Do you feel now is a good time to buy?
For those who have good credit, a secure job and financial viability, there is no denying that today is the smartest time in my 36 years in real estate to purchase a home. It’s all about I.I.I.P. Inventory, interest rates, incentives and price. In most markets around the nation, home inventory has increased giving buyers a greater choice. At the same time, mortgage rates remain at near historic lows and home prices have seemingly stabilized. 2010 saw median prices increase slightly by 0.2% to $172,900. Prices dropped about 2% in 2007, 9.3% in 2008 and 12.4% in 2009 according to the National Association of Realtors, the first time in history we saw price declines. This has made home affordability the best since at least 1973 and maybe ever.
Still, not everyone should buy a home. Those who are not financially secure or fear job loss, along with those who envision moving within a few years likely should not buy today. Also those who have a lower monthly payment via renting and enjoy having that discretionary income for a variety of reasons like traveling and entertainment should not buy today. But obviously there is a tradeoff and they may not benefit from long-term positive impacts of homeownership.
Are you concerned that first-time homebuyers are no longer in the market since they have propped up housing for back-to-back tax credits?
Absolutely not. There is plenty of pent up demand and there is interest in homeownership. There are currently more than 16 million renters in the U.S. according to NAR, up from more than 11 million in the early 2000s.
Also, household creation is lower meaning that many have put off homeownership.
In fact the 2009 & 2010 federal tax credits did their job and brought first-time homebuyers back into the market. First-time homebuyers in May accounted for 35 percent of all homes purchased. This group bought 46 percent of the homes a year ago at this time during the height of the federal tax credt.
The message has gotten through that now is a smart time to buy because of I.I.I.P. – interest rates are at historical lows, inventory levels are generally high, tax incentives have value and prices decreases seemed to have leveled off in many markets.
But there is still that obvious challenge of consumer confidence and personal financial viability. People need to have jobs and the confidence that they will maintain those jobs.
Do you think people still value the benefits of homeownership?
Homeownership is in our DNA; People don’t say, “When I grow up I want to rent…” We have to understand that home ownership is emotional. While it is an investment, it is an investment in our lifestyle.
Homeownership will also likely return to an investment in our lifestyle. The mid-2000s saw a shift in how we viewed our homes. While my parents never uttered the phrase “home appreciation,” that changed with the housing boom. We became fascinated with the paper gains our homes had made. Today, those who do not have to move are equally disappointed with the paper loss our homes may have taken since then. So while a home is an investment in our lifestyle, I’m not naïve enough to believe that we will ever forget that it does have financial implications. But we will not expect our homes to become winning lottery tickets and serve as “piggy banks.”
How does the current economic downturn affect the real estate market?
There remains a consumer confidence challenge impacting housing. Job loss – and fear of job loss – is keeping people from engaging in the process even as mortgage rates remain at near historic levels.
Today, the large number of homes available for sale provides home buyers with a wide range of choices. Interest rates remain low. Affordability has improved in many markets and is at historically strong levels. This is the smartest time to buy a home in my 36 years in real estate. While many might understand that, they are being influenced by the economic downturn and their decisions reflect this concern.
It’s clear that the housing market will play a role in our economic recovery and the good news is that price declines seem to have stabilized nationally. Yet we still have some challenges including a relatively high amount of homes on the market.
What real estate indicators are you following on a national level?
The key indicator in market conditions is always inventory. I would like to see us march back towards the six-month levels which normally indicate a balanced market between buyer and seller. Today we are at 9.3 months nationally according to NAR, up from a 9.2 month supply last month. This seems natural as more homes come on the market for the Spring market. Total inventory is 3.72 million homes, down more than 20 percent from record levels of 4.58 million in July 2008.
March saw the median home decrease in price to $166,500, down 4.6 percent from a year ago. While we have been seeing more stability each month +/- a percentage point or two, this month was impacted by an increase in distressed home sales. We must remember that last year at this time we were in the midst of the Federal homebuyer credit.
It is critical to remember that median price is heavily impacted by 31 percent of all May sales being of distressed homes and these types of homes usually sell for about 20% less than traditional homes.
Investors have returned to the real estate market as evidenced by the large amount of distressed properties being sold and the fact that 30 percent of all sales are cash deals, up from 25 percent a year ago. Investors accounted for 19 percent of all May sales.
NAR, in its first quarter report, showed that 34 of their 153 surveyed markets showed an increase in median price from a year ago.
For all of 2009, the median price was $173,200, down 11.9 percent from 2008. 2010 saw median prices increase slightly by 0.2% to $172,900. This has made home affordability the best since at least 1973 and maybe ever.
When will the real estate market turn?
I don’t have a crystal ball, but we have some positives. The first is that the market downturn has brought home affordability levels to the best in many, many years – at least to levels not seen since 1973 and maybe ever. The unsustainable increases we had in 1995-2005 have leveled off. Sellers have become much more reasonable in setting prices and as consumers begin to gain more confidence that prices have leveled off they will return to the market.
Real estate is positioned well for the future.
Baby boomers are in their prime real estate buying years and are 78 million strong.
The Pew Research Center reports minority homeownership levels still have room for improvement. The gaps between white and minority households remain significant with homeownership rates for Asians (59.1 percent), African-Americans (47.5 percent) and Latinos (48.9 percent) well below the 74.9 percent among whites.
Immigrants are moving to the U.S. by the tune of 1.1-1.5 million a year depending on the source. These are legal immigrants who add value to our country and society. They need housing.
Echo boomers will likely have similar economic impact in coming years that their baby boomers parents have had through their lives. Echo boomers are born between 1977 and 1994 and are 73 million strong and according to the Joint Center for Housing Studies at Harvard University, 4 million turn 21 each year.
Household formation is also an important statistic. The Joint Center for Housing Studies at Harvard University projects at least 1.25 million households will be created annually from 2010-2020 and will be led by the echo boomers.
Between 2010 and 2020, the Census Bureau projects U.S. household growth to be in the range of 1.25 to 1.5 million per year, which will create an additional demand for housing. This should equate to a demand for 12.5 -15 million total new households during this decade.
People move for lifestyle. There have been 4 million marriages and a record more than 8 million babies born in the last two years indicating there is demand for housing. Many of these growing families have not bought a home and are either renting or living with family as they save for a down payment. We know there is pent up demand.
Why is now a smart time to buy?
I.I.I.P. Inventory, interest rates, incentives and price. In most markets around the nation, home inventory has increased giving buyers a greater choice. At the same time, mortgage rates remain at near historic lows and home prices have seemingly stabilized. 2010 saw median prices increase slightly by 0.2% to $172,900. This has made home affordability the best since at least 1973 and maybe ever. Prices dropped about 2% in 2007, 9.3% in 2008 and 12.4% in 2009 according to the National Association of Realtors. These were the first price declines in history.
We must remember that Americans move for lifestyle. They moved yesterday, are moving today and will move in the future. What has confused the real estate consumer is the ancillary activity surrounding the real estate market like the subprime mortgage issues impact on Wall Street, and stock prices of home builders. For the most part, these stories do not impact the everyday consumer although it will take some time to the subprime lending fallout to calm.
Remember most people will not sell their home for a loss unless there is catastrophic illness, injuries, loss of a loved one, sustained job loss or other major economic challenge. Yet because those who purchased in the last seven years may not have made money on their home, they are understandably hesitant to sell for a loss and move up even though lifestyle changes might dictate the time is right.
I hope this interview gives you a good sense of the current state of the housing market. If you would like more details or would like to better understand if now is a good time for you to personally buy or sell a home, please contact me today.