Category: Pricing

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The Importance of Home Equity in Building Wealth

Posted on January 6, 2021 by - Buying Myths, First Time Home Buyers, For Buyers, Interest Rates, Pricing, Rent vs. Buy

The Importance of Home Equity in Building Family Wealth | Simplifying The Market

Homeownership has always been the first rung on the ladder leading to household wealth. As Freddie Mac recently posted:

“Homeownership has cemented its role as part of the American Dream, providing families with a place that is their own and an avenue for building wealth over time. This ‘wealth’ is built, in large part, through the creation of equity…Building equity through your monthly principal payments and appreciation is a critical part of homeownership that can help you create financial stability.”

Home equity is the difference between the current market value of your house and the amount you currently owe on your mortgage. To estimate your equity, subtract your mortgage balance from the market value of your home.

You can find what you owe on your mortgage by looking at your last monthly statement or by contacting your lender. If you need help determining the current market value of your home, contact a local real estate professional.

Is homeownership truly a better path to wealth than renting?

Some argue that renting eliminates the cost of property taxes and home repairs. Every potential renter must realize that all the expenses the landlord incurs (property taxes, repairs, insurance, etc.) are already baked into the rent payment – along with a profit margin. You don’t save money by renting.

As proof of this, First American broke down the net worth of homeowners and renters by income categories. Here are their findings:The Importance of Home Equity in Building Wealth | Simplifying The MarketOnly one income category ($127-192K) has a higher net worth for renters over homeowners. Every other category shows that being a homeowner leads to greater accumulated wealth.

According to the latest Homeowner Equity Insights Report from CoreLogic, the average homeowner gained $17,000 in equity in just the last year. Here’s a breakdown of the year-over-year equity gain by state:The Importance of Home Equity in Building Wealth | Simplifying The Market

When can you cash in on your housing wealth?

Your home equity is part of your total wealth as a homeowner. The two most common ways homeowners can leverage their wealth are:

  • Selling
  • Refinancing

Selling: When you decide to sell your home, the equity you’ve built over time will come back to you in the sale. For example, if you paid off your $200,000 mortgage and sold your home for $350,000, you would receive $150,000 after closing.

Refinancing: You can refinance your current mortgage and take out some of the equity you have accumulated. With today’s historically low mortgage rates, you may be able to take out substantial cash and keep your monthly payment the same. Thankfully, homeowners today are doing this responsibly and not repeating the same mistakes made in 2006-2008 when some cashed out their entire equity to purchase luxury items like new cars, lavish vacations, etc.

How can these options help homeowners?

During these difficult times, many households are struggling with their housing expenses. Homeowners, because of their equity, have better alternatives. Odeta Kushi, Deputy Chief Economist at First American, recently explained that homeowners financially impacted by the pandemic will not necessarily be faced with foreclosure:

“The foreclosure process is based on two steps. First, the homeowner suffers an adverse economic shock…leading to the homeowner becoming delinquent on their mortgage. However, delinquency by itself is not enough to send a mortgage into foreclosure. With enough equity, a homeowner has the option of selling their home, or tapping into their equity through a refinance, to help weather the economic shock.”

What might the future bring?

Most experts are calling for home prices to continue appreciating going forward. The Home Price Expectation Survey, a survey of a national panel of over one hundred economists, real estate experts, and investment & market strategists, indicates appreciation will continue for at least the next five years. Using their annual projections, the graph below shows the equity build-up a purchaser would potentially earn by buying a $300,000 home this January:The Importance of Home Equity in Building Wealth | Simplifying The Market

Bottom Line

Home equity, for most Americans, is the quickest way to build household wealth. That wealth gives homeowners more options during good times and in difficult situations.

Why Not to Wait Until Spring to Make a Move

Posted on January 5, 2021 by - First Time Home Buyers, For Buyers, Housing Market Updates, Interest Rates, Move-Up Buyers, Pricing

Why Not to Wait Until Spring to Make a Move | Simplifying The Market

The housing market recovery coming into the new year has been nothing short of remarkable. Many experts agree the turnaround from the nation’s economic pause is playing out extremely well for real estate, and the current market conditions are truly making this winter an ideal time to make a move. Here’s a dive into some of the biggest wins for homebuyers this season.

1. Mortgage Rates Are Historically Low

In 2020, mortgage rates hit all-time lows 16 times. Continued low rates have set buyers up for significant long-term gains. In fact, realtor.com notes:

“Given this means homes could cost potentially tens of thousands less over the lifetime of the loan.”

Essentially, it’s less expensive to borrow money for a home loan today than it has been in years past. Although mortgage rates are expected to remain relatively low in 2021, even the slightest increase can make a big difference in your payments over the lifetime of a home loan. So, this is a huge opportunity to capitalize on right now before mortgage rates start to rise.

2. Equity Is Growing

According to John Burns Consulting, 58.7% of homes in the U.S. have at least 60% equity, and 42.1% of all homes in this country are mortgage-free, meaning they’re owned free and clear.

In addition, CoreLogic notes the average equity homeowners gained since last year is $17,000. That’s a tremendous amount of forced savings for homeowners, and an opportunity to use this increasing equity to make a move into a home that fits your changing needs this season.

3. Home Prices Are Appreciating

According to leading experts, home prices are forecasted to continue appreciating. Today, many experts are projecting more moderate home price growth than last year, but still moving in an upward direction through 2021.

Knowing home values are increasing while mortgage rates are so low should help you feel confident that buying a home before prices rise even higher is a strong long-term investment.

4. There Are Not Enough Homes for Sale

With today’s low inventory of homes on the market, which is contributing to this home price appreciation, sellers are in the driver’s seat. The competition is high among buyers, so homes are selling quickly.

Making a move while so many buyers are looking for homes to purchase may mean your house rises to the top of the buyer pool. Selling your house before more listings come to the market in the traditionally busy spring market might be your best chance to shine.

Bottom Line

If you’re considering making a move, this may be your moment, especially with today’s low mortgage rates and limited inventory. Let’s connect to get you set up for homebuying success in the new year.

3 Must-Do’s When Selling Your House This Year

Posted on January 4, 2021 by - For Sellers, Pricing, Selling Myths

3 Must-Do’s When Selling Your House This Year | Simplifying The Market

It’s exciting to put a house on the market and to think about making new memories in new spaces. However, despite the anticipation of what’s to come, we can still have deep sentimental attachments to the home we’re leaving behind. Growing emotions can help or hinder a sale depending on how we manage them.

When it comes to the bottom line, homeowners need to know what it takes to avoid costly mistakes when it’s time to move. Being mindful and prepared for the process can help you stay on the right track when selling your house this year.

1. Price Your Home Right

When inventory is low, like it is in the current market, it’s common to think buyers will pay whatever we ask when setting a listing price. Believe it or not, that’s not always true. Don’t forget that the buyer’s bank will send an appraiser to determine the fair value for your house. The bank will not lend more than what the house is worth, so be aware that you might need to renegotiate the price after the appraisal. A real estate professional will help you set the true value of your home.

2. Keep Your Emotions in Check

Today, homeowners are living in their houses for a longer period of time. Since 1985, the average tenure, or the time a homeowner has owned their home, has increased from 5 to 10 years (as shown in the graph below):3 Must-Do’s When Selling Your House This Year | Simplifying The MarketThis is several years longer than what used to be the historical norm. The side effect, however, is when you stay in one place for so long, you may get even more emotionally attached to your space. If it’s the first home you bought or the house where your children grew up, it very likely means something extra special to you. Every room has memories, and it’s hard to detach from the sentimental value.

For some homeowners, that makes it even harder to negotiate and separate the emotional value of the house from the fair market price. That’s why you need a real estate professional to help you with the negotiations along the way.

3. Stage Your Home Properly

We’re generally quite proud of our décor and how we’ve customized our houses to make them our own unique homes, but not all buyers will feel the same way about your design. That’s why it’s so important to make sure you stage your house with the buyer in mind.

Buyers want to envision themselves in the space so it truly feels like it could be their own. They need to see themselves inside with their furniture and keepsakes – not your pictures and decorations. Stage and declutter so they can visualize their own dreams as they walk down the hall. A real estate professional can help you with tips to get your home ready to stage and sell.

Bottom Line

Today’s sellers’ market might be your best chance to make a move. If you’re considering selling your house, let’s connect so you have the help need to navigate through the process while prioritizing these must-do’s.

Four Expert Views on the 2021 Housing Market

Posted on December 31, 2020 by - For Buyers, For Sellers, Housing Market Updates, Interest Rates, Pricing

Four Expert Views on the 2021 Housing Market | Simplifying The Market

The housing market was a shining star in 2020, fueling the economic turnaround throughout the country. As we look forward to 2021, can we expect real estate to continue showing such promise? Here’s what four experts have to say about the year ahead.

Lawrence Yun, Chief Economist, National Association of Realtors (NAR)

“In 2021, I think rates will be similar or modestly higher, maybe 3%…So, mortgage rates will continue to be historically favorable.”

Danielle Hale, Chief Economist, realtor.com

“We expect sales to grow 7 percent and prices to rise another 5.7 percent on top of 2020’s already high levels.”

Robert Dietz, Senior Vice President and Chief Economist, National Association of Home Builders (NAHB)

“With home builder confidence near record highs, we expect continued gains for single-family construction, albeit at a lower growth rate than in 2019. Some slowing of new home sales growth will occur due to the fact that a growing share of sales has come from homes that have not started construction. Nonetheless, buyer traffic will remain strong given favorable demographics, a shifting geography of housing demand to lower-density markets and historically low interest rates.”

Mark Fleming, Chief Economist, First American

“Mortgage rates are expected to remain low for the foreseeable future and millennials will continue forming households, keeping demand robust, even if income growth moderates. Despite the best intentions of home builders to provide more housing supply, the big short in housing supply will continue into 2021 and likely keep house price appreciation flying high.”

Bottom Line

Whether you’re ready to buy or sell a home in 2021, if you’re planning to take advantage of the market this winter, let’s connect to talk about the opportunities available in our local market.

Why Selling Your House on Your Own in 2021 Is a Mistake

Posted on December 30, 2020 by - For Sellers, FSBOs, Pricing, Selling Myths

Why Selling Your House on Your Own in 2021 Is a Mistake | Simplifying The Market

There are many benefits to working with a real estate professional when selling your house. During challenging times, like what we face today, it becomes even more important to have an expert you trust to help guide you through the process. If you’re considering selling on your own, known in the industry as a For Sale By Owner (FSBO), it’s critical to consider the following items.

1. Your Safety Is a Priority

Your safety should always come first, and that’s more crucial than ever given the current health situation in our country. When you FSBO, it is incredibly difficult to control entry into your home. A real estate professional will have the proper protocols in place to protect not only your belongings but your health and well-being too. From regulating the number of people in your home at one time to ensuring proper sanitization during and after a showing, and even facilitating virtual tours, real estate professionals are equipped to follow the latest industry standards recommended by the National Association of Realtors (NAR) to help protect you and your potential buyers.

2. A Powerful Online Strategy Is a Must to Attract a Buyer

Recent studies from NAR have shown that, even before COVID-19, the first step 43% of all buyers took when looking for a home was to search online. Throughout the process, that number jumps to 97%. Today, those numbers have grown exponentially. Most real estate agents have developed a strong Internet and social media strategy to promote the sale of your house.

3. There Are Too Many Negotiations

Here are just a few of the people you’ll need to negotiate with if you decide to FSBO:

  • The buyer, who wants the best deal possible
  • The buyer’s agent, who solely represents the best interest of the buyer
  • The inspection company, which works for the buyer and will almost always find challenges with the house
  • The appraiser, if there is a question of value

As part of their training, agents are taught how to negotiate every aspect of the real estate transaction and how to mediate the emotions felt by buyers looking to make what is probably the largest purchase of their lives.

4. You Won’t Know if Your Purchaser Is Qualified for a Mortgage

Having a buyer who wants to purchase your house is the first step. Making sure they can afford to buy it is just as important. As a FSBO, it’s almost impossible to be involved in the mortgage process of your buyer. A real estate professional is trained to ask the appropriate questions and, in most cases, will be intimately aware of the progress being made toward a purchaser’s mortgage commitment. You need someone who’s working with lenders every day to guarantee your buyer makes it to the closing table.

5. FSBOing Is Becoming More Difficult from a Legal Standpoint

The documentation involved in the selling process is growing dramatically as more and more disclosures and regulations become mandatory. In an increasingly litigious society, the agent acts as a third-party to help the seller avoid legal jeopardy. This is one of the major reasons why the percentage of people FSBOing has dropped from 19% to 8% over the last 20+ years.

6. You Net More Money When Using an Agent

Many homeowners think they’ll save the real estate commission by selling on their own. Realize that the main reason buyers look at FSBOs is because they also believe they can save the real estate agent’s commission. The seller and buyer can’t both save on the commission.

A study by Collateral Analytics revealed that FSBOs don’t actually save anything by forgoing the help of an agent. In some cases, the seller may even net less money from the sale. The study found the difference in price between a FSBO and an agent-listed home was an average of 6%. One of the main reasons for the price difference is effective exposure:

“Properties listed with a broker that is a member of the local MLS will be listed online with all other participating broker websites, marketing the home to a much larger buyer population. And those MLS properties generally offer compensation to agents who represent buyers, incentivizing them to show and sell the property and again potentially enlarging the buyer pool.”

The more buyers that view a home, the greater the chance a bidding war will take place, potentially driving the price higher, too.

Bottom Line

Listing on your own leaves you to manage the entire transaction by yourself. Why do that when you can hire an agent and still net the same amount of money? Before you decide to take on the challenge of selling your house alone, let’s connect to discuss your options.

Why It’s Important to Price Your House Right Today

Posted on December 28, 2020 by - For Sellers, Move-Up Buyers, Pricing, Selling Myths

Why It’s Important to Price Your House Right Today | Simplifying The Market

Even in today’s sellers’ market, setting the right price for your house is one of the most valuable things you can do. According to the U.S. Economic Outlook by the National Association of Realtors (NAR), existing home prices nationwide are forecasted to increase by 4.5% in 2021. This means experts anticipate home values will continue climbing next year. Danielle Hale, Chief Economist for realtor.com, notes:

“We expect price gains to ease somewhat in 2021 and end 5.7% above 2020 levels, decelerating steadily through the spring and summer, and then gradually reaccelerating toward the end of the year.”

How to Price Your House

When it comes to setting the right price for your house, the goal is to increase visibility and drive more buyers your way. Instead of trying to win the negotiation with one buyer, you should price your house so that demand is maximized and more buyers want to take a look.

As a seller in today’s market, you might be thinking about pricing your house on the high end while so many of today’s buyers are searching harder than ever just to find a home to purchase. But here’s the thing – a high price tag does not mean you’re going to cash in big on the sale. It’s actually more likely to deter buyers.

Right now, even when there are so few houses for sale, your house is more likely to sit on the market longer or require a price drop that can send buyers running if it isn’t priced just right from the very beginning.Why It’s Important to Price Your House Right Today | Simplifying The MarketIt’s important to make sure your house is priced correctly by working with a trusted real estate professional throughout the process. When you price it competitively from the start, you won’t be negotiating with one buyer. Instead, you’ll likely have multiple buyers competing for the house, potentially increasing the final sale price.

The key is to make sure your house is priced to sell immediately. This way, it will be seen by the greatest number of buyers. More than one of them may be interested, and it will be more likely to sell at a competitive price.

Bottom Line

Let’s connect to price your house correctly from the start so you can maximize your exposure and your return.

Did You Outgrow Your Home in 2020?

Posted on December 23, 2020 by - For Sellers, Housing Market Updates, Move-Up Buyers, Pricing

Did You Outgrow Your Home in 2020? | Simplifying The Market

It may seem hard to imagine that the home you’re in today – whether it’s your starter home or just one you’ve fallen in love with along the way – might not be your forever home.

Many needs have changed in 2020, and it’s okay to admit if your house no longer fits your lifestyle. If you’re now working remotely, facilitating virtual school, trying to exercise at home, or simply just spending more time in your own four walls, you may be bursting at the seams in your current house.

According to the latest Home Price Insights from CoreLogic, prices have appreciated 7.3% year-over-year. At the same time, the National Association of Realtors (NAR) reports that inventory has dropped 22% from one year ago.Did You Outgrow Your Home in 2020? | Simplifying The MarketThese two statistics are directly related to one another. As inventory has decreased and demand has increased, prices have been driven up.

This is great news if you own a home and you’re thinking about selling. The equity in your house has likely risen as prices have increased. Even better is the fact that there’s a large pool of buyers out there searching for the American dream, and your home may be high on their wish list.

Bottom Line

If you think you’ve outgrown your current home, let’s connect to discuss local market conditions and determine if now is the best time for you to sell.

Homeowner Equity Increases an Astonishing $1 Trillion

Posted on December 17, 2020 by - Down Payments, For Buyers, For Sellers, Housing Market Updates, Move-Up Buyers, Pricing

Homeowner Equity Increases an Astonishing $1 Trillion | Simplifying The Market

In a year that was financially devastating for many Americans, some good news for most homeowners is the dramatic gain in home equity over the last twelve months. Last week, CoreLogic released its 2020 3rd Quarter Homeowner Equity Insights report, which reveals four major findings:

  1. S. homeowners with mortgages have seen their equity increase by a total of $1 trillion since the third quarter of 2019.
  2. The average homeowner gained approximately $17,000 in equity over the past year.
  3. This is a 10.8% increase in equity over last year.
  4. The average household with a mortgage now has $194,000 in home equity.

This has given many homeowners the ability to redesign their homes to meet their changing needs. Frank Martell, President and CEO of CoreLogic, explains in the report:

“The housing market has remained a strong pillar in an otherwise tumultuous economic year. A sharp rise in demand, spurred by record-low interest rates, continues to bolster homeowner equity. And with many people now spending more time than ever before at home, some homeowners have tapped into their strengthening equity to fund renovations.”

This build-up in equity also gives more options to homeowners who have been financially impacted by the pandemic. Today, homeowners with substantial equity are in a much better position to work out a deal with their lender if they cannot pay their mortgage. Alternatively, they also have the power to sell and walk away with their equity in the form of cash or as a down payment toward a more affordable house. Frank Nothaft, Chief Economist for CoreLogic, addresses the issue in the report:

“Over the past year, strong home price growth has created a record level of home equity for homeowners…This provides an important buffer to protect families if they experience financial difficulties and is one reason for the generational-low in foreclosure rates reported.”

Here’s a map showing equity gains by state:Homeowner Equity Increases an Astonishing $1 Trillion | Simplifying The MarketThis gain in home equity is a blessing for homeowners in these trying times, and it seems that the next two years will continue to reward those who own a home.

Last week, the National Association of Realtors (NAR) held their 2020 Real Estate Forecast Summit. At the summit, they shared the results of a recent survey of 23 economic and housing market experts. The median forecast among the experts called for home values to increase further by 8% in 2021 and 5.5% in 2022.

Bottom Line

In a year that has many of us reevaluating what “home” really means, those who own their homes have been rewarded with a financial windfall that averages $17,000 individually and totals $1 trillion nationally.

Why It Makes Sense to Sell Your House This Holiday Season

Posted on December 10, 2020 by - For Sellers, Housing Market Updates, Move-Up Buyers, Pricing, Selling Myths

Why It Makes Sense to Sell Your House This Holiday Season | Simplifying The Market

If you’re one of the many homeowners thinking about taking your house off the market for the holidays, hang on. You definitely don’t want to miss the great selling opportunity you have right now. Here’s why this month is the optimal time to make sure your house is available for holiday buyers.

The latest Existing Home Sales Report from The National Association of Realtors (NAR) shows the inventory of houses for sale has dropped to an astonishing all-time low. It now sits at a 2.5-month supply at the current sales pace.

Historically, a 6-month supply is necessary for a ‘normal’ or ‘neutral’ market, in which there are enough homes available for active buyers (See graph below):Why It Makes Sense to Sell Your House This Holiday Season | Simplifying The MarketWhen the supply of houses for sale is as low as it is today, it’s much harder for buyers to find homes to purchase. This means competition among purchasers rises and more bidding wars take place, making it essential for buyers to submit very attractive offers.

As this happens, prices rise and sellers are in the best position to negotiate deals that meet their ideal terms. So, if your neighbors decide to remove their listings this season, your house may quickly rise to the top of a holiday buyer’s wish list if you stay on the market.

Today, there are many buyers who are ready, willing, and able to purchase. Record-low mortgage rates and a year filled with unique changes have prompted buyers to think differently about where they live and to take action. The supply of homes for sale is not keeping up with this high demand, making now the optimal time to sell your house.

Bottom Line

Home prices are appreciating in today’s sellers’ market. Making your home available over the next few weeks will give you the most exposure to buyers who will be actively competing against each other to purchase it.

Are Home Prices Headed Toward Bubble Territory?

Posted on December 9, 2020 by - For Buyers, For Sellers, Housing Market Updates, Pricing

Are Home Prices Headed Toward Bubble Territory? | Simplifying The Market

Talk of a housing bubble is beginning to crop up as home prices have appreciated at a rapid pace this year. This is understandable since the appreciation of residential real estate is well above historic annual averages. According to the Federal Housing Finance Agency (FHFA), annual appreciation since 1991 has averaged 3.8%. Here are the latest 2020 appreciation numbers from three reliable sources:

It’s easy to jump to the conclusion that house appreciation is out of control in today’s market. However, we need to put these numbers into context first.

Inflation and the Comeback from the Housing Crash

Following the housing crash, home values depreciated dramatically from 2007-2011. Values are still recovering from that unusually long period of falling prices. We must also realize that normal inflation has had an impact.

Bill McBride, the founder of the well-respected Calculated Risk blog, recently summed it up this way:

“It has been over fourteen years since the bubble peak. In the Case-Shiller release today, the seasonally adjusted National Index, was reported as being 22.2% above the previous bubble peak. However, in real terms (adjusted for inflation), the National index is still about 2% below the bubble peak…As an example, if a house price was $200,000 in January 2000, the price would be close to $291,000 today adjusted for inflation.”

The COVID Impact on Home Prices

The pandemic caused many households to reconsider whether their current home still fulfills their lifestyle. Many homeowners now want larger yards that are both separate and private.

Their needs on the inside of the home have changed too. People now want home offices, gyms, and living rooms well-suited for video conferencing. Barbara Ballinger, a freelance writer and the author of several books on real estate, recently wrote:

“While homeowners continue to want their outdoor spaces that offer a safe retreat, that appeal has shifted into other parts of the home, coupling comfort with function. In other words, homeowners want amenities for work and leisure, and they plan to enjoy them long after the pandemic.”

At the same time, concerns about the pandemic have caused many homeowners to put their plans to sell on hold. Realtor.com just released their November Monthly Housing Market Trends Report. It explains:

“Nationally, the inventory of homes for sale decreased 39.2% over the past year in November…This amounted to 490,000 fewer homes for sale compared to November of last year.”

More people buying and fewer people selling has caused home prices to escalate. However, with a vaccine on the horizon, more homeowners will be putting their houses on the market. This will better balance supply with demand and slow down the rapid appreciation.

That’s why major organizations in the housing industry are calling for much more moderate home appreciation next year. Here are the most recent forecasts for 2021:

This Is Nothing Like 2006

Finally, let’s put to rest some of the concerns that today’s scenario is anything like what led up to the last housing crash. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains why this is nothing like 2006:

“Such a frenzy of activity, reminiscent of 2006, raises questions about a bubble and the potential for a painful crash. The answer: There’s no comparison. Back in 2006, dubious adjustable-rate mortgages taxed many buyers’ budgets. Some loans didn’t even require income documentation. Today, buyers are taking out 30-year fixed-rate mortgages. Fourteen years ago, there were 3.8 million homes listed for sale, and home builders were putting up about 2 million new units. Now, inventory is only about 1.5 million homes, and home builders are underproducing relative to historical averages.”

Bottom Line

Most aspects of life have been anything but normal in 2020. That includes buying and selling real estate. High demand coupled with restricted supply has caused home prices to appreciate above historic levels. With the end of the health crisis in sight, we will see price appreciation return to more normal levels next year.