“Home construction was a source of strength in the U.S. economy in 2020, as builders strove to keep up with robust demand for housing and put up homes at the strongest pace in a decade and a half,” he said.  

Source: housingwire.com

Home Builder Confidence Improves, but High Construction Costs Remain a Concern

The numbers: The construction industry’s outlook improved in February amid better foot traffic from home buyers, even as the cost of building homes increased.

The National Association of Home Builders’ monthly confidence index rose one point to a reading of 84 in February, the trade group said this week. The modest increase comes after two consecutive months where the index has dropped.

Index readings over 50 are a sign of improving confidence. Last spring, the index dropped below 50 as concerns regarding the coronavirus pandemic grew, but the index rebounded and later hit a series of record highs in the fall.

What happened: The index that measures sentiment traffic of prospective buyers increased four points to 72. Comparatively, the outlook regarding current sales activity held steady between January and February, while the index of expectations for future sales over the next six months declined by three points to 80.

On a regional basis, builders’ confidence regarding the housing market in the Northeast improved dramatically, rising from 68 in January to 89 in February. Builders also grew more confident about the state of the market in the Midwest and maintained their positive outlook on the South. Confidence worsened slightly in the West, however.

The big picture: Demand for new homes remains extremely high. The lack of existing homes for sale, plus renewed interest in suburban living amid the pandemic, is pushing buyers further out from major cities and toward newly-constructed developments. But price pressures could begin to affect builders and buyers alike in the coming months.

“Lumber prices have been steadily rising this year and hit a record high in mid-February, adding thousands of dollars to the cost of a new home and causing some builders to abruptly halt projects at a time when inventories are already at all-time lows,” Chuck Fowke, who is the current chairman of the National Association of Home Builders and a custom home builder from Tampa, Fla., said in the report.

“Builders remain very focused on regulatory and other policy issues that could price out households seeking new homes in a tight market this year,” Fowke added.

What they’re saying: “Housing starts and permits should moderate, but from the highest levels since 2006, as building activity continues to be supported by strong demand for homes — especially single-family construction — and low inventories,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a research note.

Market reaction: The Dow Jones Industrial Average and the S&P 500 index were both down slightly Wednesday morning.

Source: realtor.com

The pandemic has caused a surge in demand for vacation homes

The COVID-19 pandemic appears to have inspired more people to look at buying a vacation home, according to a new analysis of mortgage data by the online real estate brokerage Redfin.

In its analysis, Redfin found that mortgage applications for second homes jumped by 84% in January, compared to one year ago. And in September 2020, they surged by 118% year over year.

Taylor Marr, an economist at Redfin, said that although demand is down slightly in January from its peak last fall, the fact that there were nearly twice as many applications for a second-home mortgage as there were in the year before means that this is no fad.

“Many Americans have realized remote work is here to stay, allowing some fortunate people to work from a lakefront cabin or ski condo indefinitely,” Marr said.

The annual rise in second-home applications is more than double the increase in applications for primary homes, according to Redfin’s analysis. That has led to a rapid increase in the prices of homes in vacation hotspots, with many towns and cities seeing double-digit yearly growth. The high prices are partly due to the limited inventory of homes for sale in those places, Redfin said.

Jaime Moore, a Redfin real estate pro in Las Vegas, said that the desire for vacation homes there is as strong as ever. The problem, she said, is that inventory is so low that fewer people are actually able to find a home that meets their needs and budget, submit an offer and then apply for a mortgage on it.

“The market is still highly competitive, and almost all the buyers are people from the San Francisco area purchasing their second home,” Moore said. “The only time I see a buyer looking to purchase a primary residence is when they already live here in a rental, and they’re looking for something more permanent.”

Source: realtybiznews.com