Posts by Jennifer MacLeod

August
9

By Evan Liddiard, director of federal tax policy for the National Association of REALTORS©

The pandemic has brought to a boil an issue that has simmered for years, affecting all Americans. Every week, the lament is louder–there just aren't enough homes for sale. The shortage creates frustration for those who work tirelessly to help people find suitable homes, who are unfortunately being priced out of the market. 

A study by the Rosen Consulting Group, commissioned by the National Association of REALTORS©, concludes that today's shortage is a result of decades of underbuilding in the nation's housing stock, creating an enormous demand-supply gap. The study suggests that filling the gap will "require a national commitment to build more housing of all types by expanding resources, addressing barriers to new development and making new housing construction an integral part" of the nation's infrastructure strategy for at least the next 10 to 20 years. The report's good news, however, is that such a response would unleash significant economic growth, create jobs and increase affordability. 

The study, "Housing is Critical Infrastructure: Social and Economic Benefits of Building More Housing," analyzes the shortage using two methods. The first compares the number of completed housing units over the past 20 years with the long-term average completions form 1968 to 2020. This measure shows a cumulative shortage of more than 5.5 million housing units over the past two decades, two million of which are single-family homes. The second approach compares housing production to household formation while considering the number of residences lost to destruction, demolition or obsolescence. This method suggests a gap of 6.8 million units. 

From an economic perspective, this vast underbuilding has cost the U.S. economy an estimated $4.4 trillion of econonic activity. Moreover, it has resulted in a rapidly aging housing infrastructure. Underbuilding has directly strained the for-sale housing market, taking it into crisis territory. From 1996 through 2016, the U.S. enjoyed an average monthly inventory of 2.5 million homes available for sale. Buy by January 2021, this level had plunged to 1 million homes–just 40% of the historical average and the lowest level since tracking began in 1999. And it is almost certainly worse today.

The lack of homes for sale has naturally driven up prices. From 2012 through 2019, housing affordability decreased in 45 states. The pandemic has exacerbated the problem, especially for millennials and communities of color.

Just as with rebuilding other types of infrastructure, closing the housing gap offers huge benefits. In fact, the study shows the economic multiplier effects of spending on new single-family home construction to be even larger than spending on highways. Building an additional 550,000 new homes annually, the rate at which we could close the gap in 10 years, would create 2.8 million jobs and add over $400 billion each year to the GDP. Even more important, a commitment to closing the gap would increase home affordability and put the American Dream of homeownership within the reach of millions more.

June
3

As COVID-related restrictions continue to ease and stimulus-spending increases, full-year 2021 real GDP growth expectations improved to 6.8%, including 9.1% annualized growth in the second quarter, according to the April 2021 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group.

While there was a weather-related slowdown in February, economic activity picked up rapidly from that point on. This acceleration is expected to continue through the second quarter before tapering in the second half of the year. Due to the unprecedented nature of last year's pandemic-induced slowdown, risks to this part of the forecasted recovery remain elevated. Uncertainty still revolves around consumers' willingness to tap into the increased savings many accumulated during the pandemic, as well as their comfort level in returning to pre-COVID activities once restrictions are lifted.

Other risks to the economy's positive trajectory include the widespread disruption in the supply chain, the pace of inflation, and both monetary and fiscal policy uncertainty.

In terms of housing, while demand is still high and most markets are booming, the ESR Group revised its annual home sales forecast slightly downward. This is due to the continued lack of inventory to meet demand, as well as a slightly higher outlook for mortgage rates. That said, home sales and purchase mortgage originations in 2021 are still expected to rise 6.2% and 14.5%, respectively, year-over-year. Given the continued supply-demand imbalance, home prices are forecast to rise as well—by 8% in 2021, which is up from the previously forecast 4.2%. The FHFA Home Price Index predicts home prices to then decelerate to 2.9% annualized in 2022.

May
17

By Mark Mathis, VP of Sales for Homes.com

With the real estate market experiencing surging prices, scant inventories and a backlog of new home construction, many consumers are wondering if what's gone up must come back down—in other words, are we headed for another housing market crash? Let's take a closer look.

Think Back to the Great Recession

The unforeseen housing market crash 15 years ago ignited a worldwide recession. Fueled by low interest rates, loose mortgage-lending standards and the nation's unshakeable faith in homeownership, home values rose at record rates year-after-year. When the housing bubble burst, roughly nine million families lost their homes to foreclosure or short sale between 2006 and 2014. Housing values plunged 30% or more, homeowners lost a collective $7 trillion and it took nearly a decade for most markets to recover. Even today, several real estate markets have not fully recovered.

With the robust market activity we've seen lately, could there be a market crash in the near future? The short answer is "not likely." Today's market book cannot be sustained completely, but a crash as serious as the one from 15 years ago is unlikely because of a few important factors.

Factor No. 1: More Stringent Lending Standards

Loose mortgage lending practices ultimately brought down some of the nation's largest banks and mortgage companies. The fallout forced Congress and federal regulators to make significant adjustments that have fundamentally changed how mortgage lending is regulated.

Since then, standards have been raised and the process of obtaining a mortgage is now more transparent. The "anyone can get one" loans of the past are illegal; now borrowers undergo stricter income, credit and asset checks. An entirely new regulatory agency, the Consumer Financial Protection Bureau, was created to enforce this new regulatory framework. Lenders who do not comply with these standards may face heavy penalties.

As a result, the housing finance marketplace is now more robust and safer than it was 15 years ago. Any dip in the housing market will be cushioned by these stricter regulations.

Factor No. 2: Pandemic Mortgage Forbearance

When the housing market crashed in 2007, the influx of foreclosures pumped housing supply into areas with falling prices and weak labor markets, while also preventing recently foreclosed borrowers from re-entering the market as buyers. According to the Federal Reserve, foreclosures during a time of high unemployment could depress prices, plunging homeowners across the country deeper into negative equity.

However, in the pandemic era, the effects of mass unemployment bear little resemblance to the Great Recession, thanks in large part to forbearance programs that have allowed homeowners to postpone their monthly mortgage payments without suffering penalties.

As of early March 2021, 2.6 million homeowners' mortgages were in such forbearance plans. As the pandemic economy has slowly recovered, many homeowners have resumed their employment, and thus their home payments. According to CoreLogic, by the end of 2020, overall mortgage delinquencies declined 5.8% due to the forbearance program. The share of mortgages 60 to 89 days past due declined to 0.5%, lower than 0.6% in December 2019.

Housing Market Crash

It's worth noting that serious delinquencies—defined as 90 days or more past due, including loans in foreclosure—increased when owners who owed large amounts left forbearance. By year end 2020, the serious delinquency rate was 3.9%, up from 1.2% in December 2019.

Factor No. 3: Most Homeowner's Cushion—Equity

Equity is the difference between the current market value of your home and the amount you owe on it. In other words, it's the portion of your home's value that you actually own. Equity can be an incentive to stay in your home longer; if prices rise—something we've seen almost universally across the country in recent months—your equity increases, too.

Why does this matter? Simply put, higher levels of equity cushion homeowners from default when home values fall.

Over the past decade, American homeowners have enjoyed housing stability and growth, building up large home equity reserves. In the third quarter of 2020, the average family with a mortgage had $194,000 in home equity, and the average homeowner gained approximately $26,300 in equity over the course of the year. In contrast, 2009 saw nearly a quarter of the nation's mortgaged homes valued for less than the amount their owners actually owed on those mortgages.

Factor No. 4: Price Growth Will Slow Down, but Continue

The sales boom followed the outbreak of the COVID-19 and surprised many real estate economists. Like most other business sectors, real estate was expected (if not required in many locations) to lock down. But by mid-April, sales were soaring as buyers, many of them millennials, took advantage of record-low mortgage interest rates. Through the remainder of 2020, rates remained below 3%, and existing home sales reached their highest level in 14 years.

March
22

The 2020 housing market was full of surprises. Despite a health pandemic impacting nearly all segments of everyday life, real estate was resilient. Realtor.com® recently released its 2021 housing forecast, predicting that inventory will make a slow and steady comeback, providing buyers with much-needed relief. However, increasing interest rates and prices will continue to pose a challenge on affordability throughout the year.

Here's the forecast breakdown for 2021:

  • Mortgage Rates: Up to 3.4 percent by year-end
  • Existing-Home Median Price Appreciation: 5.7 percent
  • Existing-Home Sales: 7.0 percent
  • Single-Family Home Housing Starts: 9 percent
  • Homeownership Rate: 65.9 percent

These are the key housing trends, according to realtor.com®:

  • Millennials continue to drive the market while Gen-Z become market players
  • Affordability becomes growing obstacle
  • Inventory starts slow road to recovery
  • Suburbs to shine if remote work stays around
There are a couple of elements that could impact these forecast trends, however. According to the report, if COVID-19 continues to bring lockdowns and quarantines, that could "put a dent in housing inventory and sales, slowing the market and putting increased pressure on buyers." But if a vaccine is rolled out quickly, home sales, prices and inventory could be stronger than predicted. Additionally, there's a chance of a double dip recession, according to the report, which could lead to less consumer spending and more broad impacts to businesses and economic growth.

"The 2021 housing market will be much more 'normal' than the wild swings we saw in 2020. Buyers may finally have a better selection of homes to choose from later in the year, but will face a renewed challenge of affordability as prices stay high and mortgage rates rise," said realtor.com® Chief Economist Danielle Hale. "With less cash and no home equity, millennial and Gen Z first-time buyers will be impacted the most by rising home prices and interest rates. While waiting until the fall or winter months of 2021 may mean more home options to choose from, buyers who can find a home to buy earlier in the year will likely see lower prices and mortgage rates."

Source: realtor.com®
February
2

Now more than ever, you want the color palette in your home to inspire tranquility and a sense of welcome—and perhaps a bit of the mischief, cheerfulness, or downright humor that speaks to your personality.

Designers and decorators suggest these tips for picking a perfect color palette:

Start from a focal point. Whether it's a color in a rug or patterned upholstery that you already have, or color in a large piece of artwork, pluck out the hue you love and use it as a base color choice.

Take a cue from your clothes. Or, since most people buy clothes in colors they love and that flatter them, begin to 'dress' an empty room starting with your favorite color.

Use a color wheel. Whichever method you choose, incorporate the hues on the color wheel closest to your chosen color for walls, floors, furniture pieces, and accents.

Go with grays.
 Today's trendiest shade, a neutral gray works in any style interior. Its chameleon-like quality pairs beautifully with pale pastels or with kicky colors like hot pink, blue or citrus shades.

Use the designer rule of 60-30-10. Decorate a space by dividing the colors into components of 60 percent of a dominant color (walls), 30 percent of a secondary color (upholstery), and 10 percent of an accent color (accessories.)

Think black. Try a small pop of black, say in a lampshade or vase, to clarify the colors in a room.

Think white. When stuck for an accent color, white is a good choice to help bring colors together and open up space.

Showcase your style. Make a room uniquely yours by choosing accent pieces—pillows, artwork, floral arrangements, even a jar of candy—in colors that people will immediately appreciate because it reflects who you are.

Source: Reprinted with permission from RIS Media.

March
3

Some homeowners decide to sell a house themselves, rather than getting help from a real estate agent. Buying a house that is listed as "for sale by owner" (FSBO) may have pros and cons.

What Is a "For Sale by Owner" Listing?

If a house is listed as "for sale by owner," that means the homeowner is selling it without assistance from a real estate agent. Owners of FSBO properties generally want to avoid paying a real estate agent's commission.

Pricing for FSBO Listings

When a seller works with an agent, the agent looks at the recent sales of comparable homes to set an asking price. A person who is not working with an agent will not have access to the same detailed data that agents do.

An agent can take an unbiased look at the characteristics of a house and neighborhood and the local real estate market to set a list price, but a seller's emotional connection to a home can affect their assessment of its value. A seller who's not working with an agent may set an unreasonably high asking price.

Problems That May Arise

A seller who doesn't understand how real estate transactions typically proceed may object to requests that are common and reasonable. For example, the seller generally pays commissions for both the seller's and buyer's agents. An owner who wants to make as much money as possible may refuse to pay your agent's fee.

If an inspection uncovers problems, the buyer may ask the seller to make repairs or to lower the asking price. A seller who doesn't understand that may be offended if you request repairs or a price reduction.

Talk To Your Agent

A home that's listed as "for sale by owner" can pose unique challenges and opportunities. Your experience may depend on an individual seller's motivation, understanding of the real estate market and willingness to negotiate. If you're interested in an FSBO property, discuss it with your agent.

Source: Reprinted with permission from RIS Media.

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