Thursday, August 19, 2021

More Young People Are Buying Homes

 

More Young People Are Buying Homes

More Young People Are Buying Homes | MyKCM

There’s a common misconception that younger generations aren’t interested in homeownership. Many people point to the fact that millennials put off purchasing their first home as a reason for this belief.

Odeta Kushi, Deputy Chief Economist for First Americanexplains why millennials have put off certain milestones linked to homeownership. Those delays led to their homeownership rates trailing slightly behind older generations:

Historically, millennials have delayed the critical lifestyle choices often linked to buying a first home, including getting married and having children, in order to further their education. This is clear in cross-generational comparisons of homeownership rates which show millennials lagging their generational predecessors.”

So, it’s partially true that some millennials have waited on homeownership to focus on other things in their lives – and that’s impacting certain housing market trends.

Data from the National Association of Realtors (NAR) indicates the average age of a first-time homebuyer is higher today than it’s been over the past 40 years. As the graph below shows, homebuyers today are purchasing their first home an average of 4 years later than people in the 1980s and early 1990s:More Young People Are Buying Homes | MyKCMBut just because millennials are hitting certain milestones later in life doesn’t mean they’re not interested in becoming homeowners. The recent U.S. Census reveals a significant increase in homeownership rates for millennials and other young homebuyers.More Young People Are Buying Homes | MyKCMAs the graph above shows, millennials are entering the market in full force, and their share of the market is growing. Based on the data, the belief that younger generations don’t want to buy homes is a misconception. In fact, the recent Capital Market Outlook report from Merrill-Lynch further drives home this point, as it specifically mentions the effect millennials are having on demand:

“Demand is very strong because the biggest demographic cohort in history is moving through the household-formation and peak home-buying stages of its life cycle."

Kushi is following the trend of millennial homeownership and puts it more simply, saying:

“. . . it's clear that younger households (millennials!) are driving homeownership growth.”

As the largest generation, millennials’ impact on the market is growing as more and more people from that generation reach homebuying age – and Generation Z isn’t far behind, either. That means younger generations will likely continue to drive demand in the housing market for years to come.

Bottom Line

If you're a member of a younger generation and interested in purchasing a home, you're not alone. Many of your peers are on their path to homeownership, too. Let's connect today and discuss what you can do to accomplish your homebuying goals.

Wednesday, August 18, 2021

Real Estate: It’s Still a Lack of Supply, Not a Lack of Demand

 

Real Estate: It’s Still a Lack of Supply, Not a Lack of Demand

Real Estate: It’s Still a Lack of Supply, Not a Lack of Demand | MyKCM

One of the major questions real estate experts are asking today is whether prospective homebuyers still believe purchasing a home makes sense. Some claim rapidly rising home prices are impacting demand and, by extension, leading to the recent slowdown in sales activity.

However, demand isn’t the real issue. Instead, it’s the lack of supply (homes available for sale). An article from the Wall Street Journal shows this is true for new home construction:

Home builders have sold more homes than they can build. Now they are limiting their sales in an effort to catch up.”

The article quotes David Auld, CEO of D.R. Horton Inc. (the largest homebuilder by volume in the United States since 2002), explaining how they don’t have enough homes for the number of buyers coming into their models:

“Through our history, to have somebody walk into our models and to tell them, ‘We don’t have a house for you to buy today’, is something that is foreign to us.”

Danielle Hale, Chief Economist for realtor.com, also explains that, in the existing home sale market, the slowdown in sales was a supply challenge, not a lack of demand. Responding to a recent uptick in listings coming to market, she notes:

“. . . if these changing inventory dynamics continue, we could see a wave of real estate activity heading into the latter part of the year.”

Again, the buyers are there. We just need houses to sell to them.

If the slowdown in sales was the result of demand waning, we would start to see home prices beginning to moderate – but this isn’t the case. As Mark Fleming, Chief Economist for First Americanexplains:

“There’s a lot of conversation around rising prices and falling quantity in the housing market, and there’s this concept, or this idea, that it's a demand-side problem . . . . But, if demand were falling dramatically, we would actually see less price pressure, less home price growth.”

Instead, we’re seeing price appreciation accelerate throughout this year, as evidenced by the year-over-year percentage increases reported by CoreLogic:

  • January: 10%
  • February: 10.4%
  • March: 11.3%
  • April: 13%
  • May: 15.4%
  • June: 17.2%

(July numbers are not yet available)

There’s a shortage of listings, not buyers, and there are three very good reasons for purchasers to still be interested in buying a home this year.

1. Affordability isn’t the challenge some are claiming it to be.

Though home prices have risen dramatically over the last 18 months, mortgage rates remain near historic lows. Because of these near-record rates, monthly mortgage payments are affordable for most buyers.

While homes are less affordable than they were last year, when we adjust for inflation, we can see they’re also more affordable than they were in the 1970s, 1980s, 1990s, and much of the 2000s.

2. Owning is a better long-term decision than renting.

recent study shows renting a home takes up a higher percentage of a household’s income than owning one. According to the analysis, here’s the percentage of income homebuyers and renters should expect to pay now versus at the end of the year.Real Estate: It’s Still a Lack of Supply, Not a Lack of Demand | MyKCMWhile the principal and interest of a monthly mortgage payment remain the same over the lifetime of the loan, rents increase almost every year.

3. Owners build their wealth. Renters build their landlord’s wealth.

Whether you’re a homeowner or an investor, real estate builds wealth through growing equity year-over-year. If you own, your household is gaining the benefit of that wealth accumulation. Fleming says:

The major financial advantage of homeownership is the accumulation of equity in the form of house price appreciation . . . . We have to take into account the fact that the shelter that you’re owning is an equity-generating or wealth-generating asset.”

Odeta Kushi, Deputy Chief Economist at First American, elaborates in a recent article:

“. . . once the home is purchased, appreciation helps build equity in the home, and becomes a benefit rather than a cost. When accounting for the appreciation benefit in our rent versus own analysis, it was cheaper to own in every one of the top 50 markets, including the two most expensive rental markets, San Francisco and San Jose, Calif.”

Today, that equity buildup is substantial. The National Association of Realtors (NAR) reports:

“The median sales price of single-family existing homes rose in 99% of measured metro areas in the second quarter of 2021 compared to one year ago, with double-digit price gains in 94% of markets.”

In 94% of markets, there was a greater than 10% increase in median price. That means if you bought a $400,000 home in one of those markets, your net worth increased by at least $40,000. If you rented, the landlord was the recipient of the wealth increase.

Bottom Line

For many reasons, housing demand is still extremely strong. What we need is more supply (house listings) to meet that demand.

Tuesday, August 17, 2021

What Does Being in a Sellers’ Market Mean?

 

What Does Being in a Sellers’ Market Mean?

What Does Being in a Sellers’ Market Mean? | MyKCM

Whether or not you’ve been following the real estate industry lately, there’s a good chance you’ve heard we’re in a serious sellers’ market. But what does that really mean? And why are conditions today so good for people who want to list their house?

It starts with the number of houses available for sale. The latest Existing Home Sales Report from the National Association of Realtors (NAR) shows housing supply is still astonishingly low. Today, we have a 2.6-month supply of homes at the current sales pace. Historically, a 6-month supply is necessary for a ‘normal’ or ‘neutral’ market in which there are enough homes available for active buyers (see graph below):What Does Being in a Sellers’ Market Mean? | MyKCMWhen the supply of houses for sale is as low as it is right now, it’s much harder for buyers to find homes to purchase. That creates increased competition among purchasers which leads to more bidding wars. And if buyers know they may be entering a bidding war, they’re going to do their best to submit a very attractive offer. As this happens, home prices rise, and sellers are in the best position to negotiate deals that meet their ideal terms.

Right now, there are many buyers who are ready, willing, and able to purchase a home. Low mortgage rates and the ongoing rise in remote work have prompted buyers to think differently about where they live – and they’re taking action. If you put your house on the market while supply is still low, it will likely get a lot of attention from competitive buyers.

Bottom Line

Today’s ultimate sellers’ market holds great opportunities for homeowners ready to make a move. Listing your house now will maximize your exposure to serious buyers who will actively compete against each other to purchase it. Let’s connect to discuss how to jumpstart the selling process.

Monday, August 16, 2021

A Look at Home Price Appreciation and What It Means for Sellers

 

A Look at Home Price Appreciation and What It Means for Sellers

A Look at Home Price Appreciation and What It Means for Sellers | MyKCM

When you hear the phrase home price appreciation, what does it mean to you? Through context clues alone, chances are you know it has to do with rising home prices. And as a seller, you know rising home prices are good news for your potential sale. But let’s look past the dollar signs and dive deeper into the concept. To truly understand home price appreciation, you need to know how it works and why it matters to you.

Investopedia defines appreciation like this:

Appreciation, in general terms, is an increase in the value of an asset over time. The increase can occur for a number of reasons, including increased demand or weakening supply, or as a result of changes in inflation or interest rates. This is the opposite of depreciation, which is a decrease in value over time.” 

When we consider this definition and how it applies to real estate, a few words stick out: supply and demand. In today’s real estate market, we’re experiencing high buyer demand and very few sellers listing their homes for sale (see maps below):A Look at Home Price Appreciation and What It Means for Sellers | MyKCMNo matter the industry, anytime there’s more demand than supply, prices naturally rise. It happens because buyers are willing to pay more to secure the scarce product or service they’re looking for. That’s exactly what’s happening in today’s real estate market. Buyers are competing with one another to purchase a home, leading to bidding wars that drive prices up. For sellers, the rising prices mean that opportunity is knocking.

According to Quicken Loans, the national average home price appreciation rate is between 3-5% in a typical year. Today, home prices are appreciating well beyond the norm thanks to high demand. Here are the latest expert projections on the rate of home price appreciation for this year (see chart below):A Look at Home Price Appreciation and What It Means for Sellers | MyKCM

Compared to the normal pace of 3-5% appreciation per year, the current average forecast of nearly 11.5% is significant.

For sellers, this means that with the current rise in prices, your house may be worth more than you realize. That price appreciation helps give your equity a boost. Equity is the difference between what you owe on the home and its market value based on factors like price appreciation. It works like this (see chart below):A Look at Home Price Appreciation and What It Means for Sellers | MyKCMYou can use your built-up equity to power a move into your dream home, or you can put it toward life-changing goals like funding an education or opening a business.

But don’t wait. While price appreciation is strong now, those same experts say it’ll start to appreciate at a more normalized pace next year. If you list your house sooner rather than later, you’ll be in a better position to capitalize on the higher-than-average home price appreciation we’re seeing today.

Bottom Line

If you’re thinking of selling your house, there really is no time like the present. Let’s connect so you can get an expert market analysis of your home and its potential.

Friday, August 13, 2021

Sellers Are in a Sweet Spot [INFOGRAPHIC]

 

Sellers Are in a Sweet Spot [INFOGRAPHIC]

Sellers Are in a Sweet Spot [INFOGRAPHIC] | MyKCM

Some Highlights

  • In today’s sellers’ market, you’re set up to win big when you list your house.
  • That’s because homes are selling fast, receiving 4.4 offers on average and often selling above the asking price. Then, when you buy your next home, you’ll also win by addressing your changing needs and taking advantage of near historic-low mortgage rates.
  • If you’re ready to make a move, let’s connect so you can capitalize on today’s market and find your next dream home.

Thursday, August 12, 2021

The Best Use of Time (and Money) When It Comes to Renovations

 

The Best Use of Time (and Money) When It Comes to Renovations

The Best Use of Time (and Money) When It Comes to Renovations | MyKCM

In the current sellers’ market, many homeowners wonder what, if anything, needs to be remodeled before they list their house. That’s where a trusted real estate professional comes in. They can help you think through today’s market conditions and how they impact what you should – and shouldn’t – renovate before selling.

Here are some considerations a professional will guide you through:

1. With current supply challenges, buyers may be willing to take on projects of their own.

A more balanced market typically sees a 6-month supply of homes for sale. Above that, and we’re in a buyers’ market. Below that, and we’re in a sellers’ market. According to a recent report by the National Association of Realtors (NAR), our current supply of homes for sale, while rising, still remains solidly in sellers’ market territory:

Unsold inventory sits at a 2.6-month supply at the current sales pace, modestly up from May's 2.5-month supply but down from 3.9 months in June 2020.”

So, what’s that mean for you? If you’re a seller trying to decide whether or not to renovate, this is especially important because it’s indicative of buyer behavior. When there aren’t enough homes for sale, buyers may be more willing to purchase a home that doesn’t meet all their needs and renovate it themselves later.

2. Not all renovation projects are equal.

You don’t want to spend time and money on a project that isn’t worth the cost or is too niche design-wise for some homebuyers. According to an article by Renofi.com, basing home updates on what’s trendy right now can be a costly mistake:

The last thing you as a homeowner want to do is center your home design around a passing fad - even worse, one thats design quality won’t last a good while.”

Before making any decisions, talk to your real estate advisor. They have insight into what other sellers are doing before listing their homes and how buyers are reacting to those upgrades. Don’t spend the time and money to be trendy – if your buyer wants to upgrade to the newest fad later, they can.

3. If you’ve already made upgrades this past year, your agent can help spotlight them.

If you have already completed some renovations on your house, you’re not alone. The pandemic kept people at home last year, and during that time, many homeowners completed some home improvement projects. HomeAdvisor’s 2021 State of Home Spending Report found:

“35% of households that completed an improvement project undertook some type of interior painting, while 31% completed a bathroom remodel and 26% installed new flooring.”

Let your real estate professional know if you fall in this category. They can highlight any recent upgrades you’ve made in your house’s listing.

Bottom Line

When it comes to renovations, your return-on-investment should be top of mind. Let’s connect today to talk through any upgrades you’ve already made and to find out what you should prioritize before you sell to maximize your house’s potential.

Wednesday, August 11, 2021

Are Houses Less Affordable Than They Were in Past Decades?

 

Are Houses Less Affordable Than They Were in Past Decades?

Are Houses Less Affordable Than They Were in Past Decades? | MyKCM

There are many headlines about how housing affordability is declining. The headlines are correct: it’s less affordable to purchase a home today than it was a year ago. However, it’s important to give this trend context. Is it less expensive to buy a house today than it was in 2005? What about 1995? What happens if we go all the way back to 1985? Or even 1975?

Obviously, the price of a home has appreciated dramatically over the last 45 years. So have the prices of milk, bread, and just about every other consumable. Prices rise over time – we know it as inflation.

However, when we look at housing, price is just one component that makes up the monthly cost of the home. Another key factor is the mortgage rate at the time of purchase.

Let’s look back at the cost of a home over the last five decades and adjust it for inflation by converting that cost to 2021 dollars. Here’s the methodology for each data point of the table below:

  • Mortgage Amount: Take the median sales price at the end of the second quarter of each year as reported by the Fed and assume that the buyer made a 10% down payment.
  • Mortgage Rate: Look at the monthly 30-year fixed rate for June of that year as reported by Freddie Mac.
  • P&I: Use a mortgage calculator to determine the monthly principal and interest on the loan.
  • In 2021 Dollars: Use an inflation calculator to determine what each payment would be when adjusted for inflation. Green means the homes were less expensive than today. Red means they were more expensive.

Are Houses Less Affordable Than They Were in Past Decades? | MyKCMAs the chart shows, when adjusted for inflation, there were only two times in the last 45 years that it was less expensive to own a home than it is today.

  1. Last year: Prices saw strong appreciation over the last year and mortgage rates have remained relatively flat. Therefore, affordability weakened.
  2. 2010: Home values plummeted after the housing crash 15 years ago. One-third of all sales were distressed properties (foreclosures or short sales). They sold at major discounts and negatively impacted the value of surrounding homes – of course homes were more affordable then.

At every other point, even in 1975, it was more expensive to buy a home than it is today.

Bottom Line

If you want to buy a home, don’t let the headlines about affordability discourage you. You can’t get the deal your friend got last year, but you will get a better deal than your parents did 20 years ago and your grandparents did 40 years ago.