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Home Price Appreciation Is as Simple as Supply and Demand

Home Price Appreciation Is as Simple as Supply and Demand | Simplifying The Market

Home price appreciation continues to accelerate. Today, prices are driven by the simple concept of supply and demand. Pricing of any item is determined by how many items are available compared to how many people want to buy that item. As a result, the strong year-over-year home price appreciation is simple to explain. The demand for housing is up while the supply of homes for sale hovers at historic lows.

Let’s use three maps to show how this theory continues to affect the residential real estate market.

Map #1 – State-by-state price appreciation reported by the Federal Housing Finance Agency (FHFA) for the first quarter of 2021 compared to the first quarter of 2020:Home Price Appreciation Is as Simple as Supply and Demand | Simplifying The MarketAs the map shows, certain states (colored in red) have appreciated well above the national average of 12.6%.

Map #2 – The change in state-by-state inventory levels year-over-year reported by realtor.com:Home Price Appreciation Is as Simple as Supply and Demand | Simplifying The MarketComparing the two maps shows a correlation between change in listing inventory and price appreciation in many states. The best examples are Idaho, Utah, and Arizona. Though the correlation is not as easy to see in every state, the overall picture is one of causation.

The reason prices continue to accelerate is that housing inventory is still at all-time lows while demand remains high. However, this may be changing.

Is there relief around the corner?

The report by realtor.com also shows the monthly change in inventory for each state.

Map #3 – State-by-state changes in inventory levels month-over-month reported by realtor.com:Home Price Appreciation Is as Simple as Supply and Demand | Simplifying The MarketAs the map indicates, 39 of the 50 states (plus the District of Columbia) saw increases in inventory over the last month. This may be evidence that homeowners who have been afraid to let buyers in their homes during the pandemic are now putting their houses on the market.

We’ll know for certain as we move through the rest of the year.

Bottom Line

Some are concerned by the rapid price appreciation we’ve experienced over the last year. The maps above show that the increases were warranted based on great demand and limited supply. Going forward, if the number of homes for sale better aligns with demand, price appreciation will moderate to more historical levels.

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In Today’s Market, Listing Prices Are Like an Auction’s Reserve Price

In Today’s Market, Listing Prices Are Like an Auction’s Reserve Price | Simplifying The Market

For generations, the process of buying and selling a home never really changed. A homeowner would try to estimate the market value of their house, then tack on a little extra to give themselves some negotiating room. That figure would become the listing price. Buyers would then try to determine how much less than the full price they could offer and still get the home. As a result, the listing price was generally the ceiling of the negotiation. The actual sales price would almost always be somewhat lower than what was listed. It was unthinkable to pay more than what the seller was asking.

Today is different.

The record-low supply of homes for sale coupled with very strong buyer demand is leading to a rise in bidding wars on many homes. Because of this, homes today often sell for more than the list price. In some cases, they sell for a lot more.

According to Lawrence Yun, Chief Economist at the National Association of Realtors (NAR):

“For every listing there are 5.1 offers. Half of the homes are being sold above list price.”

You may need to change the way you look at the asking price of a home.

In this market, you likely can’t shop for a home with the former approach of negotiating to a lower price.

Due to the low supply of houses for sale, many homes are now being offered in an auction-like atmosphere in which the highest bidder wins the home. In an actual auction, the seller of an item agrees to take the highest bid, and many sellers set a reserve price on the item they’re selling. A reserve price is the minimum amount a seller will accept as the winning bid.

When navigating a competitive housing market, think of the list price of the house as the reserve price at an auction. It’s the minimum the seller will accept in many cases. Today, the asking price is often becoming the floor of the negotiation rather than the ceiling. Therefore, if you really love a home, know that it may ultimately sell for more than the sellers are asking. So, as you’re navigating the homebuying process, make sure you know your budget, know what you can afford, and work with a trusted advisor who can help you make all the right moves as you buy a home.

Bottom Line

Someone who’s more familiar with the housing market of the past than that of today may think it’s foolish to offer more for a home than the listing price. However, frequent and competitive bidding wars are creating an auction-like atmosphere in many real estate transactions right now. Let’s connect today so you have a trusted real estate professional on your side to provide the best advice on how to make a competitive offer on a home.

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Why You May Want To Cash in on Your Second Home

Why You May Want To Cash in on Your Second Home | Simplifying The Market

When stay-at-home mandates were enforced last year, many households realized their homes didn’t really fulfill their new lifestyle needs. An office (in some cases two), a media room, space for children to learn, a gym, and a large yard are all examples of amenities that became highly desirable almost overnight.

Zelman & Associates recently reported that sales of primary residences grew by 9% in 2020. That increase in demand was met by the lowest supply of homes for sale in history. High demand and low supply caused prices to skyrocket over the past twelve months. Here are three home price indexes released most recently that show how home values have risen:

Prices increased by double digits in every region of the country and in 19 of 20 major metros. Chicago was the only exception, where prices still rose by 9%.

What does this mean to those who purchased a second home during the pandemic?

Many people didn’t want to give up a home in the city or close to their office. Instead, they purchased a larger second home farther away and moved there to stay safe and have more space. According to the same Zelman report, sales for second homes rose an astonishing 27% in 2020.

That large second-home retreat on a lake or in the mountains would demand a higher price than the average house. Let’s assume a buyer purchased such a home for $500,000. Assuming the middle 13.2% appreciation shown above, that home would now be worth about $566,000.

Those who bought second homes to improve their lifestyle during the height of the pandemic, or those who just wanted to be in a safer environment, also made a great investment.

What should these homeowners do now as the pandemic is receding, and the economy is reopening?

The buyers of those second homes now have a decision to make. Many will move back to the original home they still own (the one that’s closer to work, friends, and family). Should they keep the second home? That could depend on answers to questions like these:

  • Now that you may have to go back to the office (at least a few days a week) and students are required to physically attend school, would you still use the second house enough to warrant the expenses of an additional home?
  • Would you go to the second home on most weekends, or would you return to the movie theater, attend sporting events, eat out at fine restaurants, or spend your time traveling again?

Bottom Line

If you purchased a larger second home during the pandemic, you were able to make day-to-day life much easier for those important to you. You also made it much safer. However, with those goals already accomplished, you now need to decide whether to continue paying the extra expenses or sell the house and cash in your profit. If you decide selling makes sense, let’s connect today to discuss the value of your second home.

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Top Reasons To Own Your Home [INFOGRAPHIC]

Top Reasons To Own Your Home [INFOGRAPHIC] | Simplifying The Market

Top Reasons To Own Your Home [INFOGRAPHIC] | Simplifying The Market

Some Highlights

  • June is National Homeownership Month, and it’s a great time to consider the benefits of owning your own home.
  • If you’re thinking of buying a home, it might just help you find the stability, community, and comfort you’ve been searching for over the past year.
  • Let’s connect today to determine if homeownership is the right next step for you.
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Dreaming of a Bigger Home? Why Not Buy It This Year?

Dreaming of a Bigger Home? Why Not Buy It This Year? | Simplifying The Market

Are you clamoring for extra rooms or a more functional floorplan in your house? Maybe it’s time to make a move. If you’ll be able to work remotely for the long-term or your overall needs have simply changed, it’s a great time to sell your house and move up. Why? With mortgage rates in their favor and higher-priced home sales powering more moves across the country, sellers in today’s market are finding the space they need (and have always dreamed of) by purchasing a home in the upper end of the housing market.

With so few homes available for sale and high demand from today’s homebuyers, sellers are profiting in major ways this season. Bidding wars are gaining traction, driving up the sale price of more and more homes throughout the country. This means sellers are able to leverage extra cash from higher-priced sales while also taking advantage of today’s low mortgage rates when they purchase their next home. It’s the perfect scenario to move up into a true dream home. According to the April Luxury Market Report from the Institute for Luxury Home Marketing:

“The Institute’s recent analysis of sales in 2020 for homes over 5,000 square feet support the continuing preference for larger homes. The analysis determined that there was a 17% increase in the number of 5,000+ sq ft homes sold when compared to the number of sales in 2019.

Luxury home prices continue to see record highs in the majority of affluent ex-urban communities, as the influence of being able to work from home is still driving buyers away from living in high density areas. Low interest rates also remain in play, allowing buyers to realize the affordability of owning a larger property, which further reinforces this trend.”

Lawrence Yun, Chief Economist for the National Association of Realtors (NAR), also explains:

“The market is hot pretty much everywhere and across all price points . . . The only area where there is sufficient inventory is in $1 million-plus homes . . . .”

While this price range certainly doesn’t fit every budget, if it’s in your reach this summer, you may want to make your move sooner rather than later. Today, more homes are available in this segment of the market, but as the report mentions, more buyers are investing here too, so competition may heat up sooner rather than later.

Bottom Line

If you’re planning to sell your current home to move into a larger one, let’s connect today. We’ll discuss your current situation and the opportunities in our local market.

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What’s Motivating People To Move Right Now?

What’s Motivating People To Move Right Now? | Simplifying The Market

This year, Americans are moving for a variety of reasons. The health crisis has truly reshaped our lifestyles and our needs. Spending so much more time in our current homes has driven many people to reconsider what homeownership means and what they find most valuable in their living spaces.

According to the 2020 Annual National Movers Study:

“For customers who cited COVID-19 as an influence on their move in 2020, the top reasons associated with COVID-19 were concerns for personal and family health and wellbeing (60%); desires to be closer to family (59%); 57% moved due to changes in employment status or work arrangement (including the ability to work remotely); and 53% desired a lifestyle change or improvement of quality of life.”

With a new perspective on homeownership, here are some of the reasons people are reconsidering where they live and making moves right now.

1. Working from Home

Remote work became the new norm, and for some, it’s persisting longer than initially expected. Many in the workforce today are discovering they don’t need to live so close to the office anymore and they can get more for their money if they move a little further outside the city limits. Apartment List notes:

“The COVID pandemic has sparked a rebound in residential migration: survey data suggest that 16 percent of American workers moved between April 2020 and April 2021, up from 14 percent in 2019 and the first increase in migration in over a decade… One of the major drivers in this trend is remote work, which expanded greatly in response to COVID and will remain prevalent even after the pandemic wanes. No longer tethered to a physical job site, remote workers were 53 percent more likely to move this past year than on-site workers.”

If you’ve tried to convert your guest room or your dining room into a home office with minimal success, it may be time to find a larger home. The reality is, your current house may not be optimally designed for this kind of space, making remote work very challenging.

2. Room for Fitness & Activities

Staying healthy and active is a top priority for many Americans, and dreams of having space for a home gym are growing stronger. A recent survey of 4,538 active adults from 122 countries noted the three fastest-growing fitness trends amongst active adults:

  • At-home fitness equipment (up 50%)
  • Personal trainers/nutritionists (up 48%)
  • Online fitness courses, classes, and subscriptions (up 17%)

Having room to maintain a healthy lifestyle at home – physically and mentally – may prompt you to consider a new place to live that includes space for at-home workouts, hobbies, and activities for your household.

3. Outdoor Space

Better Homes & Gardens recently released the outdoor living trends for this year, and three of them are:

  • Outdoor Kitchens: 60% of homeowners are looking to add outdoor kitchens.
  • Edible Garden: Millions of people began gardening during the pandemic . . . to supplement pantries with homegrown fruits, vegetables, and herbs.
  • Secluded Spaces: As outdoor activity increases, so does the need for privacy.

You may not, however, currently have the space you need for these designated areas – inside or out.

Bottom Line

If you’re clamoring for more room to accommodate your changing needs, making a move may be your best bet, especially while you can take advantage of today’s low mortgage rates. It’s a great time to get more home for your money, just when you need it most.

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This Isn’t a Bubble. It’s Simply Lack of Supply. [INFOGRAPHIC]

This Isn’t a Bubble. It’s Simply Lack of Supply. [INFOGRAPHIC] | Simplifying The Market

This Isn’t a Bubble. It’s Simply Lack of Supply. [INFOGRAPHIC] | Simplifying The Market

Some Highlights

  • In a recent article, Lawrence Yun, Chief Economist for the National Association of Realtors (NAR), discussed the state of today’s housing market.
  • When addressing whether or not today’s high buyer competition and rising home prices are evidence of a housing bubble, Yun said that this “is not a bubble. It is simply lack of supply.”
  • Today’s housing market is healthy, and rising prices are driven by real buyer demand. Let’s connect to talk about the best ways to navigate such an energetic market.
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Don’t Be Fooled by Remarkable Real Estate Headlines

Don’t Be Fooled by Remarkable Real Estate Headlines | Simplifying The Market

Don’t be impressed by the headlines reporting year-over-year housing numbers for the next several months (data covering March, April, May, and June). The data will most likely show eye-popping one-year increases.

While the year-over-year jumps will certainly be striking, consumers should take these numbers with a grain of salt, as the situation highlights a short-term quirk in the reporting of this data. Essentially, the increases will reflect a combination of two things: sharply lower housing numbers during last year’s virus-related market collapse and the subsequent strong rebound. This will result in what will appear to be unbelievable growth.

Let’s use single-family home sales as an example:Don’t Be Fooled by Remarkable Real Estate Headlines | Simplifying The MarketAs the graph reveals, last spring’s buying market was anything but typical. Instead of sales increasing, they fell sharply as a result of stay-at-home orders that virtually shut the real estate industry down.

This spring’s real estate market will bounce back with more normal seasonal sales increases. The percentage increase in sales will be astronomical – not because sales have skyrocketed, but instead because they will be compared to last year’s low numbers.

Bottom Line

There are likely to be some sensational headlines about real estate over the coming months. However, don’t be fooled. The actual story is that the real estate market is finally back to normal.

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Planning to Move? You Can Still Secure a Low Mortgage Rate on Your Next Home

Planning to Move? You Can Still Secure a Low Mortgage Rate on Your Next Home | Simplifying The Market

This year, mortgage rates have started to slowly climb above recent record-breaking lows. Many homeowners planning to move may feel like they’ve missed the chance to score a great rate on their next mortgage. In reality, there’s still time to secure a rate far below the historic norm. Here’s why.

After creeping up for seven consecutive weeks, average mortgage rates have dropped more recently (See graph below). With rates taking a slight dip over the past two weeks at the same time the inventory of houses for sale is so low, homeowners today are sitting in the optimal seat to sell. What’s the advantage of selling your house now? Securing a low mortgage rate on your next home.Planning to Move? You Can Still Secure a Low Mortgage Rate on Your Next Home | Simplifying The MarketTo take advantage of today’s real estate market, experts are encouraging homeowners to act now before interest rates climb. Danielle Hale, Chief Economist at realtor.com, explains:

…mortgage rates slid for a second week … but we don’t expect rates to stay at this level for too long.”

Hale continues to say:

“For sellers, getting in early optimizes odds of a quick sale at a good price before there’s too much competition, but that means acting now … In this environment, sellers probably really can’t go wrong, and that’s especially true in the nation’s hottest housing markets where homes are selling quickly and getting the greatest number of viewers online.”

Most experts agree that rates will continue to trend upward. Sam Khater, Chief Economist at Freddie Mac, states:

Despite the pause in mortgage rates recently, we expect them to increase modestly for the remainder of this year.”

In addition, Freddie Mac recently released their Quarterly Forecast, which notes:

We forecast that mortgage rates will continue to rise through the end of next year. We estimate the 30-year fixed mortgage rate will average 3.4% in the fourth quarter of 2021, rising to 3.8% in the fourth quarter of 2022.” (See graph below):

Planning to Move? You Can Still Secure a Low Mortgage Rate on Your Next Home | Simplifying The MarketWhile buyers everywhere want to secure the lowest rate possible, it’s important to remember that today’s rates are still much lower than the historic norm. Odeta Kushi, Deputy Chief Economist at First American, emphasizes:

“While mortgage rates have trended up in recent months, they are still historically low, so relative to one year ago, housing actually is still more affordable and that’s really thanks to this low mortgage rate environment we find ourselves in.”

Bottom Line

If you’re thinking of moving, don’t miss the opportunity to score a great rate on your next home mortgage. Let’s connect today so you can get your house ready to sell and find your dream home while mortgage rates are still low.

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82,338 Great Reasons to Buy a Home Today

82,338 Great Reasons to Buy a Home Today | Simplifying The Market

The financial benefits of buying a home as compared to renting one are always up for debate. However, one element of the equation is often ignored – the ability to build wealth as a homeowner.

Most experts are calling for home prices to continue appreciating over the next several years. The most recent Home Price Expectation Survey, a survey of over one hundred economists, real estate experts, and investment and market strategists, expects home appreciation to increase as follows:

  • 2021: 6%
  • 2022: 4.5%
  • 2023: 4%
  • 2024: 3.6%
  • 2025: 3.5%

Using their annual projections, the graph below shows the equity build-up a purchaser could earn, using a $350,000 home as an example:82,338 Great Reasons to Buy a Home Today | Simplifying The MarketA homeowner could increase their net worth by over $80,000 in five years. That’s an average of $16,000 annually. That number should be in any equation determining the financial benefits of owning a home compared to renting.

Bottom Line

Homeowners are going to make a substantial amount of money in home equity over the next five years. If you’re ready to buy a home, let’s connect so you can enjoy this great benefit as well.