The Howell Realty Group Real Estate News and Information

 

Feb. 24, 2021

How Much Leverage Do Today’s House Sellers Have?

The housing market has been scorching hot over the last twelve months. Buyers and their high demand have far outnumbered sellers and a short supply of houses. According to the latest Existing Home Sales Report from the National Association of Realtors (NAR), sales are up 23.7% from the same time last year while the inventory of homes available for sale is down 25.7%. There are 360,000 fewer single-family homes for sale today than there were at this time last year. This increase in demand coupled with such limited supply is leading to more bidding wars throughout the country.

Rose Quint, Assistant Vice President for Survey Research with the National Association of Home Builders (NAHB), recently reported:

“The number one reason long-time searchers haven’t made a home purchase is not because of their inability to find an affordably-priced home, but because they continue to get outbid by other offers.”

A survey in the NAHB report showed that 40% of buyers have been outbid for a home they wanted to purchase. This is more than twice the percentage in 2019, which was 19%.

What does this mean for sellers today?

It means sellers have tremendous leverage when negotiating with buyers.

In negotiations, leverage is the power that one side may have to influence the other side while moving closer to their negotiating position. A party’s leverage is based on its ability to award benefits or eliminate costs on the other side.

In today’s market, a buyer wants three things:

  1. To buy a home
  2. To buy now before prices continue to appreciate
  3. To buy now and take advantage of historically low mortgage rates while they last

These three buyer needs give the homeowner tremendous leverage when selling their house. Most realize this leverage enables the seller to sell at a good price. However, there may be another need the seller has that can be satisfied by using this leverage.

Here’s an example:

Odeta Kushi, Deputy Chief Economist at First American, recently identified a situation in which many sellers are finding themselves today:

“As mortgage rates are expected to remain near 3%, millennials continue to form households and more existing homeowners tap their equity for the purchase of a better home…Many homeowners may want to upgrade, but do not for fear that they will be unable to find a home to buy.”

She then offers a possible solution:

“While the fear of not being able to find something to buy will not disappear in a limited supply environment, new housing supply can incentivize existing homeowners to move.”

There’s no doubt many sellers would love to build a new home to perfectly fit their changing wants and needs. However, most builders require that they sell their house first. If the seller sells their home, where would they live while their new home is being constructed?

Going back to the concept of leverage:

As mentioned, buyers have compelling reasons to purchase a home now, and many homeowners have challenges to address if they want to sell. Perhaps they can make a deal to satisfy each party’s needs. But how?

The seller may decide to sell their home to the buyer at today’s price, which will enable the purchaser to take advantage of current mortgage rates. In return, the buyer might lease the house back to the seller for a pre-determined length of time while the seller’s new home is being built. A true win-win negotiation.

Not every buyer will agree to such a deal – but you only need one.

That’s just one example of how a seller might be able to overcome a challenge because of the leverage they have in today’s market. Maybe you feel a need to make certain repairs before selling. Perhaps you need time to get permits or approvals for certain upgrades you made to the house. Whatever the challenge, you may be able to work it out.

Bottom Line

If you’re considering selling your house now but worry a huge obstacle stands in your way, let’s connect. Maybe with the leverage you currently have, you can negotiate a deal that will allow you to make the move of your dreams.

Feb. 23, 2021

Make Spring Cleaning Easy with Built-In Storage

 

It might be a bit on the chilly side now, but it’s not going to be long before spring cleaning season is upon us again. It’s a great way to refresh spaces and toss out that stuff that’s just been collecting with no real purpose. But what do you do with the stuff you DO want to keep? Maybe you need some more storage spaces!

 

 

These days, there are tons of prefabricated kits that can help you turn your home into an organizational powerhouse, as well as plenty of small projects that you can do over a weekend to prepare for the inevitable. If you start building your future storage now, you’ll be totally ready for sorting and putting away when the grass starts to green again.

 

Built-In Storage Kits

You don’t have to be Bob Villa to install any of the many basic storage systems that are available through big box storages and home improvement centers across the country. Some are designed with specific kinds of storage in mind, like closet systems that help you make more room out of nothing at all. Other systems are designed to be extra sturdy for more challenging spaces, like garages or utility rooms. These out of the box systems are a great way to add built-in storage, even if you’re not particularly handy. They often feature pre-cut pieces with just a few fasteners you’ll need to insert into the wall, along with step-by-step instructions to help you succeed.

But if you’re feeling up to it, don’t hesitate to pick up add-on parts for those systems, or go off the map entirely and use them in unexpected places, like under stairs, in mudrooms, and in other odd spaces in your house. Every nook can become mega storage if you have the right kind of system to install there.

Building From Scratch

If you’re a little braver, or have some experience with home repairs, you may want to take a serious look at spaces like garage ceilings, wall voids, rafters, and attic knee walls for room you can reclaim. Ensure there’s no electrical wire or plumbing running in the space you have your eye on for extra storage, though. Skipping this step can lead to some serious repercussions, including, but not limited to, electrocution and pipe ruptures.

However, with a careful hand, you can take those formerly useless stretches of wall or ceiling and add things like built-in bookcases, cabinets, and drawers. Remember that your built-in can only be as deep as the void, minus the thickness of the back materials, so choose your spaces accordingly. Attic knee walls are especially fun options, since there are usually deep voids behind them that you can transform into your storage fantasies.

Some Special Options for Kitchens

Kitchens are notorious for lacking storage or working space, but they also offer a lot of small spaces that most people tend to overlook. For example, if you have a lot of mugs or tea cups, the simple act of installing mug hooks under your upper cabinets can permanently free up shelf space. The inside of your cabinets can host shallow storage racks, which are great for holding cleaning supplies, spices, and other small items.

Another option might be adding a rail to your backsplash, enabling you to hang up items that tend to end up scattered in the kitchen. Wouldn’t it be nice to actually know where the potholders are at any given time? You can do the same thing with pegboards or heavy duty metal sheets you can attach pots, pans, utensils, and the like to with magnetic hooks.

 

Feb. 22, 2021

Will Low Mortgage Rates Continue through 2021?

With mortgage interest rates hitting record lows so many times recently, some are wondering if we’ll see low rates continue throughout 2021, or if they’ll start to rise. Recently, Freddie Mac released their quarterly forecast, noting:

“The average 30-year fixed-rate mortgage hit a record low over a dozen times in 2020 and the low interest rate environment is projected to continue through this year. We expect interest rates to average below 3% through the end of 2021. While this is a modest rise from 2020 averages, the recent vote by the Federal Reserve to keep interest rates anchored near zero should keep rates low.”

As shown in the graph below, Freddie Mac is projecting low rates going forward with a modest rise that’s expected to continue through 2022.Will Low Mortgage Rates Continue through 2021? | MyKCMFreddie Mac isn’t the only authority forecasting low rates with a slight rise. Fannie Mae, The Mortgage Bankers Association (MBA), and the National Association of Realtors (NAR) also anticipate low rates with a small increase as 2021 continues on. Here’s the quarterly breakdown of their projections and how they’re expected to play out over the next year:Will Low Mortgage Rates Continue through 2021? | MyKCMIt’s important to note that, while a small change in interest rates can have a substantial impact on monthly mortgage payments, these rates are still incredibly low compared to where they were just a couple of years ago.

What does this mean for buyers?

Low mortgage rates are creating an outstanding opportunity for current homebuyers to get more for their money while staying within their budget. As the economy gets stronger and we recover from the challenges of 2020, it’s natural for rates to potentially rise in response to a healthier economy. Mark Fleming, Chief Economist at First Americanreminds us:

Rising interest rates reduce house-buying power and affordability, but are often a sign of a strong economy, which increases home buyer demand. By any historic standard, today’s mortgage rates remain historically low and will continue to boost house-buying power and keep purchase demand robust.”

With low rates fueling activity among hopeful buyers, there are a lot of people who are highly motivated and looking for homes to purchase right now. In this environment, it can be challenging to find a home to buy, so a local real estate agent will be key to your success if you’re thinking of buying too. Working with a trusted real estate professional to navigate the process while rates are in your favor might be the best move you can make.

Bottom Line

If you’re ready to buy a home, it may be wise to make your move before mortgage rates begin to rise. Let’s connect to discuss how today’s low rates can create more opportunities for you this year.

Feb. 19, 2021

Do You Need a Water Leak Detector?

 

Leaks in your home can be a major problem. This is especially the case if leaks occur while you’re away from home or happen in places that you can’t easily access. While some leaks can be prevented before they happen with proper maintenance, there’s always the possibility that you’ll have a leak even if you keep your sinks and pipes in good shape. So what can you do?

 

 

One option is to have a water leak detector that can pick up on the leak when it occurs. If you’ve never heard of these or aren’t sure how they work, here are the basics. You might find that a water leak detector is just what you need to give yourself a bit more peace of mind when it comes to your home’s plumbing.

 

What Is a Water Leak Detector?

As the name suggests, a water leak detector is a device that can detect water leaks in your home. There are a few different types of detectors out there, but they all provide the same basic function of keeping your home safe in case leaks occur. They do this by not only detecting the leaks, but also by doing something about them when they find one.
Modern water leak detectors include both sensors to identify leaks and valves that are built into your home’s plumbing. The central detector unit closes the valves when the sensor detects something is amiss, preventing the flow of water and stopping the leak until it can be repaired. Many detectors also provide you with some sort of alert when this occurs, with some models working in concert with smart home devices to send a notice to your phone and even perform other actions like turning on lights in the affected area.

Types of Leak Detectors

There are a few different types of water leak detectors that you can install in your home. The most common ones feature moisture sensors, allowing them to trigger the system if an area that’s supposed to be dry suddenly has an increase in moisture. In-line sensors can determine when changes in water pressure occur, with abnormal pressure readings suggesting that water is escaping the line and that a leak has sprung somewhere. Temperature sensors can detect frozen pipes, helping you to reduce pressure before those pipes burst. Some leak detectors even use acoustic sensors to listen for the sound of leaks or running water; this can be especially useful in crawl spaces or slabs where it might be difficult to find leaks using other sensor types.

Regardless of the type of sensors you have in your home, the core unit of your water leak detector will determine how big of an installation job is required. Basic detectors can send alerts to your phone or sound an audible alarm but take no other action beyond that; these can often be installed as DIY projects and provide basic protection against leaks. Larger systems that use in-line sensors and have the ability to shut off the water automatically are much more complicated and typically require professional installation, but they also provide much better protection and more sensor options as well.

Feb. 16, 2021

Millennials: Is It Time to Buy a Bigger Home?

In today’s housing market, all eyes are on millennials. Not only are millennials the largest generation, but they’re also currently between 25 and 40 years old. These are often considered prime homebuying years when many people begin to form their own households and invest in real estate. If you’re like many millennials who are spending much more time at home these days, you may have a growing need for more space or upgraded features, making moving more desirable than ever.

For those millennials who already own a home, there’s a great opportunity to move up in 2021. Danielle Hale, Chief Economist at realtor.comexplains:

“Older millennials will be trade-up buyers with many having owned their first homes long enough to see substantial equity gains.”

Even if you bought a home sometime in the last few years, you may have more equity than you realize, and that’s a big factor to consider when you’re thinking about moving. According to the Homeowner Equity Insights Report from CoreLogic:

“In the third quarter of 2020, the average homeowner gained approximately $17,000 in equity during the past year. This marks the largest average equity gain since the first quarter of 2014.”

Growing equity can be the driver you’re looking for to fund your next move, especially if what you need in a home is changing right now. As equity builds over time, it can be put toward the down payment on your next home.

In addition to equity gains, today’s housing market affordability is powered by record-low mortgage rates, so moving at a time when you can get more for your money may be more realistic than you think.

Bottom Line

If you’re a millennial thinking about moving this year, you’re not alone. Let’s connect to shed light on the equity you have in your current home and the opportunities it can create.

Feb. 15, 2021

Pre-Qualified or Pre-Approved? What’s the Difference?

 

There’s a lot to learn when you’re starting out on your home buying journey. From concepts like earnest money to closing costs, it’s a lot to take in during a very short period. But of all the things to know, understanding the difference between being pre-qualified and pre-approved for your mortgage is one of the most important.

 

Why Your Mortgage Application Status Matters

It’s always been a good idea to bring a strong offer to the negotiating table when it comes to real estate, but it’s even more vital when the market is short on inventory and long on buyers. If you’re in a multiple offer situation (and sometimes, even if you’re not), the sellers are going to weigh the various offers they receive to decide if they think your offer is enough to bring in what they need to sell their home, as well as considering how strong an offer it is.

A strong offer is one that has a lot of the obstacles already removed. For example, if you need to sell your house before you can close on the one you’re making an offer on, this might be considered a weak offer for some sellers. A weak offer doesn’t mean a bad offer, necessarily; it’s simply an offer that looks like it could be tricky to actually get to the closing table. The risk versus reward is too high. This is why having the right kind of mortgage application status plays in your favor when it comes to negotiation.

Mortgage Pre-Qualification Versus Mortgage Pre-Approval

When you meet with a lender for the first time, they generally ask some probing questions about your income and assets, as well as your expenses and credit file. They’re not just being nosy; that lender is trying to help figure out just how much home you can qualify for and what programs might be best for your financial picture. Sometimes, these lenders will send you elsewhere because their banks or partner lending institutions simply can’t help you, but in a lot of cases they’ll produce something called a pre-qualification letter.

Pre-qualification goes largely by your word about your income and expenses, and is not a promise to lend. It’s simply a hypothetical among a list of hypotheticals. If you do in fact make this much money, your credit is as assumed, the house you choose lines up with these guidelines, and rates don’t change dramatically, you should be able to buy this much house. You can see how that would be a bit dodgy for a seller to hang all their hopes on.

A pre-approval, on the other hand, shows that you’ve gone through the additional steps to reach the highest level of mortgage approval you can get without actually having a house secured (the house you choose also figures into the final approval, but just how it figures depends on the loan program). For a pre-approval, you’ll need to provide income documents, permission for the lender to pull a full credit report, and details on any assets or liabilities you hold that aren’t included in your credit file.

A pre-approval isn’t instant; it requires more review, and you’ll need to choose a lending program to be approved for. However, doing all this extra work shows potential sellers that you’re already putting in a lot of effort to ensure you can actually close when the day comes, and that you’re eager to move the process along as quickly as possible. That’s the kind of buyer a seller wants to see!

Feb. 13, 2021

47% of New Buyers Surprised by How Affordable Homes Are Today

Headlines matter. Right now, it’s hard to read about real estate without seeing a headline that suggests homes have become unaffordable for most Americans. In reality, there’s hard evidence that shows how owning a home is more affordable than renting in most parts of the country, as record-low interest rates are keeping monthly mortgage payments about 23% lower than the typical payment of 20 years ago. Despite the facts, misleading headlines persist, and they impact how hopeful homebuyers perceive the market.

In a recent survey by realtor.com, home shoppers indicated they were surprised by what they could actually afford when buying their first home. In fact, 47% discovered their budget was larger than they expected. George Ratiu, Senior Economist at realtor.com, explains:

“For first-time buyers, especially, the drop in the 30-year mortgage rate…has provided unexpected leverage. Lower rates allowed many buyers to stretch and buy more expensive homes while keeping their monthly budget the same.”

So why do these negative headlines that cast doubt on affordability continue to exist?

Most analysts only look at two of the three elements that make up the affordability equation: price and income. It’s true that incomes haven’t kept up with the price of houses. However, affordability is about the cost of the home, not just the price. For that reason, mortgage rates, the third element of the affordability equation, are important to consider.

For example, here’s the typical mortgage payment for assorted dates going back to 2000, as calculated by CoreLogic:47% of New Buyers Surprised by How Affordable Homes Are Today | MyKCMOutside of the housing crash (when short sales and foreclosures drove prices down), it’s more affordable to buy a home today when you consider all three elements of the affordability equation: price, income, and mortgage rate.

Bottom Line

Whether you’re a first-time buyer or a move-up buyer, don’t let the headlines scare you away from your dream of homeownership. Instead, connect with mortgage and real estate professionals to determine what you can afford and what’s available at that price. Like almost half of the buyers in the survey, you may be pleasantly surprised.

 

Feb. 12, 2021

Why It’s Easy to Fall in Love with Homeownership [INFOGRAPHIC]

Some Highlights

  • Homeownership provides comfort, stability, and security, and it makes you feel more connected to your community.
  • Your home is something to be proud of and is uniquely yours, so you can customize it to your heart’s desire.
  • If you’re ready to fall in love with a home of your own, let’s connect to get you started on the path to homeownership.
  •  
Posted in Infographics
Feb. 12, 2021

Watch for These Signs of Unwelcome Visitors

 

Having a pest infestation is no fun, but it’s not an uncommon problem for a homeowner to experience, especially in transition times like from fall to winter or from winter into spring. Many pests come indoors seeking warmth from bitter temperatures in the late fall, stow away all winter, and then become active again as spring sets in. Others come indoors and remain active throughout their occupancy. In older homes, especially, it can be tricky to decide if you’ve got a pest problem or just a creaky old house and an active imagination, but it’s easier when you know some of the most common signs of pests.

 

Common Signs of Household Pests

Because there are armloads of different sorts of pests that can occupy a house at any given time, it’s impossible to list all the signs and symptoms you might notice, but this list should get you started with the most common pest animals in homes.

Staining
Staining on ceilings or walls can be a strong sign that you’ve got an insect colony setting up shop. Often bees, wasps, or even ladybugs will take up residence in voids in wall or attic spaces. If you hear buzzing, do not attempt to exorcise your insect pests without the help of a professional. Mammals and birds can also leave staining, depending on where they’ve built nests.

Scratching Sounds
Rodents love to get into the voids in walls, under cabinets, and in all those dark places in your home. They use these openings like little highways to get safely from their nests to food sources and back. While they’re at it, you may hear them in the walls, scratching, scraping, even gnawing.

Unusual Smells
A lot of pests give off distinctive odors that aren’t normally associated with homes. If you’re shopping for a house and notice a smell that’s “off,” don’t automatically assume it’s full of mold. There may simply be a pest infestation that can be far more easily remedied. The same goes for your own house; if someone mentions a smell you’ve not noticed because you live there all the time, ask for more details to help figure out what’s bugging you.

Holes or Gnaw Marks
Holes and gnaw marks can come from any sort of creature that would nest in your home. You don’t always get staining, depending on where the nest is; sometimes you only get a good view of the front door. Wood-consuming beetles like powderpost beetles, for example, will drill tiny holes in hardwood flooring and other wooden trim pieces. Mice, of course, will also chew through wood and other materials to better facilitate their successful lives in your home.

Nests
If you find an actual nest, or nest material, this is a great sign you’ve got an issue and one you can’t ignore. Rodents tend to chew up paper or other thin materials like plastic bags to create their nests, but waxy secretions might be the sort of nest material you’d find for bees, or leaves, mud, and grasses for birds that often nest in chimneys and attics. Whatever the nesting material, make sure to collect some for further evaluation.

Feb. 10, 2021

3 Reasons We're Definitely Not in a Housing Bubble

Home values appreciated by about ten percent in 2020, and they’re forecast to appreciate by about five percent this year. This has some voicing concern that we may be in another housing bubble like the one we experienced a little over a decade ago. Here are three reasons why this market is totally different.

1. This time, housing supply is extremely limited

The price of any market item is determined by supply and demand. If supply is high and demand is low, prices normally decrease. If supply is low and demand is high, prices naturally increase.

In real estate, supply and demand are measured in “months’ supply of inventory,” which is based on the number of current homes for sale compared to the number of buyers in the market. The normal months’ supply of inventory for the market is about 6 months. Anything above that defines a buyers’ market, indicating prices will soften. Anything below that defines a sellers’ market in which prices normally appreciate.

Between 2006 and 2008, the months’ supply of inventory increased from just over 5 months to 11 months. The months’ supply was over 7 months in twenty-seven of those thirty-six months, yet home values continued to rise.

Months’ inventory has been under 5 months for the last 3 years, under 4 for thirteen of the last fourteen months, under 3 for the last six months, and currently stands at 1.9 months – a historic low.

Remember, if supply is low and demand is high, prices naturally increase.

2. This time, housing demand is real

During the housing boom in the mid-2000s, there was what Robert Schiller, a fellow at the Yale School of Management’s International Center for Finance, called “irrational exuberance.” The definition of the term is, “unfounded market optimism that lacks a real foundation of fundamental valuation, but instead rests on psychological factors.” Without considering historic market trends, people got caught up in the frenzy and bought houses based on an unrealistic belief that housing values would continue to escalate.

The mortgage industry fed into this craziness by making mortgage money available to just about anyone, as shown in the Mortgage Credit Availability Index (MCAI) published by the Mortgage Bankers Association. The higher the index, the easier it is to get a mortgage; the lower the index, the more difficult it is to obtain one. Prior to the housing boom, the index stood just below 400. In 2006, the index hit an all-time high of over 868. Again, just about anyone could get a mortgage. Today, the index stands at 122.5, which is well below even the pre-boom level.

In the current real estate market, demand is real, not fabricated. Millennials, the largest generation in the country, have come of age to marry and have children, which are two major drivers for homeownership. The health crisis is also challenging every household to redefine the meaning of “home” and to re-evaluate whether their current home meets that new definition. This desire to own, coupled with historically low mortgage rates, makes purchasing a home today a strong, sound financial decision. Therefore, today’s demand is very real.

Remember, if supply is low and demand is high, prices naturally increase.

3. This time, households have plenty of equity

Again, during the housing boom, it wasn’t just purchasers who got caught up in the frenzy. Existing homeowners started using their homes like ATM machines. There was a wave of cash-out refinances, which enabled homeowners to leverage the equity in their homes. From 2005 through 2007, Americans pulled out $824 billion dollars in equity. That left many homeowners with little or no equity in their homes at a critical time. As prices began to drop, some homeowners found themselves in a negative equity situation where the mortgage was higher than the value of their home. Many defaulted on their payments, which led to an avalanche of foreclosures.

Today, the banks and the American people have shown they learned a valuable lesson from the housing crisis a little over a decade ago. Cash-out refinance volume over the last three years was less than a third of what it was compared to the 3 years leading up to the crash.

This conservative approach has created levels of equity never seen before. According to Census Bureau data, over 38% of owner-occupied housing units are owned ‘free and clear’ (without any mortgage). Also, ATTOM Data Solutions just released their fourth quarter 2020 U.S. Home Equity Report, which revealed:

“17.8 million residential properties in the United States were considered equity-rich, meaning that the combined estimated amount of loans secured by those properties was 50 percent or less of their estimated market value…The count of equity-rich properties in the fourth quarter of 2020 represented 30.2 percent, or about one in three, of the 59 million mortgaged homes in the United States.”

If we combine the 38% of homes that are owned free and clear with the 18.7% of all homes that have at least 50% equity (30.2% of the remaining 62% with a mortgage), we realize that 56.7% of all homes in this country have a minimum of 50% equity. That’s significantly better than the equity situation in 2008.

Bottom Line

This time, housing supply is at a historic low. Demand is real and rightly motivated. Even if there were to be a drop in prices, homeowners have enough equity to be able to weather a dip in home values. This is nothing like 2008. In fact, it’s the exact opposite.