Fact or Myth: what’s really happening in the Real Estate Recovery?
This week we have a great article by Tara Nelson of Trulia entitled, 5
Real Estate Recovery Myths. There are so many different opinions on the
Real Estate Recovery and where it’s headed, especially here in the Silicon
Valley. Why some of it is accurate and some not, mostly it can just be
overwhelming for Sellers and Buyers. Here is a great breakdown of what’s
currently happening!
Myth #1- It’s recovering too fast: “According to the Standard & Poor’s/Case-Shiller home-price index, American home prices increased an average of 10.6 percent between March 2012 and March 2013. Twelve of the 20 major metro areas tracked had year-over-year median home price increases in the double-digits. The list was topped by Phoenix, San Francisco and Las Vegas, all of which saw 20 percent or greater annual home price increases.
That seems crazy fast, to some. So crazy, in fact, that it’s created the fear that the current market’s exuberance will re-create the steep incline and decline in home values that we all remember not-so-fondly from the last boom-bust cycle. Here’s the deal: markets have cycles, period. Here’s the other thing: the data can be a bit misleading.
When an area’s home values have been very, very depressed for long, it simply doesn’t take that vast of an uptick to generate double-digit percentage point increases. When you look at the top five recovery markets, according to the Case-Shiller, four of them: Phoenix, Las Vegas, Miami and Tampa – ranked among the hardest hit markets in the foreclosure crisis and resulting downturn. (San Francisco was the anomaly.)”
Myth #2- Investors are driving demand: ”People who don’t plan to live in the homes they’re buying were responsible for about 20% of May home sales. But this number is actually on a downward path – investors were responsible for 22% of home sales in April, and investor activity should continue to decline as prices increase, putting a cap on the profits investors can realize. First-time buyers are responsible for 36% of current buyer activity and repeat homeowners for over 43%.”
Myth #3- Sellers are stuck: ”This time, let’s start with what’s true. Many, many sellers in hot markets are in the midst of an exasperating Catch-22: they can finally sell their homes, which have been underwater for years. But now they struggle to buy, amidst the multiple offer mania – some report having to make offers on dozens of homes, or even having to rent a place until they can buy one.
As I see it, sellers aren’t stuck as much as they are being forced into being strategic about sequencing their transactions and setting up their deal points. Now, they have the option to pull cash out to buy first, the option to refinance and stay put, and the option to sell – period. So, if you’re selling in a super-hot market, work with your agent to put a strategy in place. Consider buying first, if you have the means or can get them. Or list your home with a Seller’s Contingency or a rent-back agreement (where your home’s buyer rents it back to you for a short time), to buy yourself some extra time to score a new place.”
Myth #4- Rates are through the roof: ”Have mortgage interest rates gone up? Yes. Is the Fed signaling they intend to raise rates, too? Yes - in 2015. Last week’s reported 30 year mortgage rates were 3.94 percent, and 15-year rates were right around 3%. Given that the record low rates clocked in at 3.31 (30-year) and 2.62 (15-year), even today’s higher rates are not worth your worry.”
Myth #5- Foreclosures are a thing of the past: ”While we are seeing a steep decline in the number of newly foreclosured homes, we can expect to have a higher-than-average number of foreclosed homes – REOs – on the market for some years to come. This so-called “shadow inventory” had declined over 10% nationwide between January 2012 and January 2013. And with the uptick in demand, we should continue to see this so-called “shadow inventory” of homes decline as banks take the opportunity to get these homes off their books.”
Myth #1- It’s recovering too fast: “According to the Standard & Poor’s/Case-Shiller home-price index, American home prices increased an average of 10.6 percent between March 2012 and March 2013. Twelve of the 20 major metro areas tracked had year-over-year median home price increases in the double-digits. The list was topped by Phoenix, San Francisco and Las Vegas, all of which saw 20 percent or greater annual home price increases.
That seems crazy fast, to some. So crazy, in fact, that it’s created the fear that the current market’s exuberance will re-create the steep incline and decline in home values that we all remember not-so-fondly from the last boom-bust cycle. Here’s the deal: markets have cycles, period. Here’s the other thing: the data can be a bit misleading.
When an area’s home values have been very, very depressed for long, it simply doesn’t take that vast of an uptick to generate double-digit percentage point increases. When you look at the top five recovery markets, according to the Case-Shiller, four of them: Phoenix, Las Vegas, Miami and Tampa – ranked among the hardest hit markets in the foreclosure crisis and resulting downturn. (San Francisco was the anomaly.)”
Myth #2- Investors are driving demand: ”People who don’t plan to live in the homes they’re buying were responsible for about 20% of May home sales. But this number is actually on a downward path – investors were responsible for 22% of home sales in April, and investor activity should continue to decline as prices increase, putting a cap on the profits investors can realize. First-time buyers are responsible for 36% of current buyer activity and repeat homeowners for over 43%.”
Myth #3- Sellers are stuck: ”This time, let’s start with what’s true. Many, many sellers in hot markets are in the midst of an exasperating Catch-22: they can finally sell their homes, which have been underwater for years. But now they struggle to buy, amidst the multiple offer mania – some report having to make offers on dozens of homes, or even having to rent a place until they can buy one.
As I see it, sellers aren’t stuck as much as they are being forced into being strategic about sequencing their transactions and setting up their deal points. Now, they have the option to pull cash out to buy first, the option to refinance and stay put, and the option to sell – period. So, if you’re selling in a super-hot market, work with your agent to put a strategy in place. Consider buying first, if you have the means or can get them. Or list your home with a Seller’s Contingency or a rent-back agreement (where your home’s buyer rents it back to you for a short time), to buy yourself some extra time to score a new place.”
Myth #4- Rates are through the roof: ”Have mortgage interest rates gone up? Yes. Is the Fed signaling they intend to raise rates, too? Yes - in 2015. Last week’s reported 30 year mortgage rates were 3.94 percent, and 15-year rates were right around 3%. Given that the record low rates clocked in at 3.31 (30-year) and 2.62 (15-year), even today’s higher rates are not worth your worry.”
Myth #5- Foreclosures are a thing of the past: ”While we are seeing a steep decline in the number of newly foreclosured homes, we can expect to have a higher-than-average number of foreclosed homes – REOs – on the market for some years to come. This so-called “shadow inventory” had declined over 10% nationwide between January 2012 and January 2013. And with the uptick in demand, we should continue to see this so-called “shadow inventory” of homes decline as banks take the opportunity to get these homes off their books.”
This blog is courtesy of The Dawn Thomas Team who is an
award-winning Real Estate Agent team at Intero Real Estate Services in Los Altos
650-701-7822. We help nice people with selling and buying homes in the greater
Silicon Valley and Beyond!
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