Home prices surge by most in over 6 years

Are we trapped in another housing bubble? A rapid rise in home prices has some experts worried

Home prices surge by most in over 6 years

In the midst of a raging COVID-19 pandemic, with millions of Americans still work and facing the possibility of eviction and foreclosure, the United States is experiencing a real estate boom the s of which it hasn't seen in 15 years.

Home prices are rising practically everywhere. From Augusta, Maine, to Phoenix and from Sarasota, Florida, to Aberdeen, Washington, prices are up by double digits.

Driven by historically low interest rates that make borrowing cheap and waves of people fleeing densely populated cities because of COVID-19, home buying has become as competitive as it was during the boom years of the mid-2000s.

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Homes for sale have dwindled

Supplies of existing dwellings have dwindled far below the six-month level considered normal. Realtors are receiving multiple offers. Builders can't keep up with demand and flipping is back.

Talk of a housing bubble is now common among analysts – including those at Swiss banking giant UBS, who back up their claims with charts showing how home prices are outstripping both wages and rents.

While home prices have appreciated more than 60% since November 2012, incomes have only appreciated by 20% and rents by 30% over the same time period.

The upshot: Homes are reach for more and more buyers every year, the analysts argue.

But un the real estate boom that led to the Great Recession, this nationwide price spike is not being fueled by a wholesale collapse in lender ethics. There aren't any low-doc or no-doc loans to be had and borrowers are having to do much more than fog a mirror to get funding.

Supply and demand fundamentals can also fuel rising prices.

“For over a decade, we've had a chronic lack of supply of housing,” said Marco Santarelli, chief executive of Norada Real Estate Investments in Laguna Niguel, Californi. “We need 1.62 million units a year to keep pace with organic demand, but we produce significantly less. We're about 370,000 units short each year.”

Marco Santarelli, founder and CEO, of Norada Real Estate Investments.Courtesy

Santarelli added that the supply imbalance will only get worse as more than 140 million millennials and members of Gen Z move into rental units and starter homes in the years ahead. 

“About 52% of young adults from 18 to 29 are still living with their parents,” Santarelli said. “That's the highest rate in over 110 years. These people have to go somewhere and that's why I'm so bullish about real estate over the long term.”.

An out-of-balance housing market

But these healthy fundamentals don't mean there aren't worrying distortions in the market.

With the Federal Reserve continuing to buy Treasury bonds and other securities under its quantitative easing program, interest rates are being held artificially low as dollars are being pumped into the economy. That makes borrowing cheap and encourages investors to buy riskier assets stocks and real estate, driving prices of those assets ever higher.

Until the Federal Reserve halts its bond buying and interest rates begin to rise again, real estate prices will continue to climb, says Robert Goldman, a real estate agent with Michael Saunders & Co. in Sarasota. And no change in policy is expected any time soon.

“The Fed will keep buying bonds far into the future despite what could be a booming economy in 2021 and 2022,” Goldman said in his monthly newsletter.

“We had a 10.2% increase in home prices in Sarasota in 2020,” Goldman told USA TODAY. “What I'm concerned about is that prices will continue to appreciate at 10% to 15% a year and that's not sustainable.”

At a certain point, interest rates will rise and there won't be enough buyers coming in from more expensive markets to keep paying the higher prices. Either development or both, could lead to a pullback in prices. 

The moratoriums on evictions and foreclosures are also distorting the market. There's no question these policies are needed to keep people from being displaced in the midst of a pandemic, but they will eventually have to be lifted and it is not clear what will happen when they do.

Santarelli is confident the damage will be minimal. He believes renters will find jobs when the economy rebounds and they will not join the legions of the homeless. He also believes homeowners will either be able to sell their houses and condos and walk away with equity, or refinance or modify and tack whatever they owe to the back end of their mortgages.

“We saw people's equity grow 11% last year and it's expected to grow another 6% this year,” Santarelli said. “So the appreciation is in their favor. They can sell or refinance and banks are well off either way.”

If homeowners can't sell or refinance, there could be a spike in foreclosures and the supply of homes on the market would increase sharply, pushing down prices. 

Rental market is humming

Meanwhile, the segment of the real estate market that seems to be working most efficiently at the moment is the rental market. As people leave densely populated cities to escape COVID-19 and congestion, rents are dropping. In San Francisco, rents fell 24% in 2020, according to Zumper.com, which tracks rents across the country. They were down nearly 20% in New York and 17% in Boston. 

In cities Newark, New Jersey, Sacramento, California, and Richmond, Virginia, where people are relocating, rents are moving sharply in the opposite direction.

“The top eight cities in the nation, which were very hot and very millennial heavy, have seen enormous declines in rent, while secondary cities in the same regions have benefited,” said Anthemos Georgiades, co-founder and chief executive of Zumper.com.

Median home prices in cities experiencing major out-migration, however, have not fallen – at least not yet. New York, for instance, saw rents drop by 20%, but its median home prices rose 6%. The same trend holds true in San Francisco, Boston, Los Angeles and Washington, D.C.

Georgiades says that's because the rental market is much more dynamic than the “for sale” market.

“Rent prices adjust super quickly to the realities of the market,” Georgiades said. “If I get a vacancy in April, the clock is ticking. I've got a depreciating asset. I'm going to drop my price fast to get someone in there.”

Anthemos Georgiades, founder and CEO of Zumper.Courtesy

Homeowners looking to sell their properties are willing to be more patient, he said. So prices don't adjust as quickly.

According to Norada Real Estate Investments, San Francisco's infamously hot real estate market has cooled of late. But inventories of unsold homes are still tight and that's why prices aren't declining.

The reality in New York is different.

Norada is reporting that there are now more homes on the market in the city than there are buyers who want them, which puts buyers in the driver's seat when it comes to downward price negotiations.

It's cities this that should see prices decline first, according to prominent Yale economist Robert Shiller, and he advised homebuyers in a New York Times column “to avoid investing in too expensive of a house or in taking on too much risk.”

Home prices gone wild

For Mark Stapp, a real estate professor at Arizona State University, what's going on in the real estate market right now is not a bubble.

“The definition of a bubble is that when it pops, there's nothing there,” Stapp said. “That's not this case. There's very real demand that exists and that's what's causing prices to increase.”

Realtors across the country generally agree.

Mary Jo Santistevan, a top producing sales associate with Berkshire Hathaway HomeServices in Phoenix, said buyers are flowing in from congested cities of California, Washington state and the Midwest.

They are looking to take advantage of Arizona’s lower home prices, lower property taxes and quality of life.

But they are confronting a situation where inventories of unsold homes have been dropping steadily in recent years and are now teetering on a one-month supply in some areas and less than that in others.

Mary Jo Santistevan, a sales associate with Berkshire Hathaway HomeServices in Phoenix.Courtesy

“Even builders are struggling to keep up with demand,” Santistevan said. “There’s a 10-month wait time for construction. The majority of builders are using a lottery system. One builder in particular in Gilbert had a waitlist of 100 deep.”

Stacie Lee, a fellow agent at Berkshire Hathaway, says whenever something goes on the market in Phoenix, the showings are usually back-to-back and closing comes within a matter of days.

“Many homes go for $30,000 to $40,000 over list price and a few homes in the mid $300,000s have sold for $100,000 over list,” Lee said. “A lot are going for cash. Cash is king right now.”

Stacie Lee, a sales associate with Berkshire Hathaway HomeServices in Phoenix.Courtesy

Lee added that she had 70 people show up for an open house over the summer and had 15 offers in the first couple of hours. The home sold for $375,000 and is now back on the market at $550,000.

“There’s a lot of investors flipping homes here,” she said.

Nearly 3,000 miles away in Augusta, Maine, the housing market is just as frothy.

Fifteen of Maine’s 16 counties experienced a 10% increase in median home prices in 2020, according to Aaron Bolster, president of the Maine Association of Realtors. Some of those counties saw leaps of 20% or more.

“We already knew Maine was popular,” Bolster said. “More than 32 million people visit between Memorial Day and Labor Day. They don’t typically come at this time of year. But in a pandemic, it’s a safe place to be. The population density is very low and teleworking suddenly got popular in 2020.”

Home prices are rising practically everywhere in the U.S.Getty Images

Bolster said 25% of buyers in 2019 came from state. Last year, that number rose to 33%. Without a large housing stock to begin with, available listings got siphoned off pretty quickly as state buyers bid up the prices.

At the moment, there are only 6,000 homes for sale in the entire state, Bolster said, and half of them are under contract.

The situation is unique for Maine and Bolster is not sure how long it will last, especially given that the demand is driven by people coming from state – many of whom will presumably be able to work from home – and not by job creation within Maine's borders.

“Maine doesn’t create a lot of new jobs,” Bolster said. “When we create a new job, we give one up. So real estate doesn't usually appreciate that fast. It’s interesting to see such a robust market when it’s not really tied to economics.”

Graphics by Janet Loehrke, George Petras, USA TODAY

Источник: https://www.usatoday.com/in-depth/money/2021/02/04/homes-sale-we-housing-bubble-prices-outstrip-wages/6671282002/

Home Prices Will Increase In 2021. Here’s Where You Might Find Value

Home prices surge by most in over 6 years

Buyers hoping to score a deal on a home in 2021—or even find something affordable without having to dip into savings or push their budgets past the “we-could-live-without-electricity” point—might need to check their ambitions. Both the experts and the numbers paint a picture of a seller’s market in 2021.

The good news is that new-home construction is expected to ramp up and more homeowners are ly to feel comfortable putting their houses on the market as people get vaccinated against the coronavirus. These two actions are necessary before the number of homes for sale is ly to increase, which could help temper price growth.

Forbes Advisor spoke with experts about whether housing will become more affordable this year and which areas of the country might experience a price correction.

Related: Compare the Best Mortgage Lenders

Home Price Growth Is Making it Harder for Entry-level Buyers

Even a global pandemic did nothing to slow down the rising cost of homes in 2020, which doesn’t bode well for prices as vaccines are rolled out to the public. Year-over-year home price appreciation shot up between May 2020 (6%) and November 2020 (10.3%), according to American Enterprise Institute (AEI) Housing Center data.

Homes in the medium- to high-price range, which the AEI Housing Center defines as costing no more than 125% of the conforming loan limit—$484,350 in 2020—saw the biggest leap in price appreciation, increasing from 6.6% year-over-year in May 2020 to 14.6% in November 2020.

In December 2020, the median listing prices for single-family homes shot up to $340,000, a 13.4% increase from the same time the previous year, according to Realtor.com.

All this to say that homes are quickly becoming less affordable for more buyers. Even record-low mortgage rates, which have dramatically reduced the cost of borrowing in recent months, and loan programs designed to help buyers on a budget— FHA loans—are little help in today’s inventory-strained and competitive market.

“The supply shortage has led to home price increases that offset affordable housing programs,” says Sam Khater, Freddie Mac’s chief economist.

The National Association of Realtors’ Housing Affordability Index shows that housing affordability is declining—despite lower mortgage rates—because rising home prices have “more than offset the decline in rates,” Khater says.

On a national level, the number of homes for sale in December dropped 39.6% from the same time in 2019—about 449,000 fewer homes.

Areas Where Prices Might Drop—And Rise

Across the nation, home price appreciation grew in 2020, and the consensus is that we’ll see more growth this year—at least in much of the country.

The Northeast lead the pack with the highest year-over-year home price growth (5.5% from December 2019 to December 2020), according to the National Home Price Appreciation report from ClearCapital, a real estate valuation company. The West (3.3%), Midwest (3.2%) and South (2%) fell closely behind.

Some of the metro areas with the most eye-popping year-over-year price growth were Columbus, Rochester and Philadelphia.

Areas with the Most Price Appreciation December 2019-2020

Not all areas saw price explosions. Some metro areas experienced home price depreciation, while others had minimal price gains. The places with dropping values also had higher levels of distressed properties within their market, which are lender-owned—usually due to foreclosure—and short sale homes.

Distressed sales are usually cheaper, which can pull down the property values of surrounding homes. More distressed sales typically results in slower overall price growth.

San Antonio, St. Louis, Dallas and Honolulu saw home prices fall year-over-year, while the San Francisco area saw home prices appreciate at a much slower pace than some of the double-digit growth cities.

Areas with the Least Price Appreciation December 2019-2020

Experts agree that both the South and the Midwest offer the best value for home shoppers and that few, if any, areas in those regions will hit major turbulence when it comes to price growth.

Ali Wolf, chief economist at Zonda Home, a housing market research firm, touts the price-per-square foot affordability of places Tampa, Dallas and Raleigh.

Meanwhile, Danielle Hale, chief economist for Realtor.com expects the market as a whole to remain strong this year, with the biggest percentage price gains going to places Seattle and Boise, Idaho. The slowest price growth is expected for the “New York metro area at just less than 1%,” Hale says.

Wolf also expects that some markets might underperform in 2021.

“We’re watching select locations and price points within San Francisco, Los Angeles and New York for a modest price correction,” Wolf says.

As more people have the flexibility to work from home, mid-size markets are attracting homebuyers, says Lawrence Yun, chief economist at the National Association of Realtors. And expensive tech hubs in California, San Jose, where median home prices are around $1.25 million, will see an easing in demand.

“So, Sacramento, Riverside (California), Phoenix and Las Vegas will all benefit from Californians leaving expensive locales and moving into their area,” Yun says. “Moreover, the Midwestern cities that are super affordable but adding jobs will also benefit, namely Des Moines and Indianapolis.”

According to CoreLogic’s latest Home Price Insights forecast, Las Vegas, Houston and Boston are among the largest metro areas that could see a price decline through the fourth quarter of 2021. Nevertheless, forecasted declines “are less than 2% year-over-year,” says Selma Hepp, deputy chief economist at CoreLogic, a property analytics firm.

Places that were disproportionately hit by the pandemic and “experienced significant losses of employment in leisure and hospitality industries as well as oil, gas and mining, are ly to see lower price growth over the next year,” Hepp says.

3 Homebuyer Strategies in a Seller’s Market

Buying a home in a seller’s market can feel you’re losing money. If you just wait a few months or even a year, prices will flatten (or come down)—at least that’s the hope. The problem is that prices could keep rising to the point where you’re priced the market. There’s no guarantee either way.

People who went through the housing crisis might be even more wary of buying in today’s market, fearing a bubble situation. Nobody wants to buy at the top of the market only to see prices come crashing down and taking your equity with it.

One of the clearest signs that home prices will keep rising (or at least not plummet) is that inventory is tight and construction is still lagging behind.

This stands in stark contrast to the mid-2000s when there was a surplus of housing stock. It was the era of the McMansion, when people were buying above their means and banks were only too happy to oblige. Today’s mortgage holders are vetted carefully and held to strict standards. This makes for a housing market with a solid foundation.

But that still doesn’t mean buying a house is right for you, as every situation is different. However, there are some scenarios where buying a home beats renting, even in a seller’s market.

1. Plan to Stay in the Home for at Least Five Years

The five-year rule in real estate is an important one. It’s a rule of thumb that dictates generally how long you’ll need to hold onto a home in order to make up the money you spent on closing costs. Because closing costs can exceed 5% of purchase price, five years is typically how long it will take to break even.

Of course, if your home value increases more than 5% (or whatever your closing costs were) in a shorter time frame, then the five-year rule no longer applies.

But you don’t want to buy a house with the intention of moving in a few years because then you risk losing thousands of dollars if you don’t earn enough equity to recoup your costs.

And if you plan to buy another house, then you’re going to sink even more money into closing costs.

For those that plan to keep the house for the long haul, buying now could be a smart move.

“We have clients who thought the market was going to top out a couple of years ago so they waited. They now are priced the market,” says Gordy Marks, managing broker at RE/MAX Northwest in Bothell, Washington. “Homes will perpetually continue to appreciate over time. Even if prices flatten or decline in a slowdown (homeowners) will still win in the end by holding onto the home.”

2. Look for Income-generating Opportunities

Homebuyers on a budget might want to consider properties that can generate income, either through long-term rentals or Airbnb.

“If it works with their lifestyle, homebuyers on a tight budget can look to mixed-use residential and income properties, a single-family home with a separate casita that could be used as an Airbnb,” says Erin Sykes, real estate broker at Nest Seekers International in New York.

Some mortgage lenders will even consider future income generated by the property you want to buy when they’re reviewing your loan application. Fannie Mae, for example, allows lenders to use future rental income in their lending guidelines as long as the property falls under one of these categories:

  • A two- to four-unit principal residence property in which the borrower occupies one of the units
  • A one- to four-unit investment property

This might include a duplex, a single-family home that is split into several units or a house with a mother-in-law suite.

3. Consider Factors That Influence Long-term Property Value

Homebuyers who want to see their equity grow over time, should pay attention to both the history of the property and what might happen in the area tomorrow, says real estate investor Matt Andrews, founder at REI Collective, in Tampa, Florida.

“The key is to look at the long-term viability of the area and stay within your budget,” Andrews says. “The best way buyers can evaluate the true long-term value of a property is to look at the historical price of that property or similar properties going back several years—ideally, 15 or more.”

Next, you’ll want to look for signs of growth and improvement. Are major employers moving into the area? Are streets being widened? Are retailers moving in? Signs of growth are good indicators that your property value will continue to rise over time.

There are many seemingly unrelated things that can dramatically affect—either positively or negatively—the opportunities in a particular real estate market, Andrews says. Even things new pro-business tax laws can signal future growth.

Above all else, you should stick to your budget so that you’re not house poor, the experts echo. It won’t matter much if your home appreciates in value if you can’t afford the mortgage payment.

It’s better to leave enough room in your budget to account for unexpected emergencies and buy something smaller or in a more affordable area than to get your dream house that pushes your budget to the max and you risk losing it.

Источник: https://www.forbes.com/advisor/mortgages/home-prices-outlook/

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