Real Estate Trends On Both Sides of the Fence; Here’s What’s Happening

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We are definitely seeing a plethora of lengthy reports about the real estate market these days, whether on a national level or honed in on a particular local area. But the fact remains that the market is in an unstable state and keeping track of indexes, watching over home sales and how they fluctuate from month to month or year over year, is giving us a glimpse into what to expect. It is these very measures that allow us to foresee the greater trends that exist so we can act accordingly. Here, according to which side of the transaction you are on, are some happenings in the industry and what they mean to you as a homebuyer or home seller.

Buyers Don’t Beware

Buyers Trend #1

Foreclosures have slowed down. For the most part, whatever foreclosures that had flooded the market have either slid into transition stage, where the banks are reviewing documents and going through the sometimes lengthy review process that comes before accepting applications to purchase a foreclosed home – or there are fewer properties available. There was indeed a flood of distress sales in the market that occurred in the recent past but banks have now shifted away from foreclosures and they are favoring short sales instead. Short sales are a far better option for many reasons, but the two main benefits remain 1. Homeowners are either able to retain some of their credit while buying back their home at less than its current value and 2. Banks are spared the added expense and risk that goes along with foreclosures.

Buyers Trend #2

Prices remain historically low. One thing that has not changed for the duration of our current recession, even as we have headed into a double-dip economic downturn, is that as a result home prices continue to be at their lowest level in years. In the S&P Case-Shiller Home Price Index, it is indicated that housing prices these days rival a 30-year low and they seem to be hanging there in place as the market remains unsettled. Even though prices are as low as they are, the fact remains that these transactions that are taking place are happening with regular homeowners and simple sales deals, rather than banks for foreclosure sales.

Buyers Trend #3

Rates are still at an all-time low. Interest rates, depending on the day, are still as low as a little under 5% for the average 30-year fixed rate mortgage loan. For potential homeowners and those who want to move up or seize the opportunity to move into a luxury residence, this could not be a more perfect time to invest in that property. For those people willing to remain in the mix for the long haul, the current market trends will predominantly not affect them in terms of return on investment. The market will indeed bounce back, whether 6, 7 or even more years later. And when it does, you will end up having much more house (in terms of value), while still paying that very low interest rate.

It’s a Small (Selling) World After All

Sellers Trend #1

There are lots of buyers looking to buy. When you are selling your property, the more the potential buyers the merrier. With the number of buyers who are looking for a great deal your chances of selling are a lot better these days and if you have a home that has unique or upgraded amenities you can further avail the opportunities that will come with having that edge over other sellers.

Sellers Trend #2

Inventory is down. With the number of pending sales in limbo on a day-to-day basis, inventory figures are relatively low. This is great news for people looking to sell their properties, because that translates to more buyers for the taking and the ones that do come looking at your property are far more impressionable.
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To sum things up, right now is a great time to be a buyer – especially with all the incentives out there ranging from super low interest rates to housing prices that are closer to those from 7 or 8 years ago. If you can afford it now, buy now.

As a seller, the main advantage you have these days is that there is less inventory for those buyers out there looking for a deal now – which means you have the edge and better chances of selling that property.

The trends keep fluctuating a bit here and there but the major things remain: low rates, low housing prices, low inventory. And now is the time to seize the opportunities that lie within these trends.

Should I Wait Till Prices Rise Or Does Selling My House Now Make Sense?

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Many people are of the impression that waiting for six months to a year will result in a more stable market and a higher property value. This may not be entirely true, depending on how much equity you are expecting on your property. Looking at past real estate trends, the average number of years homeowners must wait may be longer than you think. Here are a few things to think about when deciding the right time to sell your home.

Do You Have a Choice?

Often people don’t have a choice in the matter. So, the first thing you should do is to assess whether you are able to withstand either staying in your home or selling it right away. If you are facing a new job that would require relocation and maintaining two households is not practical, then it may be a good idea to sell your home now, regardless of the current value. On the other hand, if the reason you would like to sell is in your hands, such as retirement, then you may want to wait a few years till the value matures and the return on your investment is stronger than it is today.

History Helps Us Gauge The Future

To understand where we are headed, it’s important to understand the history. With respect to the real estate industry, the lending market has seen significant changes over the past ten years and this intense shift in trends has affected the housing market of today. 

Specifically, a closer look at the market between 2001 and 2006 reveals that buyers were getting into homes with little to no money down, regardless of bad credit with some buyers actually falsely reporting the amount of money they earned per month. Still, these buyers were qualified for loans by most lenders and the end result was an influx of homeowners who couldn’t afford their homes. 

In hindsight, that housing phenomenon, which is a thing of the past now, was a trend that redefined the housing market, as we know it today.

By early 2007 the national “mortgage meltdown” occurred. Lending institutions realized the loan programs and application parameters were way too lax, causing far more damage than they had anticipated. As a result of the loans that were being approved without much consideration of buyers’ qualifications, homes were over valued and sellers had no equity plus couldn’t afford payments. Further they were losing their properties and even today many people are suffering the mortgage meltdown because of those lending trends.

Looking At The Here And Now

Lending institutions today process “full documentation” loans, something that is far different from the overly lenient loans of the previous decade. The level of detail and depth that goes into researching applicants’ qualifications now, is much higher than before. Lenders now perform detailed background checks, making sure that your salary is what you say it is, checking tax returns and references and also carefully reviewing your credit history. Very importantly, buyers that are getting into homes through loans obtained from lending institutions are people who can actually afford the home. This never mattered before. 

Keeping this very important fact in mind, it makes sense then that the only way for prices to go back up is for buyers to have a higher income. Based on this, many homeowners’ expectations that their property will miraculously gain 20% to 30% of value on the market within the next year or so are unrealistic. Unless they suddenly experience a significant jump in income, the chance that their properties will gain that much value is next to impossible. The average annual income increase these days is around three to five percent. 

Once our market is completely at the bottom in terms of prices, we can expect home prices to rise to somewhere in the 3-5% range, which is about the same as the average salary increase.

What Does This Mean Exactly?

The best way to illustrate how this plays out in terms of property value versus time needed to increase the value, is through this example: 

With a property valued currently at about $450k, the homeowners are looking to retrieve at least $600k on it when they sell, the value of the home when they purchased it during the housing market boom. Their misconception is that the home’s value will return to its original purchase price value, within a year or so. 

Given that property value increases coincide with the job market and wages earned, based on a 5% appreciation per year – on the $450k property it would take about six years for it to reach the hopeful $600k value again. So, to get to that price, the homeowners would have to hold on to the property until 2017 before they sell. Not a mere six months to a year.
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Prior to making any decisions about whether to sell now or later – it makes sound financial sense to begin looking at your options today. Consult with your real estate agent to ascertain where you stand in the market today, how your home’s value compares to your expectations of when you sell it and when would be the best time for you to sell.