Where are Housing Prices Going?

There has been strong growth in housing sales during our 7-year recovery from the Great Recession in 2007-2008. Just before the recession new and existing home sales were at more than 8.5 million a year, but then about 10 million homeowners lost their homes through foreclosure. Without a doubt, the real estate market is cyclical, and today we are hearing many “armchair” analysts exhorting that we are approaching “a new housing market bubble.”

Lawrence Yun, the chief economist of the National Association of Realtors, recently addressed this analysis and stated “Year-to-date homes sales are up 6.3 percent and prices in May were 7.9 percent higher that a yar earlier. The trends are expected to stay positive and are likely to boost business dollar volume by as much as 15 percent in 2015. These statistics don’t even inclue new-home construction, which is growing at a strong clip as well.”

Yun comments that the differences in the 2007-2008 market from todays is dramatic with credit being much tighter today, and we are seeing an unusually high number of all-cash sales. Yet sales of existing homes and new construction are well below the pre-bubble era. He says “home sales (this year) are barely over 5 million and new-home construction is barely scratching 1 million units.” And significantly home mortgages balances have fallen sharply from where they were 10 years ago, with more homeowners making their mortgage payments on a timely basis and fewer homeowners looking to raise cash by “cash-out” refinances.

Yun expects home prices to increase as long as mortgage interest rates stay below 6 percent. Yun says “Should mortgage rates cross the 6 percent mark, maybe two years down the road, then either home prices will be flat or other forces will be evident.” He’s alluding to the fact that home prices would continue to rise if the economy continue to grow, with increases in new job creation, and increases in income levels. Yun does not foresee any impending downturn in home values.

John Hamilton, a Certified Negotiation Expert, with a BA Degree in Economics from Drury University in Missouri, and MBA studies at the University of Utah, has been a Utah real estate agent for the past 46 years and a broker since 1972. His company, MediaOne Real Estate, is Utah's largest publisher, and seeks to provide Buyers a strategic advantage and Sellers the maximum exposure in today's formidable market.

Selling Your Home? What Can You Do to Add Value.

Remodeling Magazine recently reported that due to the improved economy, costs of hiring professionals to complete projects have increased over the past year, but their are still some projects that will have a high return when you are preparing your home for sale. Leading the way were front door replacement with steel and garage door replacements. Replacements in general seemed to give a better return generally than remodeling projects, with manufactured stone veneer, vinyl siding, and wood window replacement coming up next highest just ahead of a minor kitchen remodel. Bathroom remodels return decreased 5.9% this year, probably due to higher costs, but it is still ranked high on the return list. 

My wife Lisa and I decided to make a patio deck addition to our home. I got tired of staining our smaller wood deck and we decided that expanding the deck to a size that we could actually use, would act as an extension of our living area for maybe eight months of the year, but at a fraction the cost of an inside addition. I pictured myself relaxing in the shade of the afternoons, reading or dining, and enjoying our view of the Wasatch Mountains, and never having to stain again. And it's nice to know that if we decide to sell, we'll get a good return on our investment. Decks often improve the landscaping of the yard, as well as provide additional living space.

What can you do to increase your home's appeal to Buyers.

Create a lasting first impression

Buyers often decide within minutes, even before walking through the front door, whether they like your house. A well trimmed lawn & shrubbery, and some blooming plants can create a nice first impression. Experts say that painting and cleaning can do more to add appeal to your home than any other factors. Even, a touch up paint job on the front door, front shutters and window frames can make a difference. Potted flowers outside the front door can help - shades of blue, green and red are attractive with neutral shades of brick or siding. Shine all metal and brass, repair or replace broken steps & screens, and wash all windows.

Kitchen

Over the years, the kitchen is said to be the critical room in selling your house. Make it clean, bright and attractive. If the floor is badly worn, replace it. To make your kitchen appear larger, remove most appliances that you keep on the counters, and clean the counters. Put dirty dishes in the dishwasher. Replacing cabinet doors and drawer fronts as well as new appliances and countertops, will increase the appeal.

Bathrooms

Remove the stains from the toilets, sinks, and bathtubs and showers. Make sure the drains are unclogged, repair dripping faucets, polish metal fixtures, and put clean towels in the bathroom. And a sweet-smelling deodorant soap can add a nice scent to the bathroom. Important features that add appeal are updated wall colors, sinks, faucets, vanities, and lighting.

Other Living Areas

Avoid unique colors when painting interiors - it's probably best to use pastels that are easy to work with. And neutral lights stay in style. And it's important to look for leak stains in the ceilings - fix the cause of the damage and repair and paint the ceiling. Replace faded window treatments. If you have a fireplace, and particularly if it's in the living room when you first enter the house, clean it thoroughly, and put some logs in it. And a pine scented freshener can be hidden there. In the summer, you can put a plant in the fireplace. Make sure the floors are clean, and polish them. Replace faded window treatments, make sure every light switch works, clean the switch plates, and replace burned out light bulbs. Remove extra items from the closets. Fix doors that stick including sliding doors - rubbing soap against the surface often does the job, and lubricate squeaky doors.

Garage

Try to get rid of items that you're not going to keep. And items that you will be taking to your new home should be boxed. And clean and degrease the garage floor. Clean your cars that you park in the garage.

In an upcoming article, I will give some advice on what to do when your home is being shown.

 John Hamilton, a Certified Negotiation Expert, with a BA Degree in Economics from Drury University in Missouri, and MBA studies at the University of Utah, has been a Utah real estate agent for the past 46 years and a broker since 1972. His company, MediaOne Real Estate, is Utah's largest publisher, and seeks to provide Buyers a strategic advantage and Sellers the maximum exposure in today's formidable market.

Should You Buy Now or Should You Wait?

If you ask this question to many real estate agents, they will advise that now is the time to buy, because interest rates will probably increase and home values are also on an upward trend. But this may not be sound advice. I have been in the real estate business since the late 1960's, and one thing that I have learned, is that each buyer's situation is unique and different, and current market pricing and interest rate trends are not the only consideration in determining whether to buy now or wait. Financial considerations should always be considered as well as a determination of how the decision fits into your long term goals, although people often make the decision based on needs that have nothing to do with money.

The following are some different circumstances that I have experienced with potential buyers that may dictate unique decisions:

1. Owners of a home looking to move-up or purchase a larger higher priced home. In a market on the upswing, now may be the time to make the decision to make that move. Higher priced homes will appreciate significantly more in an upward moving market like we are currently experiencing in Utah. If you wait, your lower priced home will increase in value, but not as much as the more expensive home that you are considering. Sometimes owners in this situation may want to wait to accumulate more equity for a larger down payment on the larger home, but this could be a costly wait. Please feel free to contact me directly at 801-558-4998 if this is your situation and you would like my opinion. And this is also where it comes in handy to have a professional financial adviser as well as a CPA tax adviser on your team.

2. Owners of a larger home that are looking to downsize, as we did about 7 years ago, may get hurt financially, as their larger home will appreciate more than the smaller home that you are considering. So from a financial standpoint, it may be better to wait in these circumstances.

3. Renters, that would like to have their own home, but are not sure if they will be living in Utah in the future. Renting may be the best option if you are not sure how long you'll be living in Utah. Selling a home can be costly, if you have to move quickly. 

However, if you are just waiting for the best time to buy, my advice is to contact a real estate agent quickly, to take advantage of the current market conditions. Waiting could be a costly experience, inasmuch as lower interest rates and lower home values will save you on your monthly housing expense.

4. Potential buyers that are moving to Utah from out-of-state that would like to rent in order to get more information about neighborhoods and other considerations in where they would like to make their more permanent home. While this seems reasonable, in this market it is expected that home prices will be higher next year as will the cost of money. And don't forget, that a temporary rent will require a second move when you do decide to buy. A lot depends on how long it is likely that you'll be in Utah. If you think that you could be moving on in a couple of years, it is probably better financially to rent, considering the costs associated with selling.

However, if you are confident that you'll be here for three years or more, I think it would be wise to buy immediately. Take the time to hire an agent that has the experience and knowledge of the area, and who can make up for your lack of knowledge of the area.

Even if you decide to rent for the time being, it would be an advantage to form an association with an experienced agent that can keep you up to date on market trends, and send you information on specific homes that you may be curious about. If you are planning on a move to the Salt Lake area, call me or send me a text at 801-558-4998 or an Email at johnhamilton2@gmail.com, and I will be glad to work with you to give you more information.

John Hamilton, a Certified Negotiation Expert, with a BA Degree in Economics from Drury University in Missouri, and MBA studies at the University of Utah, has been a Utah real estate agent for the past 46 years and a broker since 1972. His company, MediaOne Real Estate, is Utah's largest publisher, and seeks to provide Buyers a strategic advantage and Sellers the maximum exposure in today's formidable market.

Millennials in the Marketplace

Millennials – more than one in three Americans and our young adults between the ages of 18 and 34 – this year surpassed generation X, those born from the early 60's to the early 80's as the largest percentage of the work force, according to the Pew Research Center. They are 53.5 million strong and last year surpassed the Baby Boomers in the workforce, as Boomers are beginning to retire. With its disproportionately large share of immigrants, and just beginning to transition from college to the workforce, the percentage of Millennials in the workforce is likely going to increase more in time. Immigration is expected to increase the number of Millennials in the labor force - Immigrants coming to the U.S. are disproportionately in their young working years. Few immigrants arrive here as children or older folks. In the past five years, over half of the newly arrived immigrants have been Millennials.

They are beginning to start households of their own and getting into the housing market in increasing numbers. In recent years, the number of first-time home buyers active in the market has been lower than the historical average and this is thought to be of critical importance in the strength of the housing market. As these Millennials become homeowners, the real estate market will become more stable and balanced, reducing the volatility now seen in the month-to-month fluctuations of the market.

Jonathan Smoke, Realtor.com’s chief economist, said 'Millennials are a critical component of the first-time home buyer market and getting that segment of the market functioning again is a necessity for bringing the housing ecosystem back to full health.' And, according to new data from Realtor.com, there is growing reason for optimism. In fact, the most recent National Housing Trend Report found that half of all Millennials viewed real estate websites in the last month, indicating high levels of demand. And though tight inventory, rising prices, and saving for a down payment can be a hurdle for young home buyers, many local markets offer affordable opportunities for first-time buyers.

'Millennials were hit the hardest by recession layoffs and job shortages, and many are still facing the financial aftermath of the downturn including reduced wages and depleted savings,' Smoke said. 'Monthly mortgage affordability and 20 percent down payments have become especially difficult as home prices increase. The neighborhoods on our list offer plenty of opportunity for millennials looking to get into the market in the next few months. Not only are first timers more likely to be able to afford homes in these areas, less competition in these markets means they are more likely to have their offers accepted.' 

According to the US Census Bureau in their 2014 study, Salt Lake City had the seventh highest concentration of Millennials. The report says 'This hyper-connected generation was raised on technology, and has robustly contributed to the tech-talented labor pools.' 

Is Buying a Home an effective way to build wealth?

In a previous blog I wrote an article “Why Should You Buy a House.” I pointed out that “recent statistics from the Federal Reserve show the median net worth of homeowners is $234,000, and for renters it is $5,100” and that “buying a house may be like a forced savings plan, where you can not only shelter your money and your family, but also build up your net worth.”Equity, the value of a mortgaged property minus the amount owed, is increased by paying the principal portion of the monthly mortgage payment and also through any increase in the home’s value over time.  As a homeowner makes their mortgage payment, they mortgage amount decreases and they own an increasing percentage of their home’s total value, which increases their net worth. And, even though homeowner equity is closely tied to home values, homeowners’ net worth still dwarfed that of renters even following the housing crash, when home prices plummeted. In fact, homeowner net worth was 34 times that of the typical renter’s in 2010, despite the housing market’s struggles. 

As we have noticed in the Salt Lake market, the real estate market has not only caught up with the price levels of 2007, but has surpassed those levels in only 7 years. Harvard’s Joint Center for Housing Studies recently released the advice that “though not without risk – (Homeownership) is an effective way to build individual wealth.” After home values tumbled in our Great Recession, more than 9 million borrowers lost their homes to foreclosure. But as pointed out by Stephen F Lovell, the Director of Regional Economics and Housing Finance Policy for the National Association of Realtors, nearly a million of those former owners have returned to the market and many more of those “return buyers” are  qualified, and wanting to return to the market. 

As I noted in my previous blog, homeowners are basically in a forced saving program and by paying their mortgage payments they pay down an increasing amount of their mortgage principal each month, which over time gives an increasing percentage of ownership. Additionally, homeowners have the opportunity to gain wealth through the appreciation in the value of their home, along with the additional tax benefits and deductions that homeowners are given.  Enjoying the deduction benefits of mortgage interest and property taxes can be particularly beneficial depending on a homeowner’s marginal tax rate, which typically range from 15 to 39 percent. And when you sell your home, if you have resided in it for two of the previous five years, you are excluded from the capital gains tax (currently at 15 percent for most taxpayers) if the gain is less than $250,000 for single personas and less than $500,000 for married persons filing joint returns. 

The reason for these tax benefits is that our government has long recognized the importance homeownership as a means of building assets, and as being important in the well-being of our population. Increased family assets enables folks to invest in things like education for themselves or their family, or maybe in a business, which can provide the family greater economic security, and also can pass advantages on to their children. 

Another important benefit in homeownership, is that owning a home is a hedge against inflation over time.  Mortgage payments seem to decline in real terms over time. In my previous article, I gave the example of my first home purchase in Sandy in 1971 for $17,500 and I had monthly payments of $156 per month. You would not believe the stress that caused me – it seemed like a huge amount, but as time went on, that $156 payment seemed easy. Whereas, had I been renting, my monthly housing payments would have more likely kept pace with inflation. 

In summation, as housing prices rise and our economy improves, there will be increasing desires to participate in homeownership. As the advice that I gave in my previous blog, “does that mean you should go out and purchase a home that would be a real financial stretch. I don’t think so. My advice is to not put yourself in financial stress – purchase a modest home with payments about what you would pay if you would pay if you were renting. Try to stay conservative, and realize that there’s always risk to any investment – but it may be better to have an investment, rather than no investment, as a renter.”

FHA Versus Conventional Financing

I just received a letter from April Slizewski of Security National Mortgage Company comparing the pros and cons of FHA and Conventional financing. Here it is -

'Conventional loans and loans obtained through the Federal Housing Administration (FHA) both have their advantages and drawbacks. The major difference between the two types of financing is that conventional loans do not carry the same number of stipulations as loans secured through the FHA. However, that being said, it's more difficult to qualify for a conventional loan too. Your credit score almost has to be stellar in order to receive the funding.

Because FHA loans are government-backed, the required down payment is lower as well as the interest rate. So, if you want to stay in your house a long time, then an FHA loan is a good loan choice as you can save a significant amount of money because of the lower interest costs. You also have more flexibility with respect to repayment with FHA financing. The FHA offers loans with fixed rates, adjustable rates, and graduated payments.

Again, if you acquire FHA financing, it's probably a good idea to obtain the funding on a house where you plan to reside for some time. Otherwise, you can be assessed prepayment penalties and other ancillary costs that can cause you some hardships financially.'

The Cost Most Buyers Underestimate

 When purchasing a home and figuring their monthly payments, home buyers often underestimate mortgage insurance.  A new study by TD Bank finds that 65 percent of all home buyers underestimate this cost.

 Lenders require private mortgage insurance (PMI) when a buyers downpayment is less than 20 percent of the purchase price. The mortgage insurance protects the lender, who is at greater risk with lower down payments.

 TD Bank found that 43 percent of mortgages in the past two years required PMI at an average cost of $100 per month. About a third of buyers said they felt PMI costs impacted the home they purchased, either making them delay or rethink the purchase of a home.