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      Blog :: 04-2018

      Why Home Prices Are Increasing

       

      Why Home Prices Are Increasing | MyKCM

      There are many unsubstantiated theories as to why home values are continuing to increase. From those who are worried that lending standards are again becoming too lenient (data shows this is untrue), to those who are concerned that prices are again approaching boom peaks because of “irrational exuberance” (this is also untrue as prices are not at peak levels when they are adjusted for inflation), there seems to be no shortage of opinion.

      However, the increase in prices is easily explained by the theory of supply & demand. Whenever there is a limited supply of an item that is in high demand, prices increase.

      It is that simple. In real estate, it takes a six-month supply of existing salable inventory to maintain pricing stability. In most housing markets, anything less than six months will cause home values to appreciate and anything more than seven months will cause prices to depreciate (see chart below).

      Why Home Prices Are Increasing | MyKCM

      According to the Existing Home Sales Report from the National Association of Realtors (NAR), the monthly inventory of homes for sale has been below six months for the last five years (see chart below).

      Why Home Prices Are Increasing | MyKCM

      Bottom Line

      If buyer demand continues to outpace the current supply of existing homes for sale, prices will continue to appreciate. Nothing nefarious is taking place. It is simply the theory of supply & demand working as it should.

      What to Expect From Your Home Inspection

      What to Expect From Your Home Inspection | MyKCM

      So you made an offer, it was accepted, and now your next task is to have the home inspected prior to closing. More often than not, your agent may have made your offer contingent on a clean home inspection.

      This contingency allows you to renegotiate the price paid for the home, ask the sellers to cover repairs, or even, in some cases, walk away. Your agent can advise you on the best course of action once the report is filed.

      How to Choose an Inspector

      Your agent will most likely have a short list of inspectors that they have worked with in the past that they can recommend to you. Realtor.com suggests that you consider the following 5 areas when choosing the right home inspector for you:

      1. Qualifications – find out what’s included in your inspection & if the age or location of your home may warrant specific certifications or specialties.
      2. Sample Reports – ask for a sample inspection report so you can review how thoroughly they will be inspecting your dream home. The more detailed the report, the better in most cases.
      3. References – do your homework – ask for phone numbers and names of past clients that you can call to ask about their experience.
      4. Memberships – Not all inspectors belong to a national or state association of home inspectors, and membership in one of these groups should not be the only way to evaluate your choice. Membership in one of these organizations often means that there is continued training and education provided.
      5. Errors & Omission Insurance – Find out what the liability of the inspector or inspection company is once the inspection is over. The inspector is only human after all, and it is possible that they might miss something they should have seen.

      Ask your inspector if it’s ok for you to tag along during the inspection, that way they can point out anything that should be addressed or fixed.

      Don’t be surprised to see your inspector climbing on the roof, crawling around in the attic, and on the floors. The job of the inspector is to protect your investment and find any issues with the home, including but not limited to: the roof, plumbing, electrical components, appliances, heating & air conditioning systems, ventilation, windows, the fireplace & chimney, the foundation and so much more!

      Bottom Line

      They say ‘ignorance is bliss,’ but not when investing your hard-earned money in a home of your own. Work with a professional you can trust to give you the most information possible about your new home so that you can make the most educated decision about your purchase.

      Thinking of Selling Your Home? Why You Need A Pro in Your Corner

      Thinking of Selling Your Home? Why You Need A Pro in Your Corner | MyKCM

      With home prices on the rise and buyer demand strong, some sellers may be tempted to try and sell their homes on their own (FSBO) without using the services of a real estate professional.

      Real estate agents are trained and experienced in negotiation and, in most cases, the seller is not. Sellers must realize that their ability to negotiate will determine whether or not they get the best deal for themselves and their families.

      Here is a list of some of the people with whom the seller must be prepared to negotiate if they decide to FSBO:

      • The buyer who wants the best deal possible
      • The buyer’s agent who solely represents the best interest of the buyer
      • The buyer’s attorney (in some parts of the country)
      • The home inspection companies, which work for the buyer and will almost always find some problems with the house
      • The termite company if there are challenges
      • The buyer’s lender if the structure of the mortgage requires the sellers’ participation
      • The appraiser if there is a question of value
      • The title company if there are challenges with certificates of occupancy (CO) or other permits
      • The town or municipality if you need to get the CO permits mentioned above
      • The buyer’s buyer in case there are challenges with the house your buyer is selling
      • Your bank in the case of a short sale

      Bottom Line

      The percentage of sellers who have hired real estate agents to sell their homes has increased steadily over the last 20 years. Let’s get together and discuss all we can do to make the process easier for you. 617-901-4500.

      Buying a Home Is Cheaper Than Renting in the Majority of the US

      Buying a Home Is Cheaper Than Renting in the Majority of the US | MyKCM

      The results of the 2018 Rental Affordability Report from ATTOM show that buying a median-priced home is more affordable than renting a three-bedroom property in 54% of U.S. counties analyzed for the report.

      The updated numbers show that renting a three-bedroom property in the United States requires an average of 38.8% of income.

      The least affordable market for renting was Marin County, CA, just over the Golden Gate Bridge from San Francisco, where renters spend a staggering 79.5% of average wages on rent, while the most affordable market was Madison County, AL where 22.3% of average wages went to rent.

      Other interesting findings in the report include:

      • Average rent rose faster than income in 60% of counties
      • Average rent rose faster than median home prices in 41% of counties
      • While median home prices rose faster than average rents in 58% of counties

      Bottom Line

      Buying a home makes sense socially and financially. If you are one of the many renters out there who would like to evaluate your ability to buy this year, let’s get together to find your dream home.

      How Much Do You Need to Make to Buy a Home in Your State?

      How Much Do You Need to Make to Buy a Home in Your State? | MyKCM

      It’s no mystery that cost of living varies drastically depending on where you live, so a new study by GOBankingRates set out to find out what minimum salary you would need to make in order to buy a median-priced home in each of the 50 states, and Washington, D.C.

      States in the Midwest came out on top as most affordable, requiring the smallest salaries in order to buy a median-priced home. States with large metropolitan areas saw a bump in the average salary needed to buy with California, Washington, D.C., and Hawaii edging out all others with the highest salaries required.

      Below is a map with the full results of the study:

      How Much Do You Need to Make to Buy a Home in Your State? | MyKCM

      GoBankingRates gave this advice to anyone considering a home purchase,

      “Before you buy a home, it’s important to find out if you can afford the monthly mortgage payment. To do this, some financial experts recommend your housing costs — primarily your mortgage payments — shouldn’t consume more than 30 percent of your monthly income.”

      As we recently reported, research from Zillow shows that historically, Americans had spent 21% of their income on owning a median-priced home. The latest data from the fourth quarter of 2017 shows that the percentage of income needed today is only 15.7%!

      Bottom Line

      If you are considering buying a home, whether it’s your first time or your fifth time, let’s get together to evaluate your ability to do so in today’s market!

      The COST of Your Next Home Will Be LESS Than Your Parents' Home Was

      There is no doubt that the price of a home in most regions of the country is greater now than at any time in history. However, when we look at the cost of a home, it is cheaper to own today than it has been historically.

      The Difference Between PRICE and COST

      The price of a home is the dollar amount you and the seller agree to at the time of purchase. The cost of a home is the monthly expense you pay for your mortgage payment.

      To accurately compare costs in different time periods, we must look at home prices, mortgage rates, and wages during each period. Home prices were less expensive years ago, but paychecks were also smaller and mortgage rates were much higher (the average mortgage interest rate in 1988 was 10.34%).

      The best way to measure the COST of a home is to determine what percentage of income is necessary to buy a home at the time. That would take into account the price of the home, the mortgage interest rate and wages at the time.

      Zillow just released research that examined home costs using this formula. The research compares the historic percentage of income necessary to afford a mortgage to the percentage needed today. It also revealed the cost if mortgage rates continue to rise as experts are predicting. Here is a graph of their findings*:

      The COST of Your Next Home Will Be LESS Than Your Parents' Home Was | MyKCM

      Rates would need to jump to 7% in order for the percentage of necessary income to be greater than historic norms.

      Bottom Line

      Whether you are a homeowner considering selling your current house and moving up to the home of your dreams, or a first-time buyer trying to purchase your first home, it’s a great time to move forward.

      *Assumptions in the Zillow report: Buyer puts 20% down, takes out a conforming, 30-year fixed-rate mortgage at rates prevailing at the time, earns the median household income, and is buying a median-valued home.

      US Housing Market Still In ‘Buy Territory'!

      US Housing Market Still In 'Buy Territory'! | MyKCM

      According to the Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index, the U.S. housing market has continued to move deeper into buy territory, supporting the belief that housing markets across the country remain a sound investment.

      The BH&J Index is a quarterly report that attempts to answer the question:

      In today’s housing market, is it better to rent or buy a home?

      The index examines the entire US housing market and then isolates 23 major cities for comparison. The researchers “measure the relationship between purchasing property and building wealth through a buildup in equity versus renting a comparable property and investing in a portfolio of stocks and bonds.” 

      While 13 of the 23 metropolitan markets examined moved further into buy territory, markets like Dallas, Denver, and Houston are currently deep into rent territory. Due to a lack of inventory, the home prices in these areas have increased by 6.7%6.3%, and 5.3%  respectively from a year ago.

      According to Eli Beracha, Ph.D., Co-Creator of the index, home prices will begin to return to more normal levels.

      Our data indicates that prices are above their 40-year trend but not significantly so as they were in 2007. Rather than a crash, I anticipate slower growth in prices accompanied by longer marketing times for sellers and increasing inventories, which should bring prices back in conjunction with their 40-year trend.”

      Bottom Line

      The majority of the country is strongly in buy territory. Buying a home makes sense socially and financially, as rents are predicted to increase substantially in the next year. Protect yourself from rising rents by locking in your housing cost with a mortgage payment now. 

      House Prices: Simply a Matter of Supply & Demand

      House Prices: Simply a Matter of Supply & Demand | MyKCM

      Why are home prices still rising? It is a simple answer. There are more purchasers in the market right now than there are available homes for them to buy. This is an example of the theory of “supply and demand” which is defined as:

      “the amount of a commodity, product, or service available and the desire of buyers for it, considered as factors regulating its price.”

      When demand exceeds supply, prices go up. This is currently happening in the residential real estate market.

      Here are the numbers for supply and demand as compared to last year for the last three months (March numbers are not yet available):

      House Prices: Simply a Matter of Supply & Demand | MyKCM

      In each of the last three months, demand (buyer traffic) has increased as compared to last year while supply (number of available listings) has decreased. If this situation persists, home values will continue to increase.

      Bottom Line

      The reason home prices are still rising is because there are many purchasers looking to buy, but very few homeowners ready to sell. This imbalance is the reason prices will remain on the uptick.

      What Should You Look for In Your Real Estate Team?

      ?What Should You Look for In Your Real Estate Team? | MyKCM

      How do you select the members of your team who are going to help make your dream of owning a home a reality? What should you be looking for? How do you know if you’ve found the right agent or lender?

      The most important characteristic that you should be looking for in your agent is someone who is going to take the time to really educate you on the choices available to you and your ability to buy in today’s market.

      As the financial guru Dave Ramsey advises:

      “When getting help with money, whether it’s insurance, real estate or investments, you should always look for someone with the heart of a teacher, not the heart of a salesman.”

      Do your research. Ask your friends and family for recommendations of professionals they’ve worked with in the past and have had good experiences with.

      Look for members of your team who will be honest and trustworthy; after all, you will be trusting them to help you make one of the biggest financial decisions of your life.

      Whether this is your first or fifth time buying a home, you want to make sure that you have an agent who is going to have the tough conversations with you, not just the easy ones. If your offer isn’t accepted by the seller, or they think that there may be something wrong with the home that you’ve fallen in love with, you would rather know what they think than make a costly mistake.

      According to the Home Buyer and Seller Generational Trends Report:

      Buyers from all generations primarily wanted their agent’s help to find the right home to purchase. Buyers were also looking for help to negotiate the terms of sale and to help with price negotiations.” Additionally, “Help understanding the purchase process was most beneficial to buyers 37 years and younger at 75 percent.”

      Look for someone to invest in your family’s future with you. You want an agent who isn’t focused on the transaction but is instead focused on helping you understand the process while helping you find your dream home.

      Bottom Line

      In this world of Google searches, where it seems like all the answers are just a mouse-click away, you need an agent who is going to educate you and share the information that you need to know before you even know you need it.

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