Our mobile site is optimized for smaller screens.

TRY IT NO THANKS
  • Boston Condos
+ Advanced Search

      Blog :: 09-2018

      Are Home Prices Softening or Are They Falling?

      Are Home Prices Softening or Are They Falling? | MyKCM

      We are beginning to see reports that more housing inventory is coming to the market and that buyer demand may not be increasing at the same pace it did earlier this year. The result will be many headlines written to address the impact that these two situations will have on home values.

      Many of these headline writers will confuse “softening home prices” with “falling home prices,” but there is a major difference between the two.

      The data will begin to show that home values are not appreciating at the same levels as they had over the last several years (softening prices). This does NOT mean that prices are depreciating (falling prices).

      Here is an example: Over the last several years, national home values increased by more than 6% annually. If you had a home worth $300,000 at the beginning of the year, it would be worth $318,000 by year’s end. If the appreciation rate “falls” to 4%, that $300,000 house would be worth $312,000 at the end of next year – a $6,000 difference.

      The price of the home did not fall. It just didn’t increase at the level it had the previous year.

      Appreciation rates are projected to end this year at approximately 5%, and then drop to somewhere between 4-5% next year. This drop in appreciation rate will cause home price increases to soften.

      Again, this does not mean that home prices will depreciate, but instead that they will appreciate more slowly.

      Bottom Line

      Be careful when reading headlines that discuss home values. Some headline writers will be legitimately confused and will use the word falling in place of softening. Others will realize that the headline “Home Prices are Falling!” will get more clicks than “Home Prices are Softening” and will intentionally write the more compelling headline. Read the article. If the word depreciation is not mentioned, home values are not falling.

      Is the Real Estate Market Finally Getting Back to Normal?

      Is the Real Estate Market Finally Getting Back to Normal? | MyKCM

      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.

      Home Prices: The Difference 5 Years Makes

      Home Prices: The Difference 5 Years Makes | MyKCM

      CoreLogic recently released their Home Price Index ReportOne of the key indicators used in the report to determine the health of the housing market was home price appreciation. CoreLogic focused on appreciation from July 2013 to July 2018 to show how prices over the last five years have fared.

      The graph below was created to show the 5-year change in price from July 2013 to July 2018 by price range.

      Home Prices: The Difference 5 Years Makes | MyKCM

      As you can see in the graph, the highest price appreciation occurred in the lowest price range with 48% growth, while the highest priced homes appreciated by 25%. This has been greatly fueled by the lack of inventory of homes available at the lower price ranges and high demand from first-time buyers looking to enter the market.

      Where were prices expected to go?

      Every quarter, Pulsenomics surveys a nationwide panel of over 100 economists, real estate experts, and investment and market strategists and asks them to project how residential home prices will appreciate over the next five years for their Home Price Expectation Survey (HPES).

      According to the Q3 2014 survey results, national homes prices were projected to increase cumulatively by 19.5% by December 2018. The bulls of the group predicted home prices to rise by 27.8%, while the more cautious bears predicted an appreciation of 11.2%.

      Where are prices headed in the next 5 years?

      Data from the most recent HPES shows that home prices are expected to increase by 20.0% over the next 5 years. The bulls of the group predict home prices to rise by 31.2%, while the more cautious bears predict an appreciation of 9.3%.

      Bottom Line

      Every day, thousands of homeowners regain positive equity in their homes. Some homeowners are now experiencing values even greater than those before the Great Recession. If you’re wondering if you have enough equity to sell your house and move on to your dream home, let’s get together to discuss conditions in our neighborhood!

      Homeownership is a Dominant Gene

      Homeownership is a Dominant Gene | MyKCM

      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.

      Homeownership is a Dominant Gene | MyKCM

      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!

      sign up RECEIVE THE LATEST LISTINGS & SAVE SEARCHES Already a member? Sign in here