Home values are increasing and that should be a huge incentive for homeowners (including homebuilders) to put houses on the market. But that’s not happening and low inventory levels are leaving homebuyers competing for properties which in turn is driving up home values.
U.S. home prices rose 5.4% in December, the largest year-over-year gain since July 2014. The median sales price of a previously owned home also jumped 8.2% from last January, the largest year-over-year gain since April 2015 and the 47th straight month of increases.
Locally the average sale price of a home in January was $184,789, an increase of 5.9% over January 2015 and a 0.3% increase over the previous month. The median price in January was $153,000, an increase of 9.3% from a year ago.
While the number of existing homes on the market at the end of January increased from December nationally, the level was still 2.2% lower than a year ago. Locally there were 2,249 central Ohio homes and condos added to the market during the month of January, a 47.1% gain over the previous month, however, this represents a slight dip of 2.5% from January 2015
“The spring buying season is right around the corner and current supply levels aren’t even close to what’s needed to accommodate the subsequent growth in housing demand,” said Lawrence Yun, NAR chief economist, in a press statement.
So why are there fewer homes for sale and how does this create opportunities for sellers?
1. Not as many new homes.
While the pace of new household formation has recovered from lows during the recession, homebuilding has not kept up. In the last two years, the U.S. has added more than a million households. This year, forecasts predicted 1.25 million new households, which is a historically average rate.
By contrast, homebuilders last year started just 715,000 single-family houses, well below the 1.025 million average since 1959. The last time builders reached the average was 2007 and it won’t be until 2018 that starts will hit that point again, according to a forecast from Chris Christopher, director of U.S. macro and global economics at IHS Global Insight.
2. Fewer distressed properties.
After the housing bubble burst, there was a glut of distressed properties on the market, either in foreclosure or in pre-foreclosure and listed as short sales by desperate homeowners who needed to sell but owed more on their mortgage than their homes were worth. The number of distressed properties has fallen drastically since.
Nationally the number of homes somewhere in the foreclosure process in December was 433,000, down from 568,000 the previous year and the lowest level since November 2007. The NAR found that the number of sales of homes in foreclosure or short sales in January was down 11% from a year ago. Locally the percentage of closed sales there were foreclosure or short sale fell 9.1% to 13.7% of the market. In 2011, distressed properties made up 35.1% of total sales.
And because home prices are rising, there is little incentive for a bank or lender to approve a short sale to a homeowner who wants to get out a property.
3. Fewer job relocations.
Job relocation was the second-highest reason that home sellers sold their previous home last year, according to the NAR. But the reality is that fewer people are actually relocating to new cities for jobs. Only 11 percent of people who got a new job last year moved for the position, down from the previous two years and well off pre-recession levels. The decline is also part of a longer-term trend since the 1980s of decreasing relocations.
4. Staying put in the golden years.
While plenty of seniors plan to downsize, a good portion of baby boomers don’t intend to move. Almost two-thirds of boomers plan to age in place in their current home, according to a survey last year from the Demand Institute. To do that, some are planning age-friendly renovations to meet their needs as they seek to age in place. More than a third of remodelers said in December that homeowners wanted such projects as kitchen, bath and universal design remodeling; the latter is often for aging homeowners.
5. Stuck homeowners.
More than half of home buyers last year used proceeds from the sale of their previous home to purchase a new house. The median equity sellers got out of their old home was 23%. But for many current homeowners, that is not an option. Just over one in six of the approximately 50 million homes with a mortgage have less than 20% equity in them, according to CoreLogic. For some that’s enough reason to postpone selling their homes, while they wait prices to rise further. While this strategy makes sense for those looking to downsize, it’s a terrible strategy for move up buyers who would benefit by purchasing the larger, more expensive home now while mortgage interest rates are low and before home prices rise further. In doing so move up buyers not only benefit by locking in todays low interest rates and home prices, but they would also benefit by capturing the additional appreciation. Consider this, if home values appreciate by 4% in a given year, that 4% is significantly greater on a $500,000 as opposed to a $250,000 and translates to a $10,000 premium.
For those homeowners who do want to sell and see rising prices as an opportunity to get a good return on their property, the very reason they may not be selling is because of the lack of inventory. Many homeowners aren’t selling their current homes, even if they want to, because they’re concern they might not be able to find one to buy. This is a valid concern, however, there are strategies we employ to alleviate this issue and which allows us to locate a buyer for your current home while searching for your next home without obligating you to sell, or forcing you to sell before we’ve gotten you into contract on your next home!
Historically low mortgage interest rates and an improving economy are driving demand for housing and this combined with low housing inventory levels is driving up home prices. This is turn is resulting in short marketing periods for sellers reducing the inconvenience typically associated with selling a home and elevated sales prices. This represents a tremendous opportunity for sellers, especially move up buyers!
If you, or someone you know is considering Buying or Selling a Home in Columbus, Ohio please contact The Opland Group. We offer professional real estate advice and look forward to helping you achieve your real estate goals!
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Hilliard 43026 Lewis Center 43035 New Albany 43054 Pickerington Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235