As the NEWS headlines show the improving real estate market around the country, many have asked if this recovery is sustainable at the current appreciation levels? The simple answer is no. The complicated answer is possibly. The laws of supply and demand do not allow double digit appreciation year over year for too long. Traditionally, real estate markets appreciate twice the rate of inflation. Therefore a 6% annual appreciation rate would be considered good, not 10-20% which is what we have seen over the last year. More details below. There are a few dynamics fueling the current real estate market:
1. Low supply
2. High demand (both from homeowners with low interest rates and cash investors – hedge funds)
Why is the supply so low?
There are several reasons for this:
1. Banks are modifying more loans for homeowners in distress.
2. There are many people who would like to sell but do not have enough equity to do so at this time.
3. Banks have slowed the release of distressed assets onto the market Foreclosure, BankOwned, REO's. It’s not that there is shadow inventory that will flood the market, but there is inventory that the banks are strategically releasing to the market. ( I am a experienced loss mittigation adviosr for Bank of Ameica, Wells Fargo, and Chase, so I have some idea as to how and why they are doing this.)
4. There has not been new construction for quite some time (This is changing. More new homes will hit the market in 4th quarter of this year and 1st quarter of next year.)
What will likely take place over the next 12 months?
Supply and demand will likely come back in balance by the 4th quarter of this year and 1st Quarter of next year for the following reasons:
1. New construction. Many of the major builders are pulling their building permits as we speak. This new inventory will hit the market later this year.
2. Homeowners will put their homes on the market too high. As News headlines show an improving market, naturally a seller wants to achieve top dollar. As a result they will test the market. As homes sit longer on market, new inventory will come on market behind them, thus adding supply to the market.
Will we have another bubble bust?
A: So long as lenders require borrowers to qualify for their home loans and verify income and down payment, this will help keep demand and supply in balance. However, the minute “stated income loans” come back in play and borrowers do not have to verify assets, tax returns or down payment, we could have another bubble. Even with the large influx of investors buying properties, they are buying them with cash, so we don’t have to worry about bank loan defaults. My moto is “slow and steady.”
As Warren Buffet says “Owning property is the keystone of wealth. Both Financial affluence and emotional security.”
There are 5 key indicators to watch in the real estate market.
They will signal 3-6 months in advance of a market shift.
1. Existing home sales
2. Notice of defaults
4. New construction permits
5. Interest rates
I am very opportunistic and bullish about the real estate market long term, but caution is needed. There are several fundamentals that are not yet improving (Income levels and Jobs) enough to give me full confidence that this improving market will last more than a couple years before flattening and balancing out. Right now is still a great time to buy and sell check out the market stats below.
SEE STATS BELOW. FOR MORE LOCAL STATS – e-mail me firstname.lastname@example.org
90-day stats for Single Family properties in SAN DIEGO, CA as of August 19, 2013
What a difference a year makes!
Real Estate Quick Update!
Median Home Price
One Yr. Ago $370,000 / Now $461,000 24.60%
Average Sales Price
One Yr. Ago $476,738 / Now $587,829 23.30%
No. of Homes Sold
One Yr. Ago 2416 / Now 2541 5.20%
One Yr. Ago 3321 / Now 3413 2.80%
One Yr. Ago 264 / Now 76 -71.20%
Short Sales Sold
One Yr. Ago 348 / Now 127 -63.50%
One Yr. Ago 7984 / Now 6504 -18.50%
One Yr. Ago 7984 / Now 154 -53.00%
Active Short Sales
One Yr. Ago 1593 / Now 646 -59.40%
Sales vs. List
One Yr. Ago 98.10% / Now 99.30% 1.30%
One Yr. Ago 72 / Now 40 -44.70%
The summary? Values are up - a lot - although there seems to be some leveling off.
Also, foreclosures and short sales have declined dramatically. There is currently less inventory.
Interest rates have increased and the most recent predictions are for some stabilization. The rates are still
amazingly low and anyone that can take advantage should consider it whether you are buying, refinancing, etc.
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