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Housing Market Updates

Housing Inventory Hits 30-Year Low

Housing Inventory Hits 30-Year Low Spring is traditionally the busiest season for real estate. Buyers, experiencing cabin fever all winter, emerge like flowers through the snow in search of their dream home. Homeowners, in preparation for the increased demand, are enticed to list their house for sale and move on to the home that will better fit their needs. New data from CoreLogic shows that even though buyers came out in force, as predicted, homeowners did not make the jump to list their home in the second quarter of this year. Frank Nothaft, Chief Economist for CoreLogic had this to say,
“The growth in sales is slowing down, and this is not due to lack of affordability, but rather a lack of inventory. As of Q2 2017, the unsold inventory as a share of all households is 1.9 percent, which is the lowest Q2 reading in over 30 years.”
CoreLogic’s President & CEO, Frank Martell added,
“Home prices are marching ever higher, up almost 50 percent since the trough in March 2011. While low mortgage rates are keeping the market affordable from a monthly payment perspective, affordability will likely become a much bigger challenge in the years ahead until the industry resolves the housing supply challenge.”
Overall inventory across the United States is down for the 25th consecutive month according to the latest report from the National Association of Realtors and now stands at a 4.3-month supply.

Real estate is local.

Market conditions in the starter and trade-up home markets are in line with the median US figures, but conditions in the luxury and premium markets are following an opposite path. Premium homes are staying on the market longer with ample inventory to suggest a buyer’s market.

Bottom Line

Buyers are out in force, and there has never been a better time to move-up to a premium or luxury home. If you are considering selling your starter or trade-up home and moving up this year, let’s get together to discuss the exact conditions in our area.

How Long Do Families Stay in Their Home?

The National Association of Realtors (NAR) keeps historical data on many aspects of homeownership. One of the data points that has changed dramatically is the median tenure of a family in a home, meaning how long a family stays in a home prior to moving. As the graph below shows, for over twenty years (1985-2008), the median tenure averaged exactly six years. However, since 2008, that average is almost nine years – an increase of almost 50%. How Long Do Most Families Stay in Their Home? | Simplifying The Market

Why the dramatic increase?

The reasons for this change are plentiful! The fall in home prices during the housing crisis left many homeowners in a negative equity situation (where their home was worth less than the mortgage on the property). Also, the uncertainty of the economy made some homeowners much more fiscally conservative about making a move. With home prices rising dramatically over the last several years, 93.9% of homes with a mortgage are now in a positive equity situation with 78.8% of them having at least 20% equity, according to CoreLogic. With the economy coming back and wages starting to increase, many homeowners are in a much better financial situation than they were just a few short years ago. One other reason for the increase was brought to light by NAR in their 2017 Home Buyer and Seller Generational Trends Report. According to the report,
Sellers 36 years and younger stayed in their home for six years…”
These homeowners who are either looking for more space to accommodate their growing families or for better school districts are more likely to move more often (compared to 10 years for typical sellers in 2016). The homeownership rate among young families, however, has still not caught up to previous generations, resulting in the jump we have seen in median tenure!

What does this mean for housing?

Many believe that a large portion of homeowners are not in a house that is best for their current family circumstance; They could be baby boomers living in an empty, four-bedroom colonial, or a millennial couple living in a one-bedroom condo planning to start a family. These homeowners are ready to make a move, and since a lack of housing inventory is still a major challenge in the current housing market, this could be great news.

Millennial Homeownership Rate Increases

Millennial Homeownership Rate Increases | Simplifying The Market Recent headlines exclaimed the homeownership rate, as reported by the Census Bureau, rose again in the second quarter of 2017. What didn’t get much attention in the reports is that the millennial homeownership rate for American households under the age of 35 increased a full percentage point from last quarter’s 34.3% to 35.3%. Millennial homeownership proved to have the highest increase of any age group. This came as a surprise to some considering Millennials have come to be known as the “renter” generation. However, a new study by First American, 6 Trends Poised to Reshape Homeownership Demand, revealed reasons why homeownership numbers will continue to increase for Millennials.

Millennials are the most educated generation in the U.S.

Why does that matter? First American explains:
“Our model shows that, all other factors being equal, the likelihood of homeownership increases by 3 percent for those that earn a bachelor’s degree over those with a high school degree. The likelihood of homeownership jumps another 3 percent for those that earn a graduate degree.”
The more educated, the better the likelihood for homeownership. And, as we mentioned: Millennials are the most educated generation in the U.S.

Homes & marriage go together

Marriage is a key determinate in homeownership. According to an analysis by First American, the homeownership rate is 30% higher among married couples compared to non-married households. Millennials have put off marriage in the pursuit of higher education. As this group ages, more and more will marry and purchase a home.

Parents buy houses

According to the study:
“The homeownership rate is 1.7% higher for households with one or two children compared to households with no children, and it is 5.4 percent higher for households with three or more children.”
The report goes on to say that as Millennials grow older there may be an increase in not just marriage but also in married couples with children. That will probably also create a “corresponding” increase in homeownership demand.

Wages and the economy

The study goes on to explain that recent gains in income growth and a strengthening economy will also help all generations (including Millennials) be more willing and able to purchase a new home.

Bottom Line

We guess the time has come to announce – Here come the Millennials!!

Epic Housing Shortage Being Reported

Epic Housing Shortage Being Reported | Simplifying The Market The Joint Center of Housing Studies (JCHS) at Harvard University recently released their 2017 State of the Nation’s Housing Study. And a recent blog from JCHS revealed some of the more surprising aspects of the study. The first two revelations centered around the housing shortage in both existing homes and new construction.

Regarding Existing Home Inventory:

“For the fourth year in a row, the inventory of homes for sale across the US not only failed to recover, but dropped yet again. At the end of 2016 there were historically low 1.65 million homes for sale nationwide, which at the current sales rate was just 3.6 months of supply – almost half of the 6.0 months level that is considered a balanced market.”

Regarding New Home Inventory:

“Markets nationwide are still feeling the effects of the deep and extended decline in housing construction. Over the past 10 years, just 9 million new housing units were completed and added to the housing stock. This was the lowest 10-year period on records dating back to the 1970s, and far below the 14 and 15 million units averaged over the 1980s and 1990s.”

Bottom Line

A severe housing shortage exists in many towns in Nassau and Suffolk counties. Towns like North Babylon, Islandia, Lake Ronkonkoma, West Sayville, Bethpage,  Levittown,  Lynbrook,  Holbrook,  Selden,  Deer Park and West Babylon all are experiencing less than 3 months supply of inventory making these towns very strong seller's markets with severe housing shortages.  But that's not the case everywhere! There is no housing shortage in Dix Hills, Miller Place, Center Moriches, Port Jefferson, Huntington Bay, Great Neck, Setauket and Bellport Village all with more than 7.5 months of inventory making these towns buyer's markets. Setauket and Bellport Village have more than 10 months of inventory. [caption id="attachment_5492" align="alignnone" width="1024"]Suffolk County Absorption Rates Suffolk County Absorption Rates[/caption]  

Click here for absorption rates of various Nassau County and Suffolk County towns as of June 2017.  Give me a call or send an email if your town isn't listed and you're hungry to know how it stacks up against the others. The biggest challenge facing us Realtors in today’s market in many towns is getting current homeowners and builders to realize the opportunity they have to maximize profit by selling and/or building NOW!!

NAR Data Shows Now Is a Great Time to Sell!

NAR Data Shows Now Is a Great Time to Sell! | Simplifying The Market

Now Is A Great Time To Sell!

We all realize that the best time to sell anything is when demand is high and the supply of that item is limited. Two major reports issued by the National Association of Realtors (NAR) revealed information that suggests that now is a great time to sell your house. Let’s look at the data covered in the latest REALTORS® Confidence Index and Existing Home Sales Report.

REALTORS® CONFIDENCE INDEX

Every month, NAR surveys “over 50,000 real estate practitioners about their expectations for home sales, prices and market conditions.” This month, the index showed (again) that home-buying demand continued to outpace supply in May. The map below illustrates buyer demand broken down by state (the darker your state, the stronger the demand is there). NAR Data Shows Now Is a Great Time to Sell! | Simplifying The Market In addition to revealing high demand, the index also mentioned that “compared to conditions in the same month last year, seller traffic conditions were ‘weak’ in 24 states, ‘stable’ in 25 states, and ‘strong’ in D.C and West Virginia.  Takeaway: Demand for housing continues to be strong throughout 2017, but supply is struggling to keep up, and this trend is likely to continue into 2018.

THE EXISTING HOME SALES REPORT

The most important data revealed in the report was not sales, but was instead the inventory of homes for sale (supply). The report explained:
  • Total housing inventory rose 2.1% to 1.96 million homes available for sale
  • That represents a 4.2-month supply at the current sales pace
  • Unsold inventory is 8.4% lower than a year ago, marking the 24th consecutive month with year-over-year declines
According to Lawrence Yun, Chief Economist at NAR:
“Current demand levels indicate sales should be stronger, but it’s clear some would-be buyers are having to delay or postpone their home search because low supply is leading to worsening affordability conditions.”
In real estate, there is a guideline that often applies; when there is less than a 6-month supply of inventory available, we are in a seller’s market and we will see appreciation. Between 6-7 months is a neutral market, where prices will increase at the rate of inflation. More than a 7-month supply means we are in a buyer’s market and should expect depreciation in home values.  See below: As we mentioned before, there is currently a 4.2- month supply, and houses are going under contract fast. The Confidence Index shows that 55% of properties were on the market for less than a month when sold. In May, properties sold nationally were typically on the market for 27 days. As Yun notes, this will continue, unless more listings come to the market.
“With new and existing supply failing to catch up with demand, several markets this summer will continue to see homes going under contract at this remarkably fast pace of under a month.”
Takeaway: Inventory of homes for sale is still well below the 6-month supply needed for a normal market. And the supply will continue to ‘fail to catch up with demand’ if a ‘sizable’ supply does not enter the market.

Bottom Line

If you are going to sell, now may be the time to take advantage of the ready, willing, and able buyers that are still out searching for your house.  If you would like to know the market statistics in YOUR town, feel free to contact me.

Existing Home Sales Surge into Summer [INFOGRAPHIC]

Existing Home Sales Surge into Summer [INFOGRAPHIC] | Simplifying The Market Existing Home Sales Surge into Summer [INFOGRAPHIC] | Simplifying The Market

Some Highlights:

  • Existing Home Sales reached their third highest mark this year in May.
  • Inventory of homes for sale has dropped 8.4% since last year, marking the 24th consecutive month of year-over-year declines.
  • NAR’s Chief Economist, Lawrence Yun had this to say: “Those able to close on a home last month are probably feeling both happy and relieved. Listings in the affordable price range are scarce, homes are coming off the market at an extremely fast pace and the prevalence of multiple offers in some markets are pushing prices higher.”

The Supply & Demand Problem Plaguing New Construction

The Supply & Demand Problem Plaguing New Construction | Simplifying The Market Many real estate economists have called on new home builders to ramp up production to help relieve the shortage of inventory of homes for sale throughout the United States. The added inventory would no doubt aid buyers in their search to secure their dream home, while also helping to ease price increases throughout the country. Unfortunately for builders, there are many forces that are making it difficult for them to do just that! Last week at the National Association of Real Estate Editors 51st Annual Conference, CoreLogic’s Chief Economist Frank Nothaft broke down the 4 ‘L’s of New Home Construction: Lots, Labor, Lumber, and Lending. The concept of supply and demand is ripe in the new home construction industry. The four ‘L’s of new home construction are each suffering a supply problem, and with that comes added costs. Let’s break it down! Lots – There is a shortage of land near metros at an affordable price, causing builders to move farther and farther away from cities to keep costs down. This isn’t always an attractive option for those who want to stay close to work. Labor – The Great Recession forced many skilled construction and trade workers to find other sources of income once their jobs were lost at the time of the crash. Even though the overall housing market has recovered, these workers have not returned. Those who remain are starting to age out and retire, causing even more of a shortage and additional costs. Lumber – The cost to build a new home is directly tied to the cost of the lot and the cost of the supplies needed to build the home. Lumber costs continue to escalate due to policies restricting the importation of Canadian lumber, making larger luxury homes an attractive option to recoup costs when selling, rather than building smaller single-family homes and making less profit. Below is a graph showing the increase in cost of 1,000 board feet of framing lumber. The Supply & Demand Problem Plaguing New Construction | Simplifying The Market Year-over-year, lumber costs are up 13% after reaching a high of $433 in the second week of April. Lending – During the Great Recession, many small community banks were forced to close their doors. These banks were a great source of capital and lending for builders looking to borrow money at a low interest rate in the community in which they were building. Tougher lending standards have made borrowing funds more expensive and more difficult for builders.

Bottom Line

Additional costs across all 4 ‘L’s have made building luxury properties more attractive to builders as they are able to make a larger margin with the higher sales price. The move to scale down to starter and trade up homes to help with supply will mean any additional costs are absorbed by the builders unless the supply of the 4 ‘L’s can increase!

Buying Is Now 33.1% Cheaper Than Renting

Buying Is Now 33.1% Cheaper Than Renting in the US | Simplifying The Market The results of the latest Rent vs. Buy Report from Trulia show that buying is cheaper than renting with a traditional 30-year fixed rate mortgage in the 100 largest metro areas in the United States. The updated numbers actually show that the range is an average of 3.5% less expensive in San Jose (CA), all the way up to 50.1% less expensive in Baton Rouge (LA), and 33.1% nationwide!

Other interesting findings in the report include:

  • Interest rates have remained low and, even though home prices have appreciated around the country, they haven’t greatly outpaced rental appreciation.
  • With rents & home values moving in tandem, shifts in the ‘rent vs. buy’ decision are largely driven by changes in mortgage interest rates.
  • Nationally, rates would have to reach 9.1%, a 128% increase over today’s average of 4.0%, for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.

Bottom Line

Buying a home makes sense socially and financially. If you are one of the many renters out there who would like to evaluate your ability to buy this year, let’s get together to find your dream home.  Give me a call to discuss your options.

Are Home Prices Approaching Bubble Territory?

Are Home Prices Approaching Bubble Territory? | Simplifying The Market As home values continue to rise, some are wondering,  "Are home prices approaching bubble territory."  Zillow just reported that:
“National home values have surpassed the peak hit during the housing bubble and are at their highest value in more than a decade.”
Though that statement is correct, we must realize that just catching prices of a decade ago does not mean we are at bubble numbers. Here is a graph of median prices as reported by the National Association of Realtors (NAR). Are Home Prices Approaching Bubble Territory? | Simplifying The Market We can see that prices rose during the early 2000s, fell during the crash and have risen since 2013. However, let’s assume there was no housing bubble and crash and that home prices appreciated at normal historic levels (3.6% annually) over the last ten years. Here is a graph comparing actual price appreciation (tan bars) with what prices would have been with normal appreciation (blue bars). Are Home Prices Approaching Bubble Territory? | Simplifying The Market

Bottom Line

As we can see, had there not been a boom and bust, home values would essentially be where they are right now.

The TRUTH Behind the RENT vs. BUY Debate

The TRUTH Behind the RENT vs. BUY Debate | Simplifying The Market In a blog post published last Friday, CNN’s Diana Olnick reported on the latest results of the FAU Buy vs. Rent Index. The index examines that entire US housing market and then isolates 23 major markets for comparison. The researchers at FAU use a “‘horse race’ comparison between an individual that is buying a home and an individual that rents a similar-quality home and reinvests all monies otherwise invested in homeownership.” Having read both the index and the blog post, we would like to clear up any confusion that may exist. There are three major points that we would like to counter:

1. The Title

The CNN blog post was titled, “Don’t put your money in a house, says a new report.” The title of the press release about the report on FAU’s website was “FAU Buy vs. Rent Index Shows Rising Prices and Mortgage Rates Moving Housing Markets in the Direction of Renting.” Now, we all know headlines can attract readers and the stronger the headline the more readership you can attract, but after dissecting the report, this headline may have gone too far. The FAU report notes that rising home prices and the threat of increasing mortgage rates could make the decision of whether to rent or to buy a harder one in three metros, but does not say not to buy a home.

2. Mortgage Interest Rates are Rising

According to Freddie Mac, mortgage interest rates reached their lowest mark of 2017 last week at 3.89%. Interest rates have hovered around 4% for the majority of 2017, giving many buyers relief from rising home prices and helping with affordability. While experts predict that rates will increase by the end of 2017, the latest projections have softened, with Freddie Mac predicting that rates will rise to 4.3% in Q4.

3. “Renting may be a better option than buying, according to the report.”

Of the 23 metros that the study reports on, 11 of them are firmly in buy territory, including New York, Boston, Chicago, Cleveland, and more. This means that in nearly half of all the major cities in the US, it makes more financial sense to buy a home than to continue renting one. In 9 of the remaining metros, the decision as to whether to rent or buy is closer to a toss-up right now. This means that all things being equal, the cost to rent or buy is nearly the same. That leaves the decision up to the individual or family as to whether they want to renew their lease or buy a home of their own. The 3 remaining metros Dallas, Denver and Houston, have experienced high levels of price appreciation and have been reported to be in rent territory for well over a year now, so that’s not news…

Beer & Cookies

One of the three authors of the study, Dr. Ken Johnson has long reported on homeownership and the decision between renting and buying a home. The methodology behind the report goes on to explain that even in a market where a renter would be able to spend less on housing, they would have to be disciplined enough to reinvest their remaining income in stocks/bonds/other investments for renting a home to be a more attractive alternative to buying. Johnson himself has said:
“However, in perhaps a more realistic setting where renters can spend on consumption (beer, cookies, education, healthcare, etc.), ownership is the clear winner in wealth accumulation. Said another way, homeownership is a self-imposed savings plan on the part of those that choose to own.” 

Bottom Line

In the end, you and your family are the only ones who can decide if homeownership is the right path to go down. Real estate is local and every market is different. Let’s get together to discuss what’s really going on in your area and how I can help you make the best, most informed decision for you and your family.