Market Conditions • December 13, 2022

Is the market really crashing?

by Brian Leneweaver

I am sharing this article today because it resonates so well with me. If you talked with me recently, you have heard me speak to this almost exactly. We keep comparing our market to last year, which was an anomaly. 2020 and 2021 were years we exceeded so many milestones that will likely not replicate itself again. It was a result of the current economy at the time and the pandemic and had us growing 20-30% in both years. So, what if it slips a little now? You’re likely still going to be up massively from when you bought it, as long as you didn’t buy it in the last 2 years. We had years of steady growth long before the pandemic, and it’s important to realize that this current real estate market is strong and sustainable. To the left is the Minnesota market November numbers. It tells the same story.

In a nutshell, don’t get your advice from the evening news. It’s a bunch of unnecessary hype that will cost you thousands of dollars, missed opportunities and lost time. If you want to buy, then buy. If you want to sell, then sell. And when is the best time to buy or sell? When you are ready, it’s never too early to start planning so contact me for any questions or help analyzing your current situation.

Great read below!

Two Key Charts to Contextualize the U.S. Housing Market

December 12, 2022Mike DelPrete

Media headlines are focused on a crashing U.S. real estate market, but the truth is more nuanced with less hyperbole.

Context matters: The reality is that the market is down, but simple comparisons to a sky-high 2021 are amplifying the scale of the decline.

Arm yourself with the right data — two key charts — to understand and contextualize this dynamic market.

Monthly home sales are collected and published by the National Association of Realtors (NAR), but historical data beyond 2021 is not easily accessible and rarely included in analyses.

With help from NAR, I’ve published this data in the past — and now I’m publishing a direct link to a live chart: U.S. Existing Home Sales.

While existing home sales are down in the second half of 2022, the deviation from historical averages is not nearly as extreme as the drop from last year.

Looking forward: A leading indicator for the future housing market is consumer demand for mortgage loans (specifically purchase loans).

This mortgage application data, alongside average mortgage rates, is published weekly by the Mortgage Bankers Association.

The mortgage demand index shows that purchase demand is at record lows — but just barely (compared to 2014).

Furthermore, there is a recent uptick in demand that corresponds to dropping mortgage rates.

The bottom line: The last six months of 2022 have been challenging, and it appears likely that low volumes will continue well into 2023.

But it’s not as bleak as the news headlines may lead you to believe.
Do your own research and make your own conclusions — with the right data: U.S. Existing Homes Sales and Purchase Mortgage Demand are a great start.

Source: Mike DelPrete (email me)

Mike is a global real estate tech strategist, and a scholar-in-residence at the University of Colorado Boulder. He is internationally recognized as an expert and thought-leader in real estate tech. His evidence-based analysis is widely read by global leaders, and he is a sought-after strategy and new ventures consultant. His research and insights have featured in the New York Times, Wall Street Journal, Financial Times, and The Economist.

Buyers • November 17, 2022

Realtors look out for your best interests!

by Brian Leneweaver

I came across this article this morning in my email. It is a reminder of why it is so important to hire a professional to look out for your best interests. You could hire a lawyer that will require payment upfront or you could hire a real estate professional to represent you through the entire process. The biggest key factor to hiring a real estate agent is that you need to have your relationship established prior to walking into the builder’s sales office. Real Estate agents are generally paid at closing by the seller, in this case the builder. If they are not offering compensation, you will need to negotiate that aspect with your agent at the signing of your representation agreement.

What makes a Relator the most valuable protection you can have? We do this every day. We will ask questions and negotiate terms to protect you in the event of changes that can adversely affect your purchase, like protecting you in the event interest rates rapidly rise. Realtors are here to help you have a successful transaction. We work hard for your best interests and will put your interests above all else. And if a builder isn’t willing to negotiate to have that win-win transaction, you have to ask yourself, “is that really the builder you want to build with?”

It’s a great read below! You can contact me any time with questions and I would be happy to help you get the best terms on your transaction!

Click Image below to schedule an appointment!

Some homebuyers lose deposits of $10,000, $20,000, or more due to high mortgage rates

Paulo Echeverry and Dahianara Lopez Zapata, at their food truck in Kissimmee, Fla.

Michelle Bruzzese for NPR

Dahianara Lopez and her husband Paulo Echeverry run a food truck outside of Orlando. “We work together every day,” she says while cooking up Colombian sausages on the truck’s big stainless steel grill.

They say by putting in long hours over several years they were able to save up a down payment for a house.

“We think that renting is like we are wasting money, you know?” says Lopez. “So we want to to buy a house, to have something that that we can say is mine.”

Late last year, they signed a contract to buy a new home before it was built for about $500,000 and put down a $25,000 deposit.

But since then mortgage rates have seen their biggest increase in 40 years, from 3% to around 7%. Pandemic delays have resulted in many new homes taking a year or longer to get built. So now it’s much harder for thousands of people like Echeverry and Lopez to be able to afford the new homes they agreed to buy. In their case, the higher rates would add about $1,100 a month to their mortgage payment.

Paulo Echeverry and Dahianara Lopez Zapata, at the development site where the new home they agreed to buy is under construction and nearly finished.

Michelle Bruzzese for NPR

The couple has been very scared that they won’t qualify for a mortgage anymore and will lose that big deposit.

“The sales guy, he always tells us we’re going to lose the deposit if we don’t buy the house,” Echeverry said when the couple first spoke to NPR. “Even the area sales manager… she told me, too, that we’re going to lose our money.”

Some people have already lost their money. Karen Jensen works as a school nurse at an elementary school in Tigard, Ore. She and her husband wanted a bigger house for them and their three kids.

“We put just a little over $15,000 down as a deposit,” she says.

But after interest rates jumped so much higher they decided to back out of buying it, and she says the builder kept their deposit. At first she felt sad but okay about that. They signed the contract and put the money down after all.

Karen and Bradley Jensen at their current house in Tigard, Ore.

Karen Jensen

But then she saw the company put the house back up for sale for $90,000more than she would have paid for it. Prices in the area had risen while it was getting built. And she says it quickly went under agreement and is listed as sold on the builders website.

“It felt really gross to see that,” Jensen says. “So not only do you got our earnest money, our 15 grand, plus they will get more money at the end of the day in general.”

Homebuilders do not seem eager to talk about buyers losing their deposit money. The National Association of Home Builders declined an interview and the Florida Home Builders Association didn’t respond to requests for comment.

“Most builders are going to be very cautious about just blanket giving a deposit back out of the goodness of their hearts,” says Paul Schwinghammer, the president of the Indiana Builders Association.

He says it’s important to realize that right now this massive increase in mortgage rates has buyers and builders both scrambling. That’s because so many buyers are getting cold feet. One industry survey found that buyer cancellation rates nationally in October were three times higher than normal.

So Schwinghammer says builders need to try to make buyers follow through on purchase contracts they signed since it’s a big risk to get stuck with a lot of unsold homes, especially for a smaller builder.

“If there becomes this word on the street that Bob the builder is giving everybody their money back, Bob’s gonna be out of business pretty quick.”

But he thinks builders should make an exception in cases like Karen Jensen’s where the builder can sell the house to someone else for a lot more money. “If the builder profited from re-selling that house… he at least ought to give the deposit back to that customer,” says Schwinghammer. “That’s just an ethical decision on my part.”

Some builders are making exceptions, too, for people who can’t even qualify for a mortgage anymore with these higher interest rates.

Paulo Echeverry and Dahianara Lopez Zapata’s neighborhood in St. Cloud, Fla.

Michelle Bruzzese for NPR

Jody Kahn with the John Burns Real Estate Consulting Group surveyed about 100 builders about how they were handling the earnest money deposits that buyers are required to make. She says for customers who can no longer qualify for a loan “the majority of the builders are willing to give a refund.” But not all builders.

“There were some builders who say they’re just keeping the deposit,” Kahn says. “Their contract allows for it… some are saying we’ll just keep it.”

Buyers often don’t have a lot of recourse.

“Everything in these agreements is drafted in favor of the developer,” says Craig Rothburd, an attorney in Florida who specializes in consumer protection cases. He says the buyers sign a contract which states they can lose their deposit.

He says, though, it never hurts to ask a builder for your deposit back, especially if losing the deposit would be a real financial hardship, “Whether the developer has a heart is kind of what it comes down to.”

Karen Jensen in Oregon has asked the builder for her deposit back but hasn’t received an answer yet. The company said in a statement to NPR that it wouldn’t talk about any particular case but said there were costs associated with selling a house to a different buyer and that, “any apparent windfall is not what it may appear to be.”

Back in Orlando, Paulo Echeverry and Dahianara Lopez have been worried about losing their $25,000 deposit.

Paulo Echeverry and Dahianara Lopez Zapata, food Truck ‘Que Parchef’ in Kissimmee, Fla.

Michelle Bruzzese for NPR

“To buy a house… it was our dream,” said Lopez. “But it’s completely a nightmare.”

But after NPR contacted the homebuilder, a large public company named Dream Finders Homes, it said the couple would not lose their deposit.

The company declined an interview but said in a statement that if a buyer defaults on a contract to buy a home, “we have a general policy that… we will credit them one hundred percent of that deposit towards a future DFH home.”

And the couple tells NPR the company is now offering to spend about $10,000 to buy down their interest rate. Some builders are doing this since a lower rate helps people to be able to purchase the homes.

“That’s pretty good!” Echeverry said with obvious relief. “The company wants to work with us to close our house.”

He says that’s going to bring their interest rate down from around 7% to just a bit below 6%. Lopez says that will still be a stretch, and a higher rate than they were expecting when they agreed to buy it. “But I feel excited also to get the house.”

Source:

November 16, 20227:00 AM ET

CHRIS ARNOLD

Twitter

Buyers • Market Conditions • Sellers • November 11, 2022

Mortgage Rates Decrease – Inflation Decelerates

by Brian Leneweaver

Interest Rates have started to curl back! There were a lot of contributing factors from the financial segment yesterday, but the biggest is the CPI coming in at 7.7%, which is far better than economists anticipated but still too high for the Fed’s liking. The Fed likes to see no more than 2% year over year, so there is still work to be done. But compared to the 8.2% inflation rate in September, the drop to 7.7% is HUGE! The Fed rate hikes are starting to hit demand and compared to this time last year, the inflationary rate is not as high.

All good news and sets up for what we hope will be some relief in the mortgage industry.

Bond prices rocketed. That’s because the October CPI figure implies that the Fed may be able to slow the pace and magnitude of rate hikes relative to expectations. And when bond prices go up, yields go down. Which is a long way to say that 30-year fixed rate mortgages (ignoring points purchased) will likely fall.

Note: The bond market does its own thing. This DOES NOT mean that the Fed is done hiking rates. Another +50 bps is likely in December. It also DOES NOT mean that we’ll completely avoid a recession in 2023. What it DOES mean is that mortgage rates have almost certainly turned a corner, and that’s great news for us all.

Brian Leneweaver is a licensed Realtor with Coldwell banker Realty in Minnesota and Wisconsin. He has been providing exceptional service to the area since 2020 and has helped over 50 clients in his first 2 years to achieve their real estate goals. Brian is a local agent working out of the Forest Lake, MN office providing service to the northern Twin Cities Metro and Western Wisconsin markets. If you want to discuss how the current market will impact your decision to buy or sell real estate, you can reach Brian by email at brian.leneweaver@cbrealty.com or call/text him directly at (612) 208-3859

Source: Scott Bradley Brixen, A CFA with 20 years of experience in global investment banking and equity research, ListReports’ “Eclectic Economist” finds everything interesting.

Buyers • Market Conditions • Sellers • August 1, 2022

Is a Buyer’s Market on the horizon?

by Brian Leneweaver

Buyer’s Market May Be Slowly Moving In

Buying a home today has become a bit of a blood sport, rife with bidding wars pushing offers well over the asking price as buyers scramble to land a house.

It’s been hard, we won’t lie. But every seller’s market does eventually have an end. Now, it appears that in certain areas, the market pendulum might slowly but surely be swinging back in a buyer’s market direction. This is not a call to arms to go out and expect an immediate reaction, but more of a warning that things are adjusting. Home values are still strong and there is no reason why you can expect to slash your offer heavily, but it’s fair to expect that many homes will take a little bit longer to sell, which means you will actually get an opportunity to have a second look or even take more than 30 minutes to decide if you want to spend your life savings on your dream home. In some cases, sellers are getting impatient and reducing their price so they can move on with their plans. There are still some pockets of neighborhoods that are receiving multiple offers in the first weekend. It’s a very mixed bag. Trust your agent’s expertise to help guide you to the best decision.

In order to discern a shift, however small, from a seller’s to a buyer’s market in your area, let’s first take a look at what defines those buying/selling environments.

What is a seller’s market?

To put it simply, a seller’s market happens when there are more homebuyers than sellers. Based on the basic law of supply and demand, this means that sellers have the upper hand and can sell their homes quicker, at higher prices, with little pushback from buyers.

There are many conditions that have upheld the current seller’s market, which was gaining momentum even before the COVID-19 pandemic pushed it into overdrive.

“Even though the number of homes being built has been growing over the past 10 years, it hasn’t kept pace with population growth,” says Daren Blomquist, senior vice president at RealtyTrac.

And the pandemic didn’t help, bringing in a wave of new buyers in the early days snapping up available inventory, and later supply chain issues and labor shortages made it even more difficult for builders to meet the demand for new homes. As a result, home sellers have seen unprecedented benefits and profits—they have been the group in the driver’s seat.

What is a buyer’s market?

Remember the days when the price on real estate listings was just a hopeful suggestion, and buyers could often get away with offering below that price rather than tens of thousands of dollars more? And while we’re at it, remember when you could see a home and take some time to decide whether it was right for you? That, dear friends, is a buyer’s market.

Going back to the law of supply and demand, it’s what happens when the number of homes for sale surpasses the number of people looking to purchase them. In a buyer’s market, houses take longer to sell and sometimes owners even offer incentives, like paying for a home warranty policy or even throwing in a budget for painting and repairing.

Signs a seller’s market may be shifting toward a buyer’s market

We don’t want to get homebuyers’ hopes up too high just yet, but there are some indicators that certain sectors of the housing market may be adjusting slightly in favor of buyers. Time will tell, as it always does, but we thought we’d take a look at some signs that today’s raging seller’s market may be shifting.

1. More homes are becoming available

There is some real cause of buyer optimism here: The Realtor.com June Housing Report shows an uptick in the number of homes for sale for the second straight month. In fact, the number of listings in June grew by 18.7% compared with a year earlier—and that’s the largest margin in the data’s history.

“The biggest positive for buyers is that they’re seeing more homes on the market now,” says Realtor.com Chief Economist Danielle Hale. “This means more options for them to consider in their home search.”

Inventory increased in 39 of the 50 largest U.S. metros compared with last year. Among the cities that saw the most inventory growth are Austin, TX (+135.4%), Raleigh, NC (+112.4%), and Phoenix (+106.7%). You’ll note that all of these markets experienced a booming seller’s market during the pandemic.

“The gains in inventory are welcome news for buyers who are now starting to see a few more listings come onto the market during their home search,” says Nick Bailey, president and CEO of Re/Max. “Options in multi- and single-family housing are there that weren’t available just a few short months ago. Affordability remains a concern, but homebuyers are regaining some control, which has been long overdue.”

Tim Yee, president and broker of Re/Max Gold in the Bay Area (where some of the greatest inventory shortages have traditionally existed), expects inventory to continue to improve over time.

“It appears that the long-forecasted market shift has arrived in the Bay Area,” he says. “Inventory is starting to increase, and the extraordinary rate of rising prices of the last few years seems to have mellowed somewhat.”

But he cautions homebuyers to keep their hopes realistic.

“This is not the dramatic change that some have predicted, but rather a cooling down of what was a sizzling market,” he says.

2. Homes take longer to sell

When homes linger on the market longer, it is typically a sign that buyers are not as desperate to buy them—and sellers have lost some leverage.

Realtor.com research indicates that, on a national level, in June the typical home spent 31 days on the market—five fewer days than the same time last year. That’s not great from a buyer’s perspective, but the good news is that this frenzied pace is showing some signs of a slowdown in certain places.

In June, the number of days on the market for listings increased compared with a year earlier in nine of the 50 largest metros, including Detroit, Austin, and Denver.

To get a snapshot of what’s going on in your area, head to Realtor.com/local, where you can see the number of homes for sale in your area, how quickly they’re selling, and more.

3. Price reductions are on the upswing

Overall, U.S. housing prices are still rising. The median national home price for listings grew to a new all-time high of $450,000 in June, up 16.9% compared with last year. Home prices decreased in only three of the top 50 markets in June: Rockford, IL (-1.0%); Topeka, KS (-1.9%), and Cape Girardeau, MO-IL (-2.0%).

But there is some hope to be found in the fact that the number of price reductions on homes is increasing. In other words, homes might be listed high, but they’re having to be reduced in order to sell.

The June Realtor.com report shows that 14.9% of listings slashed their price that month, nearly double the percentage that had done so a year earlier. Homes in Austin, Phoenix, and Las Vegas saw the biggest growth in price cuts, indicating that some sellers have yet to adjust their expectations to this new reality.

4. Mortgage applications drop

It’s simple: The fewer people applying for mortgages, the fewer buyers there are willing to make an offer on a home.

In the first two weeks of July, “Mortgage applications declined for the second straight week,” reports Joel Kan, associate vice president of economic and industry forecasting at the Mortgage Bankers Association. “Purchase applications for both conventional and government loans continue to be weaker due to the combination of much higher mortgage rates and the worsening economic outlook.”

“Higher interest rates are making borrowing costs more expensive,” explains Realtor.com Economic Research Manager George Ratiu. “As rates jumped from about 3.1% in December 2021 to 6.0% in June 2022, the typical monthly mortgage payment surged over 60% higher than last year.”

As a result, “Some buyers have had to adjust their home search and still others have had to put their plans on hold,” adds Hale.

Nonetheless, for buyers with deeper pocketbooks and more wiggle room, there is an upside: With fewer buyers out there and a greater supply of homes, they will have a lot more leverage with sellers than they had before.

Source: Lisa Johnson Mandell is an award-winning writer who covers lifestyle, entertainment, real estate, design, and travel. Find her on ReallyRather.com

Buyers • Sellers • July 19, 2022

Who pays for that?

by Brian Leneweaver

Do you know how much an average real estate agent commission is? Or who pays real estate agent fees and closing costs?

If you’re scratching your head, you’re not alone: More than half of Americans don’t know what the average real estate agent commission is in their area, according to a report by the Consumer Federation of America. Plus, the commission and fees can vary from state to state and among brokerages.

Though most homebuyers and sellers might not be able to tell you what these fees are, they’re fairly critical to the real estate agent working for you. These fees are how most real estate agents are paid.

So in real estate, who is responsible for paying commissions and fees: the homebuyer or the home seller? How much, on average, should you expect it to cost, and what other fees are you responsible for when you buy or sell a house?

Who pays the real estate agent commission?

Technically, agents are representatives of the broker. An agent can only receive payment from their broker. Therefore, brokers receive the commissions from the seller and in turn pay their agents for the transaction.

If you’re buying a home, you’re likely off the hook for paying the real estate agent commission because the home seller is almost always responsible. The fee is paid by the seller at the settlement table, where the fee is subtracted from the proceeds of the home sale. However, it is not FREE for buyers. Too often, buyers are told it is, when in fact most agreements have a responsibility of the buyer to pay for buyer agent services. The agreements also mention that any commissions shared by sellers may reduce the liability of the buyer. BUYER BEWARE! Each transaction will outline how your agent is paid and you should see a disclosure of compensation prior to signing any offers.

When the sellers set a listing price for the home, they usually take the real estate agent’s commission into account—and consider it the cost of doing business.

Typically, the buyer’s broker and the seller’s broker split the commission, which is often a percentage of a home’s price. So if a home sells for $200,000 at a 6% commission, the seller’s broker and buyer’s broker might split that $12,000, and then pay out the agents.

Do you have to pay a real estate agent commission?

Though you could technically forgo the fee by selling or buying a home without an agent, it’s important to note that agents are the experts in this scenario, working on your behalf while ensuring the process is as stress-free as possible. For example, the agent will start by helping you price your home, then marketing it (on the multiple listing service, social media, and other venues), negotiating with homebuyers, and seeing the home sale through closing.

A recent survey found that the typical “for sale by owner” home sold for much less than an agent-assisted home sale, according to the National Association of Realtors®. It’s no wonder an overwhelming majority of home sellers use an agent to sell their house.

Also keep in mind that real estate deals often take weeks, if not months—though most agents won’t see a dollar of it until a property closes.

Can you negotiate real estate agent commission fees?

Commission standards can vary from state to state and among brokerages. There are no federal or state laws that set commission rates—meaning the commission is negotiable.

Here’s the problem, though: You can ask your agent to reduce his or her commission, but the odds are unlikely. If the agent agrees, however, this might affect the level of effort the agent puts into helping you buy or sell your home. Briefly, agents work for you until your home is sold and do not collect any money until it is closed. They pay for all marketing efforts out of their pockets and endure countless hours and miles to procure buyers, coordinate offers and show homes (in the event you are buying a new one). Sometimes transactions end under various circumstances, resulting in an agent never being compensated for the efforts they have made.

Another option you can explore is a transactional agreement, in which the listing agent will help you set an asking price, facilitate communication between you and the buyer, write the contract, and move the process along to closing for a flat fee or lower commission—but you won’t receive anywhere close to the agent’s full services. Not all agents offer transactional agreements, so you might have to shop around to find one.

Dual agency: When one agent represents two parties

It’s not a common situation in real estate, but if the agent you’ve hired to represent you also represents the seller of the house you’re buying, it’s called dual agency. Dual agents, also known as transaction brokers, represent the interests of both the buyer and the seller.

Certain states—Florida, Colorado, and Kansas—have made dual agency illegal in a real estate transaction to outright eliminate any question that the agent was neutral in representing the seller and the buyer. But in the states that allow dual agency, agents are required by law to disclose that they’ll be representing both sides to their clients.

Critics who advise against dual agency worry about potential conflicts of interest—the chance that the interests of both the buyer and seller will not be met. And to their credit, we understand how this could be a problem.

When it comes to real estate commission, a dual agent gets to keep everything because he or she is doing more work by representing both sides.

Sources

realtor.com https://www.realtor.com/advice/finance/realtor-fees-closing-costs/?distinct_id=s8YCn8b4V&user_email=brian.leneweaver%40cbrealty.com

Photo by Jp Valery on Unsplash

Market Conditions • July 18, 2022

June Market Update

by Brian Leneweaver

Median sales price climbs and number of overall homes for sale rises

MINNEAPOLIS (July 15, 2022) — In June, closed sales of homes declined by nearly 14% compared to a year ago, with a total of 9,208 properties sold across the state. New listings were down 6.4% year-over-year even as the total number of homes for sale increased 8.2% to 12,298 properties. Overall housing inventory increased significantly, up 21.4% over last June to 1.7 months’ supply of homes on the market. Despite softening activity relative to last year, consumer demand drove the median sales price up 6.2% to $345,000, and the average price increased 9% to $401,319. Sellers were still receiving an average of 102.5% of their asking price, although this marks a slight 0.7% decline compared to June of last year.

“Although new listings were down, the state’s total housing supply was up, drawing more prospective buyers into the market,” said Chris Galler, CEO of Minnesota Realtors. “As we look at the decline in closed sales, it’s important to remember that these numbers are relative to last June’s abnormally heated market. What we are seeing this month is more closely aligned with historical norms for this time of year. Still, as higher interest rates and inflation continued to play a role, many first-time buyers were sidelined. The buyers who are successfully competing have the money to stay in the game. This dynamic is unlikely to change until we can help more buyers close the gap with tools like downpayment assistance, and broadly increase construction of more affordable homes.”

June year-over-year summary of key market indicators:

Closed sales decreased 13.7% to 9,208
Median sales price increased 6.2% to $345,000
Average sales price increased 9.0% to $401,319
New listings decreased 6.4% to 11,417
Pending sales decreased 16.6% to 8,124
Days on the market decreased 8.0% to 23 days
Homes for sale increased 8.2% to 12,298

Closed Home Sales Across Minnesota by Region

In June, closed sales declined in 11 out of 13 regions compared to a year ago, bringing Minnesota’s average number of closed home sales down 13.7% year over year. Only one region reported an increase: North Central at 5.9%. The smallest declines were seen in Headwaters at 1.5%, Southwest Central at 5.1%, and Arrowhead at 9.7%. The largest declines were reported in the 7-County Twin Cities at 16.0%, East Central at 18.8% and Northwest Central at 20.7%. See the chart below for more details comparing closed home sales for June 2022 to June 2021.

The seven-county Twin Cities region comprises Anoka, Carver, Dakota, Hennepin, Ramsey, Scott and Washington counties. The official Minneapolis-St. Paul-Bloomington metropolitan statistical area recognized by the Census Bureau consists of 16 counties, on
which MAR & SPAAR local associations report.

View full regional and county reports here.

View statewide report here.

Source:

_{Minnesota Realtors® https://www.mnrealtor.com/blogs/mnr-news1/2022/07/15/closed-sales-and-new-listings-slip-in-june}

Buyers • Sellers • July 18, 2022

Higher Rates and Short Supply: The State of Real Estate in 2022

by Brian Leneweaver

The last two years caught many of us off guard—and not just because of the pandemic. They also ushered in the hottest housing market on record, with home prices rising nationally by nearly 19% in 2021, driven primarily by low mortgage rates and a major supply shortage.¹

But while some had hoped 2022 would bring a return to normalcy, the U.S. real estate market continues to boom, despite rising interest rates and decreasing affordability.

So what’s driving this persistent demand? And is there an end in sight?

Here are three factors impacting the real estate market right now. Find out how they could affect you if you’re a current homeowner or plan to buy or sell a home this year.

MORTGAGE RATES ARE RISING FASTER THAN EXPECTED

Over the past couple of years, homebuyers have faced intense competition for new homes—in part due to historically low mortgage rates that were a result of the Federal Reserve’s efforts to keep the economy afloat during the COVID-19 pandemic.

However, in response to a concerning level of inflation, the Fed is now reversing those efforts by raising the federal funds rate. And as a result, mortgage rates are rising, as well. Few experts predicted, though, that mortgage rates would go up as quickly as they have.

In January 2022, the Mortgage Bankers Association projected that rates would reach 4% by the end of this year.² By mid-April, however, the average 30-year fixed mortgage rate had already hit 5%, up from around 3% just one year prior.³ On a $400,000 mortgage, that 2% difference could translate into an additional $461 per monthly payment.

Since then, mortgage rates have continued on an upward trend. So what impact are these rising rates having on-demand? While many buyers had hoped for a cooling effect, experts warn that may not be the case.

Ali Wolf, chief economist at housing market research firm Zanda, told Fortune magazine,

“Rising mortgage rates are having a counterintuitive effect on the housing market. Home shoppers are actually sprung into action in an attempt to buy a home before mortgage rates rise any higher.⁴

Since inventory remains low, the resulting “race” has kept the homebuying market highly competitive–at least for now.

WHAT DOES IT MEAN FOR YOU?

While current 30-year fixed mortgage rates represent an increase over previous months, they remain well below the historical average of 8%.⁵ As inflation across the economy continues, the Fed is likely to raise rates further this year. Buyers should act fast to secure a good mortgage rate. We’d be happy to refer you to a lender who can help.

For sellers, speed is also of the essence. The pool of potential buyers may shrink as mortgages become more expensive. And if you plan to finance your next home, you’ll want to act quickly to secure a favorable rate for yourself. Contact us today to discuss your options.

HOME PRICES KEEP CLIMBING

History shows that higher interest rates don’t necessarily translate to lower home prices. In fact, home prices rose 5% between 1980 and 1982, a period of significantly higher mortgage rates and inflation.⁵

Forecasters expect that home prices will continue to go up throughout 2022, though likely at a slower pace than the 18.8% increase of the last 12 months.⁴ Bank of America predicts that prices will be up approximately 10% by the end of this year, while Fannie Mae estimates 11.2%.⁶˒⁷

In addition to limited supply and a race to beat rising mortgage rates, home values are also climbing because of positive economic indicators, like low unemployment.8 Plus, rents are soaring–up 17% from a year ago–which is prompting more first-time homebuyers to enter the market.⁹ Add to that the continued popularity of remote work, and it’s easy to see why property prices continue to surge.

However, it’s not all bad news for prospective homebuyers. Economists expect that as mortgage rates rise, the rate of appreciation will continue to taper, though the effect may be gradual.

“Eventually mortgage rates will slow down home prices,” according to Ken Johnson, an economist at Florida Atlantic University interviewed by Marketwatch.¹⁰ “We should not see rapid upticks in prices as mortgage rates rise.” Forecasters agree—Fannie Mae expects price increases to slow to 4.2% in 2023.⁷

WHAT DOES IT MEAN FOR YOU?

While the pace of appreciation is likely to decrease next year, home prices show no signs of going down. However, current labor shortages are leading to higher salaries and better job opportunities for many workers. You may find that your income growth outpaces home prices, making homeownership more affordable for you in the future.

For homeowners, the outlook’s even brighter. You could find yourself sitting on a nice pile of equity. Contact us for a free home value assessment to find out.

INVENTORY REMAINS EXTREMELY LOW

As noted, one of the largest hurdles to homeownership is a lack of inventory. According to a February 2022 report by Realtor.com, there’s an expanding gap between household formation and home construction, which has resulted in a nationwide shortage of ⁵˒⁸ million housing units.¹¹

The origins of this shortage date back to the 2008 housing crisis, during which crashing home values led contractors to stop building new properties—a trend that has not been fully reversed.¹²

That decline in home construction also resulted in a decrease in the number of home building professionals, a trend that was exacerbated by job losses during the COVID-19 pandemic. Now, many builders are limited by their ability to find qualified labor.

Another major challenge is a staggering increase in the cost of materials. Pandemic-related supply chain shortages have been a significant driver, with home building material costs rising on average 20% on a year-over-year basis. The price of framing lumber alone has tripled since August 2021.¹³

These trends add tens of thousands of dollars to the cost of a typical home. Factors like a lack of buildable land in many areas, restrictive zoning, and a shortage of developers are also contributing to the issue.¹⁴

Most home buying experts agree that the lack of inventory is the primary factor driving rising housing prices and unprecedented competition for homes. With available housing units near four-decade lows, the end of the current housing boom is not yet in sight.¹⁵

WHAT DOES IT MEAN FOR YOU?

Prospective buyers should be prepared to compete for a home, since low inventory can lead to multiple offers. You may also need to expand your search parameters. If you’re ready to look, we’re ready to help.

For sellers, the picture is rosier. In this strong market, your home may be worth more than you realize. Contact us to find out how much your home could sell for in today’s market.

We’re Here to Guide You

While national real estate trends can provide a “big picture” outlook, real estate is local. And as local market experts, we can guide you through the ins and outs of our market and the local issues that are likely to drive home values in your particular neighborhood.

If you’re considering buying or selling a home, contact us now 612-208-3859 to schedule a free consultation. We can help you assess your options and make the most of this unique real estate landscape.

Sources:

Marketwatch – https://www.marketwatch.com/picks/home-price-appreciation-will-normalize-what-5-economists-and-real-estate-pros-predict-will-happen-to-home-prices-in-2022-01646940841
Bankrate –
https://www.bankrate.com/mortgages/mortgage-rate-forecast
CNBC –
https://www.cnbc.com/2022/04/16/heres-how-much-the-same-mortgage-costs-now-compared-to-last-year.html
Fortune –
https://fortune.com/2022/03/23/housing-market-interest-rate-economic-shock/
National Association of Realtors –
https://www.nar.realtor/blogs/economists-outlook/instant-reaction-mortgage-rates-april-07-2022
Fortune –
https://fortune.com/2022/03/16/home-prices-2022-2023-bank-of-america-forecast-mortgage-rates/
Fortune –
https://fortune.com/2022/03/07/what-home-prices-will-look-like-2023-fannie-mae/
Fortune –
https://fortune.com/2022/03/17/home-prices-drop-housing-markets-california-michigan-massachusetts-corelogic/
CNN –
https://www.cnn.com/2022/03/23/success/us-national-rent-february/index.html
MarketWatch –
https://www.marketwatch.com/story/home-prices-increase-at-one-of-the-fastest-rates-on-record-but-higher-mortgage-rates-should-slow-future-growth-11648559497
Realtor.com –
https://www.realtor.com/research/us-housing-supply-gap-expands/
NPR –
https://www.npr.org/2022/03/29/1089174630/housing-shortage-new-home-construction-supply-chain
Investopedia –
https://www.investopedia.com/housing-market-dips-in-early-march-2022-5222449
NPR –
https://www.npr.org/2022/03/29/1089174630/housing-shortage-new-home-construction-supply-chain
Fortune –
https://fortune.com/2022/03/14/housing-market-key-metric-inventory-zillow-bad-for-buyers/

Buyers • Sellers • June 29, 2022

Solid bets to beat inflation with Real Estate

by Brian Leneweaver

The annual inflation rate in the United States is currently around 7.5%—the highest it has been since 1982.1 It doesn’t matter if you’re a cashier, lawyer, plumber, or retiree; if you spend U.S. dollars, inflation impacts you.

Economists expect the effects of inflation, like a higher cost of goods, to continue.2Luckily, an investment in real estate can ease some of the financial strain.

Here’s what you need to know about inflation, how it impacts you, and how an investment in real estate can help.

WHAT IS INFLATION AND HOW DOES IT IMPACT ME?

Inflation is a decline in the value of money. When the rate of inflation rises, prices for goods and services go up. Therefore, a dollar buys you a little bit less with every passing day.

The consumer price index, or CPI, is a standard measure of inflation. Based on the latest CPI data, prices increased 7.5% from January 2021 to January 2022.1 A little bit of inflation is considered healthy for the economy, but 7.5% in a single year is high.

How does inflation affect your life? Here are a few of the negative impacts:

● Decreased Purchasing Power

We touched on this already, but as prices rise, your dollar won’t stretch as far as it used to. That means you’ll be able to purchase fewer goods and services with a limited budget.

● Increased Borrowing Costs

In an effort to curb inflation, the Federal Reserve is expected to raise the federal funds rate. Therefore, consumers are likely to pay a higher interest rate on new mortgages, car loans, and variable-rate credit cards.3

● Lower Standard of Living

Wage growth tends to lag behind price increases. According to Moody Analytics, when adjusted for inflation, average weekly earnings in January were down 3.1% from a year earlier.4 As such, life is becoming less affordable for everyone. Inflation can force those on a fixed income, like retirees, to make lifestyle changes and prioritize essentials.

● Eroded Savings

If you store all your savings in a bank account, inflation is even more damaging. As of February 2022, the national average interest rate for a savings account is 0.06%, not nearly enough to keep up with inflation. And economists don’t expect that rate to go much higher.3

One of the best ways to mitigate these effects is to find a place to invest your money other than the bank. Even though interest rates are expected to rise, they’re unlikely to get high enough to beat inflation. If you hoard cash, the value of your money will decrease every year and more rapidly in years with elevated inflation.

REAL ESTATE: A PROVEN HEDGE AGAINST INFLATION

So where is a good place to invest your money to protect (hedge) against the impacts of inflation? There are several investment vehicles that financial advisors traditionally recommend, including:

● Stocks

Some people invest in stocks as their primary inflation hedge. However, the stock market can become volatile during inflationary times, as we’ve seen in recent months.5

● Commodities

Commodities are tangible assets, like oil, livestock, and minerals. The theory is that the price of commodities should climb alongside inflation. But the classic choice–gold–hasn’t risen consistently during periods of inflation since the 1970s, according to data from Morningstar Direct.6

● Inflation-Indexed Bonds

Treasury inflation-protected securities, or TIPS, are U.S. government-issued bonds that are indexed to the inflation rate. Bonds are considered low risk, but the returns they offer are generally low, as well.7

● Real Estate Real estate prices across the board tend to rise along with inflation and often rise faster than inflation.8 That’s one of the reasons demand for real estate is soaring right now.9

We believe real estate is the best hedge against inflation. Owning real estate does more than protect your wealth—it can actually make you money. For example, home prices rose nearly 17% from 2020 to 2021, 10% ahead of the 7% inflation that occurred in the same timeframe.10

Plus, certain types of real estate investments can help you generate a stream of passive income. In the past year, property owners didn’t just avoid the erosion of purchasing power caused by inflation; they got ahead.

TYPES OF REAL ESTATE INVESTMENTS

Though there are myriad ways to invest in real estate, there are three basic investment types that we recommend for beginner and intermediate investors. Remember that we can help you determine which options are best for your financial goals and budget.

● Primary Residence

If you own your home, you’re already ahead. The advantages of homeownership become even more apparent in inflationary times. As inflation raises prices throughout the economy, the value of your home is likely to go up concurrently. At the same time, you’ve locked in a set mortgage payment for the next 30 years, so you’ll be immune to rising rental costs.

If you don’t already own your primary residence, homeownership is a worthwhile goal to pursue.

Though the task of saving enough for a down payment may seem daunting, there are several strategies that can make homeownership easier to achieve. If you’re not sure how to get started with the home buying process, contact us. Our team can help you find the strategy and property that fits your needs and budget.

Whether you already own a primary residence or are still renting, now is a good time to also start thinking about an investment property. The types of investment properties you’ll buy as a solo investor generally fall into two categories: long-term rentals and short-term rentals.

● Long-Term (Traditional) Rentals

A long-term or traditional rental is a dwelling that’s leased out for an extended period. An example of this is a single-family home where a tenant signs a one-year lease and brings all their own furniture.

Long-term rentals are a form of housing. For most tenants, the rental serves as their primary residence, which means it’s a necessary expense. This unique quality of long-term rentals can help to provide stable returns in uncertain times, especially when we have high inflation.

To invest in a long-term rental, you’ll need to budget for maintenance, repairs, property taxes, and insurance. You’ll also need to have a plan for managing the property. But a well-chosen investment property should pay for itself through rental income, and you’ll benefit from appreciation as the property rises in value.

We can help you find an ideal long-term rental property to suit your budget and investment goals. Reach out to talk about your needs and our local market opportunities.

● Short-Term (Vacation) Rentals

Short-term or vacation rentals function more like hotels in that they offer temporary accommodations. A short-term rental is defined as a residential dwelling that is rented for 30 days or less. The furniture and other amenities are provided by the property owner, and today many short-term rentals are listed on websites like Airbnb and Vrbo.

A short-term rental can potentially earn you a higher return than a long-term rental, but this comes at the cost of daily, hands-on management. With a short-term rental, you’re not just entering the real estate business; you’re entering the hospitality business, too.

Done right, short-term rentals can be both a hedge against inflation and a profitable source of income. As a bonus, when the home isn’t being rented you have an affordable vacation spot for yourself and your family!

Contact us today if you’re interested in exploring options in either the long-term or short-term rental market. Mortgage rates are expected to rise, so you’ll want to act fast to maximize your investment return.

WE’RE INVESTED IN HELPING YOU

Inflation is a fact of life in the U.S. economy. Luckily, you can prepare for inflation with a carefully managed investment portfolio that includes real estate. Owning a primary residence or investing in a short-term or long-term rental will help you both mitigate the effects of inflation and grow your net worth, which makes it a strategic move in our current financial environment.

If you’re ready to invest in real estate to build wealth and protect yourself from rising inflation, contact us. Our team can help you find a primary residence or investment property that meets your financial goals.

The above references an opinion and is for informational purposes only. It is not intended to be financial advice. Consult the appropriate professionals for advice regarding your individual needs.