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Homeownership Rate on the Rise to a 6-Year High
Regardless of the lack of inventory on the market, the U.S. homeownership rate has climbed to a 6-year high. The United States Census Bureau reported that it increased to 65.1% in the fourth quarter of 2019, representing the highest level in the past six years. See the graph below:
This increase does not come as a surprise. According to realtor.com,
“The largest cohort of the millennial generation turns 30-years-old in 2020 and they are hitting the housing market in full force. At the end of the fourth quarter of 2019, millennials made up the largest generational segment of homebuyers, growing their share of home purchase mortgages to 48 percent.”
With so many Millennials entering a homebuying phase of life and getting into the market, the Millennial Report also explains,
“Homeownership is an even bigger goal for younger generations. Of those with savings, 41 percent of Gen Z and 40 percent of younger millennials are saving to buy a home.”
Today’s low interest rates are providing a break to new homeowners too, regardless of generation, making homeownership more desirable and achievable at the same time. Freddie Mac explains,
“The combination of very low mortgage rates, a strong economy and more positive financial market sentiment all point to home purchase demand continuing to rise over the next few months.”
The increase in homeownership rate was also represented by race and ethnicity of the householders. HousingWire explains,
“The homeownership rate for black Americans in 2019’s fourth quarter rose to 44%, a seven-year high, increasing from the record low it reached in 2019’s second quarter. The rate for Hispanic Americans was 48.1%, a two-year high, the Census data showed…The rate for white Americans was 73.7%, an eight-year high.”
See the graph below:
Bottom Line
If you’re considering buying a home this year, let’s get together to set a plan that will help you get one step closer to achieving your dream.
How Pricing Your Home Right Makes a Big Difference
Even though there’s a big buyer demand for homes in today’s low inventory market, it doesn’t mean you should price your home as high as the sky when you’re ready to sell. Here’s why making sure you price it right is key to driving the best price for the sale.
If you’ve ever watched the show “The Price Is Right,” you know the only way to win the game is to be the one to correctly guess the price of the item up for bid without going over. That means your guess must be just slightly under the retail price.
When it comes to pricing your home, setting it at or slightly below market value will increase the visibility of your listing and drive more buyers your way. This strategy actually increases the number of buyers who will see your home in their search process. Why? When potential buyers look at your listing and see a great price for a fantastic home, they’re probably going to want to take a closer look. This means more buyers are going to be excited about your house and more apt to make an offer.
When this happens, you’re more likely to set up a scenario with multiple offers, potential bidding wars, and the ability to drive a higher final sale price. At the end of the day, even when inventory is tight, pricing it right – or pricing it to sell immediately – makes a big difference.
Here’s the other thing: homeowners who make the mistake of overpricing their homes will eventually have to lower the prices anyway after they sit on the market for an extended period of time. This leaves buyers wondering if the price drops were caused by something wrong with these homes when in reality, nothing was wrong, the initial prices were just too high.
Bottom Line
If you’re thinking about selling your home this year, let’s get together so you have a professional on your side to help you properly price your home and maximize demand from the start.
The 2 Surprising Things Homebuyers Really Want
In a market where current inventory is low, it’s normal to think buyers might be willing to give up a few desirable features in their home search in order to make finding a house a little easier. Don’t be fooled, though – there’s still an interest in the market for some key upgrades. Here’s a look at the two surprising things buyers seem to be searching for in today’s market, and how they’re impacting new home builds.
Homebuyers Are Not Giving Up Their Garages
The National Association of Home Builders (NAHB) recently released an article showing the percentage of new single-family homes completed in 2018. The data reveals,
- 64% of new homes offer a 2-car garage
- 21% have a garage large enough to hold 3 or more cars
- 7% have a 1-car garage
- 7% do not include a garage or carport
- 1% have a carport
The following map represents this breakdown by region:
Evidently, a garage is something homebuyers are looking for in their searches, but that’s not all.
Homebuyers Are Not Giving Up Their Patios
Patios are on the radar for buyers as well. Community areas are often common amenities in new neighborhoods, but as it turns out, private outdoor spaces are quite desirable too. NAHB also found that,
“Of the roughly 876,000 single-family homes started in 2018, 59.4% came with patios…This is the highest the number has been since NAHB began tracking the series in 2005.”
As shown in the graph below, the number of new homes built with patios has been increasing for the past 9 years. Clearly, they’re a desirable feature for new homeowners too.
Bottom Line
Homebuyers are looking for garage space and outdoor patio living. If you’re a homeowner thinking of selling a house with these amenities, it appears buyers are willing to spring for those key features. Let’s get together today to determine the current value and demand for your home.
2020 Home buying Checklist
Some Highlights:
- If you’re thinking of buying a home, plan ahead and stay on the right track, starting with pre-approval.
- Being proactive about the home buying process will help set you up for success in each step.
- Make sure to work with a trusted real estate professional along the way, to help guide you through the homebuying steps specific to your area.
The #1 Reason It Is Difficult to Find Your Dream Home
The headlines in real estate today all revolve around one major point: there is a shortage of homes available for sale. Price appreciation is accelerating again because there is a shortage of homes available for sale. First-time buyers are taking longer to purchase a home because there is a shortage of homes available for sale in the lower price points. Boomers are staying in their current homes longer because there is a shortage of homes available for sale to which they would move. In certain markets, affordability is becoming more challenging because there is a shortage of homes available for sale.
What’s the major reason for this lack of housing inventory?
The issue was examined in a recent article by the National Home Builders Association (NAHB). In the article, Robert Dietz, Chief Economist for NAHB, explained:
“Home building in the 2010s was a story of the Long Recovery. After the Great Recession, the number of home builders declined significantly, and housing production was unable to meet buyer demand…Years of population and household formation growth, combined with relatively reduced levels of home building, have left the market with a critical supply shortage.”
Here are the single-family home construction starts by decade for the last six decades:
Obviously, there’s a current shortage of homes for sale because not enough houses were built over the last ten years. To add to the challenge, the U.S. population expanded by more than 20 million people during the 2010s.
Below is a graph showing the number of starts per million in population. The last decade shows that starts per population were less than half the average of the previous five decades.
There’s good news coming!
The NAHB article explains that there is light at the end of the tunnel.
How confident home builders are in the housing market is a great indicator of how much building is about to get started. The NAHB/Wells Fargo Housing Market Index (HMI) gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair,” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average,” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as “good” than “poor.”
Here are the HMI readings going back to 2008:
The 2019 confidence reading of 76 was the highest since 1999. The January 2020 index came in at one point lower at 75. These readings indicate we should see an increase in new residential construction in 2020. Just last week, NAHB Chairman Greg Ugalde stated:
“Low interest rates and a healthy labor market combined with a need for additional inventory are setting the stage for further home building gains in 2020.”
The increase in housing starts has already begun. According to the January report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, single‐family housing starts were up 11.2% and attained the highest level in thirteen years.
Bottom Line
Whether you’re a first-time buyer or a seller thinking of moving up or down, 2020 could be your year with more new construction homes coming to market.
Housing Inventory Vanishing: What Is the Impact on You?
The real estate market is expected to do very well this year as mortgage rates remain at historic lows. One challenge to the housing industry is the lack of homes available for sale. Last week, move.com released a report showing that 2020 is beginning with the lowest available housing inventory in two years. The report explains:
“Last month saw the largest year-over-year decline of housing inventory in almost three years with a dramatic 12 percent decline, pushing the number of homes for sale in the U.S. to the lowest level since January 2018.”
The report also revealed that the decline in inventory stretches across all price points, as shown in the following graph:
George Ratiu, Senior Economist at realtor.com, explains how this drop in available homes for sale comes at a time when more buyers are expected to enter the market:
“The market is struggling with a large housing undersupply just as 4.8 million millennials are reaching 30-years of age in 2020, a prime age for many to purchase their first home. The significant inventory drop…is a harbinger of the continuing imbalance expected to plague this year’s markets, as the number of homes for sale are poised to reach historically low levels.”
The question is: What does this mean to you?
If You’re a Buyer…
Be patient during your home search. It may take time to find a home you love. Once you do, however, be ready to move forward quickly. Get pre-approved for a mortgage, be ready to make a competitive offer from the start, and understand that a shortage in inventory could lead to the resurgence of bidding wars. Calculate just how far you’re willing to go to secure a home if you truly love it.
If You’re a Seller…
Realize that, in some ways, you’re in the driver’s seat. When there is a shortage of an item at the same time there is a strong demand for that item, the seller of that item is in a good position to negotiate. Whether it is the price, moving date, possible repairs, or anything else, you’ll be able to demand more from a potential purchaser at a time like this – especially if you have multiple interested buyers. Don’t be unreasonable, but understand you probably have the upper hand.
Bottom Line
The housing market will remain strong throughout 2020. Understand what that means to you, whether you’re buying, selling, or doing both.
2020 Luxury Market Forecast
By the end of last year, many homeowners found themselves with more equity than they realized, and at the same time, their wages were increasing. When those two factors unite, it can spark homeowners to think about making a move to a larger or more expensive home in the luxury space. That said, now is a perfect opportunity to take a look at the forecast for the 2020 luxury market.
Three Things to Think About in the 2020 Luxury Housing Market
1. Prices
The U.S. economy is strong today, with buying opportunities throughout the luxury end of the market. Thomas Veraguth, Strategist at UBS Global Wealth Management, says in Barrons.com,
“There’s a good link between luxury real estate prices and [economic] growth.”
Available inventory is a key element that can impact home prices. In the upper range, the inventory is greater in comparison to the entry-level market, making moving up to a luxury home a growing reality for many buyers right now.
2. Activity in the Market
With more buying opportunities at the higher end, we should start to see an increase in activity. The same article states,
“Affluent homebuyers will start to come out of the woodwork as they find rising luxury rents less appealing and sellers get even more negotiable on price.”
Buyers looking in the luxury market are taking the opportunity to negotiate on price in a segment where there are more choices, too. According to the Luxury Market Report, homes sold for an average of 96.94% of the list price in December.
Buyers are also getting more for their money with greater purchasing power due to the current low-interest rates.
3. Buyers Are Coming Back
Keep in mind, buyers are often sellers too, especially those looking to move up. Homeowners with an entry-level home can take advantage of the inventory shortage at the lower end of the market, thus driving higher sales prices for their current homes. Combined with growing equity in the homes they’re listing, it’s a great time for those who are ready to make a luxury move.
The extra equity and greater purchasing power are bringing many buyers back to the market. The same article mentioned that,
“We’ve already seen buyers who’ve been on the sidelines for two years tread back into the market.”
Bottom Line
If you’re considering entering the luxury market, 2020 is shaping up to be a great year for those who are ready to make that move. Let’s get together to set your real estate plan for the year.
Homes Are More Affordable Today, Not Less Affordable
There’s a current narrative that owning a home today is less affordable than it has been in the past. The reason some are making this claim is that house prices have substantially increased over the last several years.
It’s not, however, just the price of a home that matters.
Homes, in most cases, are purchased with a mortgage. The current mortgage rate is a major component of the affordability equation. Mortgage rates have fallen by over a full percentage point since December 2018. Another major piece of the affordability equation is a buyer’s income. The median family income has risen by approximately 3% over the last year.
The National Association of Realtors (NAR) releases a monthly Housing Affordability Index. The latest index shows that home affordability is better today than at almost any point over the last 30 years. The index determines how affordable homes are based on the following:
“A Home Affordability Index value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index of 120 signifies that a family earning the median income has 20 percent more than the level of income needed pay the mortgage on a median-priced home, assuming a 20 percent down payment so that the monthly payment and interest will not exceed 25 percent of this level of income (qualifying income).”
The higher the index, therefore, the more affordable homes are. Here is a graph showing the index since 1990:
Obviously, affordability was better during the housing crash when distressed properties – foreclosures and short sales – sold at major discounts (2009-2015). Outside of that period, however, homes are more affordable today than any other year since 1990, except for 2016.
The report on the index also includes a section that calculates the mortgage payment on a median-priced home as a percentage of the median national income. Historically, that percentage is just above 21%. Here are the percentages since June of 2018:
Again, we can see that affordability is much better today than the historical average and has been getting better over the last year and a half.
Bottom Line
Whether you’re thinking about buying your first home or moving up to the home of your dreams, don’t let the false narrative about affordability prevent you from moving forward. From an affordability standpoint, this is one of the best times to buy in the last 30 years. Give me a call today at 408-465-9290 or email me to go over your real estate goals. Buying a home takes time, let’s start now to get you into your home!
Make the Dream of Homeownership a Reality in 2020
In 1963, Martin Luther King, Jr. led and inspired a powerful movement with his famous “I Have a Dream” speech. Through his passion and determination, he sparked interest, ambition, and courage in his audience. Today, reflecting on his message encourages many of us to think about our own dreams, goals, beliefs, and aspirations. For many Americans, one of those common goals is owning a home: a piece of land, a roof over our heads, and a place where our families can grow and flourish.
If you’re dreaming of buying a home this year, the best way to start the process is to connect with a Real Estate professional to understand what goes into buying a home. Once you have that covered, then you can answer the questions below to make the best decision for you and your family.
1. How Can I Better Understand the Process, and How Much Can I Afford?
The process of buying a home is not one to enter into lightly. You need to decide on key things like how long you plan on living in an area, school districts you prefer, what kind of commute works for you, and how much you can afford to spend.
Keep in mind, before you start the process to purchase a home, you’ll also need to apply for a mortgage. Lenders will evaluate several factors connected to your financial track record, one of which is your credit history. They’ll want to see how well you’ve been able to minimize past debts, so make sure you’ve been paying your student loans, credit cards, and car loans on time. Most agents have loan officers they trust that they can refer you to.
According to ConsumerReports.org,
“Financial planners recommend limiting the amount you spend on housing to 25 percent of your monthly budget.”
2. How Much Do I Need for a Down Payment?
In addition to knowing how much you can afford on a monthly mortgage payment, understanding how much you’ll need for a down payment is another critical step. Thankfully, there are many different options and resources in the market to potentially reduce the amount you may think you need to put down upfront.
If you’re concerned about saving for a down payment, start small and be consistent. A little bit each month goes a long way. Jumpstart your savings by automatically adding a portion of your monthly paycheck into a separate savings account or house fund. AmericaSaves.org says,
“Over time, these automatic deposits add up. For example, $50 a month accumulates to $600 a year and $3,000 after five years, plus interest that has compounded.”
Before you know it, you’ll have enough for a down payment if you’re disciplined and thoughtful about your process.
3. Saving Takes Time: Practice Living on a Budget
As tempting as it is to settle in each morning with a fancy cup of coffee from your favorite local shop, putting that daily spend toward your down payment will help accelerate your path to homeownership. It’s the little things that count, so start trying to live on a slightly tighter budget if you aren’t doing so already. A budget will allow you to save more for your down payment and help you pay down other debts to improve your credit score. A survey of Millennial spending shows,
“70 percent of would-be first-time homebuyers will cut spending on spa days, shopping and going to the movies in exchange for purchasing a home within the next year.”
While you don’t need to cut all of the fun out of your current lifestyle, making smarter choices and limiting your spending in areas where you can slim down will make a big difference.
Bottom Line
If homeownership is on your dream list this year, take a good look at what you can prioritize to help you get there. Let’s get together today to discuss the best steps you can take to start the process.
The 2020 Real Estate Projections That May Surprise You
This will be an interesting year for residential real estate. With a presidential election taking place this fall and talk of a possible recession occurring before the end of the year, predicting what will happen in the 2020 U.S. housing market can be challenging. As a result, taking a look at the combined projections from the most trusted entities in the industry when it comes to mortgage rates, home sales, and home prices is incredibly valuable – and they may surprise you.
Mortgage Rates
Projections from the experts at the National Association of Realtors (NAR), the Mortgage Bankers Association (MBA), Fannie Mae, and Freddie Mac all forecast mortgage rates remaining stable throughout 2020:
Since rates have remained under 5% for the last decade, we may not fully realize the opportunity we have right now.
Here are the average mortgage interest rates over the last several decades:
- 1970s: 8.86%
- 1980s: 12.70%
- 1990s: 8.12%
- 2000s: 6.29%
Home Sales
Three of the four expert groups noted above also predict an increase in home sales in 2020, and the fourth sees the transaction number remaining stable:
With mortgage rates remaining near all-time lows, demand should not be a challenge. The lack of available inventory, however, may moderate the increase in sales.
Home Prices
Below are the projections from six different expert entities that look closely at home values: CoreLogic, Fannie Mae, Ivy Zelman’s “Z Report”, the National Association of Realtors (NAR), Freddie Mac, and the Mortgage Bankers Association (MBA).
Each group has home values continuing to improve through 2020, with four of them seeing price appreciation increasing at a greater pace than it did in 2019.
Is a Recession Possible?
In early 2019, a large percentage of economists began predicting a recession may occur in 2020. In addition, a recent survey of potential home purchasers showed that over 50% agreed it would occur this year. The economy, however, remained strong in the fourth quarter, and that has caused many to rethink the possibility.
For example, Goldman Sachs, in their 2020 U.S. Outlook, explained:
“Markets sounded the recession alarm this year, and the average forecaster now sees a 33% chance of recession over the next year. In contrast, our new recession model suggests just a 20% probability. Despite the record age of the expansion, the usual late-cycle problems—inflationary overheating and financial imbalances—do not look threatening.”
Bottom Line
Mortgage rates are projected to remain under 4%, causing sales to increase in 2020. With growing demand and a limited supply of inventory, prices will continue to appreciate, while the threat of an impending recession seems to be softening. It looks like 2020 may be a solid year for the real estate market.
Are you still in the market for a home? Give me a call at 408-465-9290 or message me to go over your real estate goals. Buying a home takes time, let’s start now to get you into your home!
