During Tuesday’s storm a tree came down on the roof of my house (fortunately the fall was cushioned and there was no damage to the house), but on Wednesday I wanted the tree removed before any further excitement. I contacted tree removal companies – and guess what? Yep, they were inundated with calls. So what happened to their prices do you think? Right again – they sky-rocketed, like Uber surge pricing on New Year’s Eve.
Both the tree removal and Uber pricing are examples of a simple economic law: that of supply and demand. In both cases, demand far exceeded supply and when that happens economic theory suggests prices rise. And they sure did on Wednesday!
Trees and real estate prices
What does this mean for real estate prices in 2017?
Well look at this chart, produced by the National Association of Realtors (NAR). Inventory has dropped year over year for 20 months in a row
A mismatch between supply and demand can occur either through too much demand or too little supply – think of how OPEC used to keep oil prices high by reducing production – i.e. reducing supply.
Now look at the chart above. The dotted line represents 6 months of supply – the level at which house prices are regarded as being in equilibrium between buyers and sellers. If there is more than 6 months of supply, equilibrium swings in favor of buyers who they have plenty of choices and so can determine prices. But when, as for the last few years, supply is less than 6 months, equilibrium swings in favor of sellers. So what happens to prices? They go up.
Nationally, according to the Federal Housing Finance Agency, home prices in the last 5 years have increased by 5%, 7%, 5%, 6% and 6% – pretty consistent and steady gains.
Should I wait for a better time to buy?
I don’t think the issue is one of timing as much as finding the right house, as I expect house prices to continue to rise (supply and demand) while mortgage rates are also likely to head higher as the year progresses.
A lot of buyers are hoping that there will be new inventory come the spring. That should indeed happen and when it does there is likely to be a lot of competition, which is why it is important for buyers to put themselves in the best position to be able to buy. And that means using a buyer agent to work on your behalf.
If you are looking to buy, I will contact you immediately when a house that meets your needs is available. In this market you need to have somebody looking after your interests
If you are planning to sell read Which broker should I choose to sell my house?
Please contact me on 617.834.8205 or [email protected] for a free market analysis and explanation of the outstanding marketing program I offer
Andrew Oliver is a Realtor with Harborside Sotheby’s International Realty. Each Office Is Independently Owned and Operated
@OliverReports
Just like our clocks this weekend in the majority of the country, the housing market will soon “spring forward!” Similar to tension in a spring, the lack of inventory available for sale in the market right now is what is holding back the market.*
Many potential sellers believe that waiting until Spring is in their best interest, and traditionally they would have been right.
Buyer demand has seasonality to it, which usually falls off in the winter months, especially in areas of the country impacted by arctic temperatures and conditions.
Demand for housing has remained strong as mortgage rates have remained near historic lows. (more…)
One of the cures for the low level of housing inventory throughout the country is a boost to new home construction. According to a recent survey conducted by the National Association of Home Builders (NAHB) and Wells Fargo, housing market confidence amongst builders reached an 11-year high last month.
Read Builder Confidence hits 11 year high for more details.
Are you thinking about selling? Read Which broker should I choose to sell my house? (more…)
President Obama is moving just two miles to this home in the Kalorama neighborhood of Washington:
A recent Homes for ex-Presidents article on realtor.com looks as the post-POTUS homes of several former presidents.
They all seem to do quite nicely. (more…)
Small business optimism remained flat leading up to Election Day and then rocketed higher as business owners expected much better conditions under new leadership in Washington, according to a special edition of the monthly NFIB Index of Small Business Optimism.
“The November index was basically unchanged from October’s reading up to the point of the election and then rose dramatically after the results of the election were known.”
The full November index, calculated as it is every month, improved 3.5 points to 98.4, which is just above the 42-year average and only the third time since 2007 that it has broken into above average territory.
Home buyers in Essex County and Suffolk County received a major boost this week with the announcement that the limit for conforming mortgages was being increased by 18% from $523,250 to $598,000.
For a buyer putting down 20% the price of a home that can be financed conventionally – meaning that it can be sold to Fannie Mae or Freddie Mac – jumps by almost $100,000, from $654,063 to $747,500.
This table shows the trend in the last few years: (more…)
According to the FHFA housing prices in Q3 2016 were up 6.1% compared with a year ago.
Click on this FHFA Q3 report video for a short video update on the housing market. (more…)
As anticipated in my Is this the end of ultra cheap mortgages? post last week, the rate on the 30 year Fixed Rate Mortgage (FRM) jumped to 3.94% this week, according to the latest Freddie Mac weekly survey. Before we all panic, let’s consider a few facts.
Mortgage rates are historically extremely low
Look at the chart below. Mortgage rates fell below 5% for the first time ever only in 2010. They averaged a little below 4% in 3 of the last 4 years, but even after the jump since the election rates are merely back to where they were a year ago and remain close to all-time lows. And during the boom years of 2004-2006 the average mortgage rates were 6.84%, 6.87% and 6.41%.
Source: Freddie Mac
There is no clear correlation between mortgage rates and home prices
Data for the last 10 years for national home prices starts as the housing boom was already over, but the chart below shows how home prices tumbled from 2007 to 2012 at a time when mortgage rates were also falling. Once the market turned, the spike in mortgage rates in 2013 did not stop the increase in home prices.
Source: Freddie Mac, S&P CoreLogic Case-Shiller
The next chart shows in a little more detail what has happened in the last 4 years. All I can say is that I see no direct correlation in the chart above or the one below between home prices and mortgage rates. That is not to say that mortgage rates do not have an impact on home prices, just that they are not the only factor.
Source: Freddie Mac, S&P CoreLogic Case-Shiller
Is inflation going to rise?
Since the Great Recession, central banks have been pumping cash into world economies in an attempt to stave off deflation – falling prices. Why are falling prices so bad? Because some consumers will defer purchases in the belief that prices will be lower in the future. Since by some estimates consumer expenditure accounts for 70% of the economy, any concerted move by consumers to defer purchases would have a major negative effect on the economy.
So is inflation going to rise now that the Republicans control Congress and the White House? Probably, and that is the bet markets are making, causing the yield on the 10 year Treasury Note (10T) to jump nearly 0.5% in less than two weeks. And mortgage rates follow closely the yield on 10T.
Is renewed Inflation bad news for the economy?
As the Wall Street Journal put it: “The world should welcome higher long-term bond yields insofar as they signal a brighter outlook for economic growth and a return to moderate inflation after years of fear about falling consumer prices. Central banks have been trying hard—especially in Europe and Japan, without much success—to drag inflation higher. The long run of low rates also has battered banks, pension funds and insurance companies.”
Higher economic growth, the ending of the fear of deflation, relief for financial institutions – there’s a lot to like in moderate inflation – the key, of course, being moderate.
How does inflation affect real estate markets?
One of the key aspects of borrowing money in an inflationary environment is that the asset purchased will appreciate, while the loan will be paid back in depreciated dollars. The incentive, therefore, is to buy now before prices rise – the opposite to the concern in a time of deflation.
Will home prices continue to rise?
The chart below shows the growth in national home prices over the last 40 years. My reading of this is that we have now recovered from the sub-prime boom and bust cycle and that prices are likely to continue to grow modestly over time.
Source: Federal Reserve St. Louis; S&P CoreLogic Case-Shiller
If you are considering selling your home please contact me on 617.834.8205 or [email protected] for a free market analysis and explanation of the outstanding marketing program I offer.
Not sure which broker to use to sell your home? Read Which broker should I choose to sell my house?
If you are looking to buy, I will contact you immediately when a house that meets your needs is available. In this market you need to have somebody looking after your interests.
Andrew Oliver is a Realtor with Harborside Sotheby’s International Realty. Each Office Is Independently Owned and Operated
@OliverReports
As I write a blog on real estate, that will be my sole focus in commenting on the outcome of the Election.
The bull case
The removal of a lot of strangling regulations and the end of gridlock in Congress will produce stronger economic growth. Major infrastructure spending will boost jobs and wages at the lower end, while lower corporate tax rates and lower personal tax rates will produce increased personal wealth. Interest rates will rise, reflecting the stronger economy, and the demand for housing will increase. Greater wealth and confidence will provide a boost to the higher end of the market.
The bear case
The next President will, with the support of Congress, implement all the campaign “promises”, in particular those on trade protectionism, which would lead to a major recession. Interest rates will fall and the housing market will slump.
My view
Campaigning and governing are vastly different endeavours, which is why I wrote “promises” in the last paragraph. Since I am an optimist by nature, I find the bull case more plausible than the bear case.
For comment on the outlook for mortgage rates read Is this the end of ultra low mortgage rates?
If you are considering selling your home please contact me on 617.834.8205 or [email protected] for a free market analysis and explanation of the outstanding marketing program I offer.
Not sure which broker to use to sell your home? Read Which broker should I choose to sell my house?
If you are looking to buy, I will contact you immediately when a house that meets your needs is available. In this market you need to have somebody looking after your interests.
Andrew Oliver is a Realtor with Harborside Sotheby’s International Realty. Each Office Is Independently Owned and Operated
@OliverReports
One of the puzzles of the housing market has been why there are so few houses available for sale. Many reasons have been proffered: buyers reluctant to trade up, impact of student loan payments on the ability to obtain a mortgage, boomers holding off selling while they recover from the Great Recession, low levels of new home construction, etc.
A new report Many starter-SFH homes have shifted to rentals from Fannie Mae reveals another reason: that nationally the stock of owner-occupied starter homes declined by more than 1 million units between 2005 (roughly the peak of the housing boom) and 2013 (the most recent year for which data are available), whereas the inventory of renter-occupied starter homes rose by approximately 2 million units during the same period (see chart). Starter homes – defined as SFHs with less than 2,000 sf of floor area – accounted for two-thirds of the growth in all single-family detached rentals during the period. (more…)
Sometimes I think headline writers are deliberately trying to convey a false impression.
Take this will home price appreciation fall? article in the Daily Dose. Ok be honest, if you read this headline quickly, would you think home prices were going up or falling?
or 
(more…)
Back in June I reported that the Playboy Mansion, complete with private zoo and Hugh Hefner in residence, had been listed for sale for $200 million. It has now been confirmed that the property has been sold to next-door neighbor Daren Metropoulos, a private equity investor, for a mere $100 million. Terms of the sale allow Mr. Hefner to stay in the property for as long as he desires, so I suppose one could say that he has taken out a reverse mortgage on his estate.
Last month, when commenting on the National Association of Realtors (NAR) report on existing homes sales which generated headlines relating to a sales “plunge” I posted Home sales plunge – or do they?, referring to the fact that delays in closings occurred in November after the implementation of new mortgage disclosure rules, the effect of which was to push some sales into December.
So what happened in December? Existing-home sales “soared 14.7 percent” to a seasonally adjusted annual rate of 5.46 million in December from 4.76 million in November.
What really happened?
Let’s ignore the fluctuations late in the year and look at 2015 as a whole:
– sales of SFHs were up 7% YOY and the median price increased 8%
– sales of condos increased 12% YOY and the median price was up 5% (more…)
A recent article headlined a home sales plunge in November, but as always it pays to look into the numbers in more detail.
The National Association of Realtors (NAR) used a more moderate headline in its Existing home sales suffer setback in November report.
So what actually happened in November? (more…)
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