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Monthly Archives: August 2017

How Agents Sell Homes Faster

In many parts of the U.S., the local housing market is undeniably in favor of the seller. For real estate agents themselves, that doesn't mean the process will be a total cakewalk from start to finish. 

According to agents who spoke with Realtor.com, it's quite the opposite: High-quality homes of all kinds are in high demand, but most homeowners selling their home are simultaneously buyers of another one. That puts extra pressure on their agent to close deals quickly and at an ideal price.

To navigate the ever-evolving real estate marketplace from the sales side, here are some basics to know:

Home Sales Down, but Not Out

We weren’t terribly surprised by the recent home-sales numbers, given recent housing and lending trends.  

The pending home sales index has trended mostly lower since March. (It posted a slight increase in June). Purchase-mortgage activity, though steady, also suggested that no great uptick in sales would occur.

A drop in home sales is what we expected. A drop in sales is what we got. 

New-home buyers appear to have extended their vacations in July. Sales were dropped to 571,000 units on an annualized rate for the month. The sales numbers failed to meet most economists’ expectations. That said, it’s worth noting that sales were revised higher by 33,000 units in the prior two months. 

The drop-off in new-home sales appears less ominous in light of the revision and in light of the long-term trend. New-home sales are actually up 9.2% for the first seven months of 2017 compared with the same period last year. 

As for the much larger existing-home market, sales were also down in July, which is nothing new. Existing-home sales fell 1.3% to 5.44 million units on an annualized rate. Existing homes are selling at the lowest rate they have all year. 

Demand, as we all know, isn’t the intractable problem. Supply is. Low supply continues to hinder existing-home sales. It also hinders affordability. Low supply equals high prices. The median price of an existing home is up 6.2% year over year.

The existing-home market is where most first-time buyers enter. Given the relentless rise in existing home prices, fewer first-time buyers are able to gain entrance. 

The mortgage-interest deduction also made news last week, thanks in part to a CNBC article that highlighted President Trump’s tax-reform proposal. The proposal includes reforming the mortgage-interest tax deduction.

CNBC really offered nothing new. Talk of capping the mortgage-interest deduction on loans no higher than $500,000 was discussed earlier this year. In the grand scheme of where most people stand financially, the lower cap is really a nonstarter. 

Relative value is a bigger issue. 

If President Trump’s tax reform passes in full, it would pass with a doubling of the standard deduction. The reform would still allow the mortgage-interest deduction, but with a higher standard deduction, the value of the mortgage-interest deduction is diminished. It’s also worth noting that Trump’s proposal would eliminate deductions for state and local taxes, including property taxes. 

President Trump has had difficulty pushing his agendas through Congress this year. We suspect his latest tax reform push will face similar resistance. Therefore, we’re not particularly worried about the state of the mortgage-interest tax deduction in either relative or absolute terms.

Builders See Blue Skies

Builders

Home builder sentiment perked up noticeably this month. 

The Home Builders Sentiment Index, having drooped to the low 60s from the low 70s, spiked to 68 in August. This was a four-point increase over the July reading. A reading above 50 is considered positive.

Builders See Blue Skies

Builders

Home builder sentiment perked up noticeably this month. 

The Home Builders Sentiment Index, having drooped to the low 60s from the low 70s, spiked to 68 in August. This was a four-point increase over the July reading. A reading above 50 is considered positive.

Home builders see an increase in immediate sales. They also see higher sales holding for the next six months. Traffic is the only area where builders are opaque. Traffic is frequently composed of young first-time buyers. Unfortunately, this demography continues to be locked out of the market because of high prices and low supply. 

Construction hasn’t quite kept pace with optimism. Housing starts fell in July, posting at 1.155 million on an annualized rate.

When we dig a little deeper, though, we find most of the decline is confined to the multi-family segment. This is no surprise. The news has been replete lately with stories about declining apartment rents. Apartment and condo builders appear to have gotten ahead of themselves in many markets.

As for single-family starts, they held steady at 856,000 units on an annualized rate. Year over year, single-family starts are up 11%. 

Home builders (and all home sellers, for that matter) continue to be supported by mortgage rates holding near 2017 lows. A bit of warbling occurred last week when North Korea’s leader Kim Jong Un (easily recognized by his whitewall haircut) threatened to lop a nuclear bomb in the direction of the United States. Kim Jong Un subsequently backed away from his threat, not that it was taken seriously by most Americans.  

Quotes on the 30-year fixed-rate loan continue to hover around 4%, where it has hovered for the past two months. Most quotes on other mortgage products continue to hover as they’ve hovered for the past two months as well. 

This leads us back to our mantra: Dips offer an opportunity to lock.

Though the Federal Reserve raising the federal funds rate has had little impact on most mortgage rates, additional Fed action could up the pressure. Fed officials have become increasingly vocal on their desire to “normalize” the Fed’s balance sheet. Normalizing means no longer reinvesting maturing-security proceeds into new securities -- Treasury securities and mortgage-backed securities. It could also mean actual security sales. Such action on part of the Fed would pressure longer-term interest rates to rise (because the selling would pressure bond prices to fall).

Consumer-price inflation is the only hold-back. Fed officials wait for inflation to kick in before normalizing. They might not have to wait long. The minutes from the latest Fed meeting show a consensus forming that inflation is expected to pick up soon.

Of course, Fed officials could be wrong, but we sense that many of them are eager to move interest rates to levels that comport with historical norms. In other words, this could be about as good as it gets on the mortgage-rate front for 2017 and beyond.

Debunking the Biggest Homebuying Myths

Beach House

The process of buying or selling a home is incredibly complex, especially for those diving in for the first time. That's why it might not come as a shock to learn that many misconceptions and myths persist regarding various steps of the homebuying process. Here are the most pervasive points of confusion for homebuyers of all stripes:

Market Preview: September Rate Hike Highly Unlikely

Log Cabin

Mortgage rates appear to have gone on a fly-and-flop vacation. We’ve seen little movement over the past week. Even an exceptionally strong employment report for July did little to roil lending rates. Credit-market participants responded mostly with a collective shrug.

Homeowner Wealth Continues to Outpace Renters

Homeowner Wealth

Buying a house is more than simply having some extra space all to yourself - it also serves as an investment. Even with the high costs involved in real estate purchases, that investment is still paying off for most American homeowners.

Pending Home Sales Up; Bipartisan Congressional Bill Would Change Credit Scoring

DC Rowhomes

Higher home sales could reside in the immediate future. The pending home sales index was up a strong 1.5% in June. This is after three months of consecutive declines. During those months, existing home-sales growth has been tepid. 

Tesla's Solar Roof and the Future of Home Tech

Home Tech

The concept of a "smart home" has been around since the time of "The Jetsons," but it's one that's increasingly becoming a reality. However, today's real smart homes might not be exactly what most people imagined half a century ago. While robot butlers and flying cars have not yet penetrated the market, there are some incredible new pieces of home tech that are reshaping homeownership.