Is the Real Estate Market Getting Back to Normal?

Is the Real Estate Market Finally Getting Back to Normal?

The housing market has been anything but normal for the last eleven years. In a normal real estate market, home prices appreciate 3.7% annually. Below, however, are the price swings since 2007 according to the latest Home Price Expectation Survey:

After the bubble burst in June 2007, values depreciated 6.1% annually until February 2012. From March 2012 to today, the market has been recovering with values appreciating 6.2% annually.

These wild swings in values were caused by abnormal ratios between the available supply of inventory and buyer demand in the market. In a normal market, there would be a 6-month supply of housing inventory.

When the market hit its peak in 2007, homeowners and builders were trying to take advantage of a market that was fueled by an “irrational exuberance.”

Inventory levels grew to 7+ months. With that many homes available for sale, there weren’t enough buyers to satisfy the number of homeowners/builders trying to sell, so prices began to fall.

Then, foreclosures came to market. We eventually hit 11 months inventory which caused prices to crash until early 2012. By that time, inventory levels had fallen to 6.2 months and the market began its recovery.

Over the last five years, inventory levels have remained well below the 6-month supply needed for prices to continue to level off. As a result, home prices have increased over that time at percentages well above the appreciation levels seen in a more normal market. 

That was the past. What about the future?

We currently have about 4.5-months inventory. This means prices should continue to appreciate at above-normal levels which most experts believe will happen for the next year. However, two things have just occurred that are pointing to the fact that we may be returning to a more normal market.

1. Listing Supply is Increasing

Both existing and new construction inventory is on the rise. The latest Existing Home Sales Report from the National Association of Realtors revealed that inventory has increased over the last two months after thirty-seven consecutive months of declining inventory. At the same time, building permits are also increasing which means more new construction is about to come to market. 

2. Buyer Demand is Softening

Ivy Zelman, who is widely respected as an industry expert, reported in her latest ‘Z’ Report:

 “While we continue to expect a resumption of growth in resale transactions on the back of easing inventory in 2019 and 2020, our real-time view into the market through our Real Estate Broker Survey does suggest that buyers have grown more discerning of late and a level of “pause” has taken hold in many large housing markets.

Indicative of this, our broker contacts rated buyer demand at 69 on a 0- 100 scale, still above average but down from 74 last year and representing the largest year-over-year decline in the two-year history of our survey.”

With supply increasing and demand waning, we may soon be back to a more normal real estate market. We will no longer be in a buyers’ market (like 2007-February 2012) or a sellers’ market (like March 2012- Today).

Prices won’t appreciate at the levels we’ve seen recently, nor will they depreciate. It will be a balanced market where prices remain steady, where buyers will be better able to afford a home, and where sellers will more easily be able to move-up or move-down to a home that better suits their current lifestyles.

Bottom Line

Returning to a normal market is a good thing. However, after the zaniness of the last eleven years, it might feel strange. If you are going 85 miles per hour on a road with a 60 MPH speed limit and you see a police car ahead, you’re going to slow down quickly. But, after going 85 MPH, 60 MPH will feel like you’re crawling. It is the normal speed limit, yet, it will feel strange.

That’s what is about to happen in real estate. The housing market is not falling apart. We are just returning to a more normal market which, in the long run, will be much healthier for you whether you are a buyer or a seller.

 

Related article: This month in Real Estate: September 2018

Featured Home: 8712 GLENCREST LANE in Dallas

The ultimate Dallas lifestyle awaits at this modern masterpiece in Bluffview, where stunning design meets high-end finishes and dramatic features. Heavy iron-glass front doors invite you to the two-story entry and floating staircase. Peer around the alluring see-thru fireplace, perfectly dividing the expansive great room. Enjoy a quiet dinner or entertain big in the gourmet kitchen with large island, custom cabinetry, white pearl quartzite, high-end appliances and dining room with a view. Indulge in the resort-worthy master suite with a tranquil bath, stand-alone tub and dual closets.

Reflecting the talents of Carpenter+Lueckemeyer custom homes, this softer contemporary creates the perfect balance of modern open lifestyle and intimate spaces with solid white oak floors and dynamic picture windows at nearly every turn. The extra bedroom downstairs is perfect as an office or guest room, with four bedrooms and an oversized game-media room, wired for entertainment, on the second level. Walk-in pantry with work surface, oversized laundry-mudroom with built-in desk, and custom closets are additional highlights.

Large sliders entice you to extend the open living space to the sheltered patio and beautifully landscaped backyard. Or hit the town, where restaurants, galleries, Dallas nightlife, and shops are minutes away.

FEATURED HOME: 8712 Glencrest Lane in Dallas Texas

  • 5,065 SF
  • Built in 2017
  • Bedrooms: 5
  • Baths: 5.0
  • Liv Areas: 2
  • Fireplaces: 1
  • Dining Areas: 2
  • Pool: No
  • Sec Sys: Yes
  • Garage Spaces: 2 – 22 x 21

 

  • Living Room: 21 x 16 / 1
  • Kitchen: 13 x 21 / 1 – Built-in Cabinets, Eat-in Kitchen, Island
  • Living Room: 23 x 18 / 1
  • Dining Room: 17 x 14 / 1
  • Study/Den: 14 x 13 / 1
  • Game Room: 19 x 22 / 2
  • Master Bedroom: 17 x 17 / 1 – Custom Closet System, Dual Sinks, Jetted Tub, Separate Shower, Separate Vanities, Walk-in Closets
  • Bedroom: 14 x 14 / 2  – Custom Closet System, Walk-in Closets
  • Bedroom: 14 x 14 / 2  – Custom Closet System, Walk-in Closets
  • Bedroom: 13 x 13 / 2  – Custom Closet System, Walk-in Closets
  • Bedroom: 13 x 13 / 2
  • Full Bath: 8 x 8 / 2  – Garden Tub
  • Full Bath: 10 x 6 / 2  – Built-in Cabinets, Separate Shower
  • Full Bath: 10 x 7 / 1
  • Full Bath: 8 x 8 / 2
  • Utility Room: 10 x 8 / 1  – Separate Utility Room, Sink in Utility

This Month in Real Estate: September 2018

Check out the national numbers for September!

The Indigo Skye Group is happy to bring you the Real Estate News update for September 2018. Each month we share on our blog and social media networks the latest information and market insights we have available. In this update you get a birds-eye view of home sales, home prices, inventory and the most popular mortgage types and rates.

Here are just a few of the national real estate numbers we’re tracking for you right now. Click to the image below to watch the video.

HOME SALES

According to the National Association of REALTORS®, existing-home sales subsided for the fourth straight month in July to their slowest pace in over two years. In many areas, potential buyers may be priced out or finding a limited amount of available homes for sale in their desired neighborhood.

homes sales

HOME PRICES

home prices

The median home price increased to $269,600 in July, which was down 1.5 percent from June and up 4.5 percent from July of last year. The median home price has increased by approximately $11,500 in the past year alone.

home prices

INVENTORY – MONTH’S SUPPLY

There was a 4.3-month supply of housing inventory in July, which has been stable since June. The total number of available homes for sale has increased by 2.4 percent compared to July of last year.

home inventory

MORTGAGE RATES

Thanks for stopping by the Indigo Skye Group blog! Be sure to check the blog weekly for more informational and educational articles about real estate.

NAR Reports Show It’s A Great Time to Sell!

It’s a great time to SELL!

We all realize that the best time to sell anything is when the demand for that item is high and the supply of that item is limited. The last two major reports issued by the National Association of Realtors (NAR) revealed information that suggests that right now continues to be a great time to sell your house.

Let’s look at the data covered in the latest Pending Home Sales Report and Existing Home Sales Report.

THE PENDING HOME SALES REPORT

The report announced that pending home sales (homes going into contract) are down 2.3% from last year and have continued to fall on an annual basis for seven straight months.

Lawrence Yun, NAR’s Chief Economist, had this to say:

“The reason sales are falling off last year’s pace is that multiple years of inadequate supply in markets with strong job growth have finally driven up home prices to a point where an increasing number of prospective buyers are unable to afford it.”

Takeaway: Demand for housing is strong and will continue to grow in 2019. Without an influx of new listings for sale, pending home sales will continue to decline. Listing now means you will be able to take advantage of the demand currently in the market.

THE EXISTING HOME SALES REPORT

The most important data point revealed in the report was not sales-based, but was instead the inventory of homes for sale (supply). The report explained:

  • Total housing inventory decreased 0.7% to 5.34 million homes available for sale in July
  • This represents a 4.3-month supply at the current sales pace
  • Sales are now 1.5% below a year ago

There were two more interesting comments made by Yun in the report:

“Led by a notable decrease in closings in the Northeast, existing home sales trailed off again last month, sliding to their slowest pace since February 2016 at 5.21 million.”

In real estate, there is a guideline that often applies: When there is less than a 6-month supply of inventory available, we are in a seller’s market and we will see appreciation; between 6-7 months is a neutral market, where prices will increase at the rate of inflation; and more than a 7-month supply means we are in a buyer’s market and should expect depreciation in home values. As Yun notes, we are (and will remain) in a seller’s market and prices will continue to increase unless more listings come to the market.

“Listings continue to go under contract in under a month, which highlights the feedback from Realtors® that buyers are swiftly snatching up moderately-priced properties. Existing supply is still not at a healthy level, and new home construction is not keeping up to meet demand.”

Takeaway: Inventory of homes for sale is still well below the 6-month supply needed for a normal market. Prices will continue to rise if a sizable supply does not enter the market.

Bottom Line

If you are going to sell, now may be the time to take advantage of the ready, willing, and able buyers that are still out looking for your house.

 

Related article: Why we are not heading toward a housing bubble.

Homeownership is a Dominant Gene

There are many things that factor into the decision to buy a home. New research from the Urban Institute suggests that one of those things may be inherited from your parents.

Children are More Likely to Own a Home if Their Parents Did

According to an analysis of millennial homeowners, the homeownership rate of those whose parents rent their homes is 14.4%, while the rate amongst millennials whose parents are homeowners is 31.7%!

“A young adult’s odds of homeownership are highly correlated with their parent’s homeownership.

Without controlling for such factors as age, income, education, marital status, and race or ethnicity, there is a 17 percentage-point gap between the homeownership rate for young adults whose parents are renters and young adults whose parents are homeowners.”

The study also revealed that as a parent’s net worth increases, so does the likelihood that their child will own a home. These two findings are not surprising as we know from the Survey of Consumer Finances that a homeowner’s net worth is 44x greater than that of a renter.

So, a parent who is a homeowner will have more wealth which will, in turn, increase the chances that their children will own their own homes in the future.

Below is a breakdown of the relationship between a parent’s wealth and a millennial’s likelihood to own a home.

The Good News: The high homeownership rate amongst baby boomers (likely the parents of many millennials) is a great sign that millennials will want to own homes. We are already seeing this in the high-demand environment that we are currently experiencing in the starter and trade-up markets.

Bottom Line

Even though millennials took longer than many of the generations before them to start home searches of their own, the data shows that they will not be waiting much longer!