A new article from Colin Robertson, of TruthAboutMortgage.com, 8/19/2015
In fact, the percentage of survey participants who said they would sell before buying again nearly doubled from a year ago.
Some 44% of current owners said they’d sell first, up from 23% a year ago. That made it the top response in the survey, with “buy, then sell” a distant second with a 21% share.
Even fewer (15%) said they’d rent out their current residence in order to buy a new home, down from 30% a year earlier. Guess fewer folks want to be landlords.
And another 20% indicated “other,” whatever that means.
This seems to be directly related to the intense competition found in today’s real estate market.
Essentially, these homeowners know that it will likely be impossible to get an offer accepted that is contingent on their existing home selling.
After all, if there are plenty of other willing buyers, why would a seller want to take on the risk of another home selling before theirs does?
There’s no need with inventory so low and demand so high, so I suppose it makes sense to sell first and then arrange some kind of temporary living situation. Or gasp, rent!
Once an owner sells, they’ve also got plenty of cash in their pocket (hopefully) to throw around their weight if need be, pushing the low-down payment buyers out of the way.
It’s also not a bad time to sell, given how expensive home prices have become just a handful of years after one of the worst housing crises in history.
Home Buyer Concerns Have Also Shifted
Speaking of prices, they happen to be the biggest concern for would-be home buyers today.
A year ago, they were the second biggest concern, but they’ve since claimed the top spot. As I said, home prices have been on a tear, which would explain the deep concern.
Increasing competition from other buyers also moved up one slot from third to second, while inventory concerns dipped from first to third.
New is the top five is selling the current home, which we’ve already talked about.
Rounding out the top five is down payment concerns, seeing that rents are high and a higher-than-necessary down payment might be needed to win the bid.
Sure, only 3% or 3.5% down is needed, based on lender guidelines, but to get your offer accepted and beat out of the competition, you might be better off coming in with 10% or 20%.
Interestingly, mortgage rates are no longer a top 5 concern, though affordability sure is. It tells you that home prices mean a lot more than mortgage rates.
When moves were made to push down mortgage rates, the intention was to prop up home prices and help underwater borrowers stay in their homes.
But the obvious problem is that it makes it more difficult to save enough money for a down payment when the price is higher, and once interest rates normalize, it’s a one-two punch.
Interestingly, there isn’t really a correlation between interest rates and home prices, so it’s unclear if higher rates will force prices down from their current lofty levels.
However, 44% of respondents in the survey think prices will either remain flat or fall over the next six months, up from 29% a year ago.
So we could be starting to top out, as many long expected.” ( End of Colin’s article.)
Last week’s economic reports related to housing were few and far between other than weekly reports on new jobless claims and Freddie Mac’s mortgage rates survey.
Mortgage Rates Mixed, Jobless Claims Up
Freddie Mac reported that average mortgage rates rose for fixed rate mortgages and dropped for 5/1 adjustable rate mortgages. The average rate for a 30-year fixed rate mortgage rose by three basis points to 3.94 percent. The rate for a 15-year fixed rate mortgage rose by four basis points to 3.17 percent. The average rate for a 5/1 adjustable rate mortgage fell by two basis points to 2.93 percent. Discount points were unchanged at 0.60 percent for fixed rate mortgages and rose from 0.40 percent to 0.50 percent for 5/1 adjustable rate mortgages.
Jobless claims rose to 274,000 last week from the prior week’s reading of 269,000 new jobless claims filed. Analysts expected a reading of 270,000 new jobless claims. New claims were lower by 1750 claims for the past month at a seasonally adjusted rate of 266,250 new jobless claims. This was the lowest level since April of 2000. Analysts consider the four week average a less volatile reading for new jobless claims than weekly readings, which fluctuate more due to transitory influences.
Next week’s scheduled reports include several releases related to housing. Expected releases include: the National Association of Homebuilders Housing Market Index, Commerce Department reports on Housing Starts and Building Permits and the National Association of Realtors® report on sales of previously owned homes.
First, we are about to enter the traditional slowest time of the year for South Orange County real estate. While most of this year’s buying happened in the Spring and early Summer, that hectic period – complete with rising prices, and multiple offers on the better listings that popped up – and heading into the Fall months, complete with the Holidays.
Most buyers have already bought, thinking of getting their kids in school, while many of those who weren’t successful and now hunkering down for the Holidays, planning to start fresh in the Spring of 2016.
In addition, new listings are still coming aboard, with sellers unaware that most buyer’s ships have already sailed.
Enter the buyer’s best annual sweet spot, a time when more listings are being confronted with fewer buyers.
As the next few months go buy, sellers will become more anxious – that they missed the market – and will start to reduce their prices, making your choices as a buyer, considerably more negotiable.
Here are 2 blog posts I’ve published in the past week, with reports from two separate local real estate experts:
Both echo the reasons I’ve stated above, with plenty of supporting historical data. ( Yes, this pattern happens almost every year, in South Orange County, either slightly more, or slightly less. )
So, if you’re in the market for new quarters, between now and the middle of January would be an excellent time to buy. If you’re so disposed, drop me a line ( BobPhillipsRE@gmail.com ) or give me a call. ( 949-887-5305 )
A longtime friend of mine, Duane Gomer, is a local expert/provider of real estate education.
Below is a recent post of his.
“There is a lot of misunderstanding about giving someone gifts and the tax consequences. It is not a simple matter and before gifting large sums (not just cash but anything of value) get professional advice. You will be glad you did. Sleeping at night becomes more difficult during an IRS Tax Audit.
Most people know that you can gift up to a certain amount to someone with no tax problems. Currently, the amount is $14,000 per year and your spouse could also contribute $14,000 per year so in our case with four children we could gift each one $28,000 or a total of $112,000, and we could throw in five grandchildren for another $140,000. That is $252,000 per year, and you can give the same $14,000 to relatives, parents, friends, etc. with no tax. Wouldn’t take too long to give away all we have.
You can add even more by making direct tuition payments for students or direct payments of a person’s medical expense. You can even use a 529 plan to give more. Do not do any of these gifting ideas without professional advice to make sure your tracking meets IRS rules.
What if we want to give one child the $252,000? We can do whatever we want, it is our money, but is there any tax to pay that year if this is the first gift that we have ever given. No, No, No. This year the estate tax exemption is $5.43M. You can gift up to that amount in any year without tax to pay, BUT any amount over $14,000 for that year must be reported, and the amount is deducted from the $5.43M for later.
With everyone living to advanced ages, heirs are getting their money late in life and in large amounts. Some money spread to them through the years would be more valuable, and the estate tax impact would not be severe. To give is better than to receive. I am not positive of that, but you should consider this topic before too long. Time is fleeting.” ( End of Duane’s post. Thanks, Duane!)
This week’s scheduled economic news includes reports on construction spending, a survey of senior loan officers, and reports on labor markets including ADP private sector jobs, the federal government’s reports on non-farm payrolls, core inflation and the national unemployment rate.
Construction Spending Slows, Loan Officers Survey Suggests Growing Confidence
Construction spending fell in June after the May reading was revised upward to 1.89 percent from the original reading of 0.90 percent. Spending for residential construction rose by 0.40 percent, while non-residential construction spending remained flat. The seasonally-adjusted annual outlay for construction was $1.06 billion in June.
Analysts continue to note a trend toward construction of smaller residential units including condominiums and apartments, with an emphasis on rental properties. This supports reports that would-be homebuyers are taking a wait-and-see stance to see how factors including rising home prices, fluctuating mortgage rates and labor market conditions perform.
According to a survey of senior loan officers conducted by the Federal Reserve, mortgage lenders reported that mortgage applications increased during the second quarter and indicating that financial constraints on consumers may be easing. According to the survey of 71 domestic banks and 23 foreign-owned banks, 44 percent of respondents reported moderate increases in loan applications, while only 5 percent of survey participants reported fewer loan applications.
Some banks surveyed reported easing mortgage approval standards, but fewer lenders eased standards than in the first quarter. Further supporting growing confidence among lenders, the Fed survey also reported that large banks were easing consumer credit standards for auto loans and credit cards.
Mortgage Rates Fall, Jobless Claims Rise
Freddie Mac reported that average mortgage rates fell across the board last week with the average rate for a 30-year fixed rate mortgage lower by seven basis points to 3.91 percent; the average rate for a 15-year fixed rate mortgage fell by four basis points to 3.13 percent, and the average rate for a 5/1 adjustable rate mortgage was unchanged at 2.95 percent. Discount points for all loan types were unchanged at 0.60 percent for 30 and 15-year fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.
Weekly jobless claims rose from the prior week’s reading of 268,000 new claims to 270,000 new claims, which matched analysts’ expectations. In other labor-related news, the government reported a national unemployment rate of 5.30 percent in July; this was unchanged from June’s reading.
The ADP employment report for July showed fewer jobs were available in the private sector. June’s reading showed that private sector jobs grew by 229,000 jobs; July’s reading fell to 185,000 private sector jobs. According to July’s Non-farm Payrolls report, 215,000 new jobs were added in July as compared to expectations of 220,000 jobs added and June’s reading of 231,000 new jobs added.
The Federal Reserve’s Federal Open Market Committee (FOMC) is closely monitoring job growth and inflation rates as it contemplates raising the target federal funds rate. Core inflation grew by 0.10 percent in June; which was consistent with May’s reading and expectations. The FOMC recently cited the committee’s concerns about labor markets and lagging inflation. The Fed has set an annual growth rate of 1.65 percent for inflation for the medium term; this benchmark is part of what the Fed will consider in any decision to raise rates.
This week’s scheduled economic reports include reports on retail sales and consumer sentiment in addition to usual weekly reports on mortgage rates and new jobless claims.
Part of the normal summer housing cycle, the active inventory continues to grow without pause.
Quietly, one house at a time, the active inventory has been growing. In order for the inventory to rise, homes have to come on the market faster than they are coming off. Homes come off the market for one of two reasons: either they are placed into escrow or a seller opts to pull their home off of the market. So, in order for the inventory to blossom from 5,000 homes at the beginning of 2015 to 7,116 homes today, homes have to sit on the market without success.
But how can that occur when we have heard so much about the extremely hot market this year? Quite simply, too many overzealous homeowners inaccurately priced their homes outside of reality and sat on the market until they came to their senses. It’s no wonder that 10% of the housing inventory in Orange County reduces their asking price each and every week.
Don’t get me wrong; the market is a lot stronger this year compared to last year. There were a similar number of homes placed on the market so far this year compared to last year, but the active inventory last year was 6% higher. The inventory was higher because demand was not as strong during the Spring Market. When fewer homes are placed into escrow, the inventory rises.
In spite of the robust market, the inventory is still rising. A hotter market is not a free pass to price a home wherever a seller wishes. Those sellers realize the error in their ways after sitting on the market without reviewing a single offer. Now that summer is almost over, the Orange County housing market is beginning its annual transition into the Autumn Market. Have you seen more Open House directional arrows at busy cross streets? That’s a definitive sign that there are fewer buyers in the marketplace, that homes are not selling as quickly, and that too many homes are not priced accurately.
April 9th of this year was the absolute peak of the spring selling season. The expected market time was at 1.81 months, or 54 days. The market was a very hot seller’s market and prices were rising, homes were flying off of the market, and offers were coming in above the listing price. Since then, the inventory has grown by 27%, 1,792 homes, and demand has dropped by 13%, or 409 pending sales. When supply rises and demand drops in housing, the expected market time that it would take for the average home to be placed into escrow rises, the higher the expected market time, the slower the overall market. It has climbed to 2.64 months, or 79 days, moving from a deep seller’s market to a slight seller’s market.
The expected market time is marching its way to three months. When it is between three and four months, it is a balanced market, one that does not favor a buyer or seller. At its current level, sellers are able to call the shots, but appreciation has slowed to a crawl. Without appreciation, proper pricing is vital in order to succeed. At this point, sellers wishing to stretch the price will simply sit on the market until they finally wake up to the reality that they are overpriced and will attract no offers.
Success today can be achieved a lot swifter with the sound strategy of pricing a home as close to its Fair Market Value. This cannot be determined by any online tool or valuation calculator, as they can be off by 20%, or even more. Instead, it is best to utilize the expertise of a seasoned REALTOR®, an expert who is able to take into consideration location, condition, upgrades and amenities, carefully comparing a home to the most recent pending and closed sales activity to determine the price.
The bottom line: price is the determining factor in successfully selling and stretching the price is a strategy that will not work for the remainder of 2015.
Active Inventory: The inventory increased by 7% in the last month.
The active inventory increased by 469 homes in the past month and now totals 7,116. October of 2014 was the last time the inventory was above the 7,000 home mark. Last year at this time the inventory totaled 8,057 homes, 941 more than today, with an expected market time of 3.16 months, or 95 days. That’s 16 additional days compared to today.
From here we can expect the listing inventory to continue to grow through the end of the summer before turning lower in September as fewer homes come on the market and sellers start to throw in the towel with both the Spring and Summer Markets in the rearview mirror.
Demand: Demand decreased by 9% in the past month.
Demand, the number of new pending sales over the prior month, decreased by 271 homes in the past month and now totals 2,698 homes, its lowest level since February. Demand will remain at these levels for the remainder of summer before it downshifts again after the kids go back to school.
Last year at this time there were 149 fewer pending sales, totaling 2,549. The year over year difference has diminished substantially. On July 2nd there were 492 more pending sales compared to 2014, 20% more. The current difference is the smallest since February, just 5%.
Distressed Breakdown: The distressed inventory increased by 12 home in the past couple of weeks.
The distressed inventory, foreclosures and short sales combined, increased by 12 homes in the past two weeks, but for the month it is actually down by nine. Year over year, there are 31% fewer distressed homes today. With a sharp turnaround in prices in the past few years the number of distressed homes has fallen appreciably. Only a few percent of all mortgaged homes are upside down. During the Great Recession, the number was as high as 25% of all mortgage homes. The distressed market has been reduced to an asterisk of the current Orange County housing scene.
In the past two weeks, the foreclosure inventory increased by 10 homes and now totals 68. Less than 1% of the inventory is a foreclosure. The expected market time for foreclosures is 51 days. The short sale inventory increased by 1 homes in the past two weeks and now totals 139. The expected market time is 48 days. Short sales represent just 2% of the total active inventory. ( End of Report.)
This report is from my longtime friend, Steven Thomas, Orange County’s own real estate market guru, and the above is his latest “Orange County Housing Report” which can be found at ReportsOnHousing.com
Last week’s scheduled economic reports included the Case-Shiller 20 and 20-City Index reports, pending home sales data released by the National Association of Realtors® and the scheduled post-meeting statement of the Federal Reserve’s Federal Open Market Committee.
Case-Shiller: Home Prices Growing at Normal Pace
The Case-Shiller 20-City Home Price index for May reported that year-over-year home prices grew by 4.40 percent year-over-year. S & P Index Committee Chair David M Blitzer said that home prices are increasing gradually by four to five percent a year as compared to double-digit percentages seen in 2013. Mr. Blitzer said that home price growth is expected to slow in the next couple of years as home prices have been growing at approximately twice the rate of wage growth and inflation, a situation that is not seen as sustainable.
Denver, Colorado led the cities included in the 20-City Index with a 10 percent year-over-year growth rate for home prices. San Francisco, California followed closely with a year-over-year gain of 9.70 percent and Dallas Texas posted a year-over-year gain of 8.40 percent.
Fastest month-to-month home price growth in May was tied by Boston, Massachusetts, Cleveland, Ohio and Las Vegas, Nevada with each posting a monthly gain of 1.50 percent. May home prices remain about 13 percent below a 2006 housing bubble peak.
Pending Home Sales Down From Nine-Year Peak
According to the National Association of Realtors®, pending home sales dropped by 1.80 percent in June as compared to May’s reading. The index reading for June home sales was 110.3 as compared to May’s index reading of 112.3. This indicates that upcoming closings could slow; June’s reading represented the first decrease in pending home sales in six months. Lawrence Yun, chief economist for the National Association of Realtors®, cited would-be buyers’ decisions about whether to hold out for more homes available or to buy sooner than later will affect future readings for pending home sales.
Fed Not Ready to Raise Rates, Mortgage Rates Fall
The Fed’s FOMC statement at the conclusion of its meeting on Wednesday clearly indicated that Fed policymakers remain concerned about economic conditions and are not prepared to raise the federal funds rate yet. The FOMC statement did not provide any prospective dates for raising the target federal funds rate, which is currently at 0.00 to 0.25 percent, but the Fed continues to watch employment figures and the inflation rate.
Freddie Mac reported that mortgage rates fell last week, likely on news of the Fed’s decision not to raise rates. Average mortgage rates fell across the board with the rate for a 30-year fixed rate mortgage dropping by six basis points to 3.98 percent; the rate for a 15-year fixed rate mortgage dropped by four basis points to 3.17 percent and the average rate for a 5/1 adjustable rate mortgage fell by two basis points to 2.95 percent. Average discount points remained the same for fixed rate mortgages at 0.60 percent and fell from 0.50 percent to 0.40 percent for 5/1 adjustable rate mortgages.
This week’s economic calendar includes reports on consumer spending, core inflation and consumer spending. July readings on Non-Farm Payrolls and the national unemployment rate will also be released along with regularly scheduled weekly reports on new jobless claims and mortgage rates.