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1) Market list and selling price
According to Zillow a well-respected source for current real estate market and standing, although current median listing and selling prices are $274,500 and $238,700 respectively. Selling price more than exceeds today’s $215,600 median home value.
The median home value is rising and is projected to continue following this trend. Up 8.7% from the previous year and projected to rise again by 6.5% in the coming year.
Homes are selling above their true value due to many factors that we will dive in to.
2) Housing Days on Market
Low supply coupled with high demand is leaving buyers hungry and on the hunt for a home. Due to inventory shortages, market prices are rising and will continue to do so eliminating some would-be buyers.
However, this also means that those who do make offers are more intent on buying leading to faster close on market. How fast are we talking though? 55 days is the average according to another respected site Realtor.com! In fact this is 8% faster than last year’s rate for this month.
Buyers frustrated from waiting for the right opportunity have prepared well ahead of time for the summer season and are looking to close a deal on the right home for their right price.
3) Construction of new homes
There are opportunities for big rewards to those attempting to meet demands of homebuyers. Zillow has predicted that this year construction of new entry-level homes will rise in an attempt to do so. Their predictions so far have been accurate.
Although newest information from the U.S. Census Bureau shows building starts at 1,352,000 and housing starts at 1,287,000 down from the previous month by 1.8 and 3.7 percent respectively. Fluctuations are expected to occur, especially when dealing with the real estate industry which has at times proven more volatile and less reliable for returns than the everchanging stock market. The important numbers to keep an eye on aren’t those of month to month change, here’s what matters:
From this same point last year there is steady growth. Since the market hit its low in 2011, housing starts have begun rising again very steadily. From April 2017 to April 2018 there has been a positive change of 10.5 percent in building starts. However, the interesting thing is to look at success and profits being recorded in the market for construction of entry-level homes that Zillow predicted would occur.
Instead of chasing down the new influx of demand for luxury listings when our economy improved, a company called Meritage Homes went the opposite way. By pouring investments into a new line of homes that were energy-efficient, affordable, and the right size for entry-level, they saw the highest returns in company history!
Shifts in market towards the entry-level is best explained by Zillow’s chief economist Svenja Gudell who states that “Builders won’t ignore this hungry market, and we’ll start to see a rise in new construction at the more affordable end, instead of all the luxury buildings we’ve seen lately.”
4) The Renter’s Market
As is not a surprise to many reading this, rent is not cheap. Prices are skyrocketing quickly for this formerly affordable alternative to owning a home. The Department of Labor tells us that rental prices have increased by 18% over the past 5 years. Prices are expected to rise with inflation, however, these increases have been outpacing inflation for many years and there are no signs of it slowing down either.A report from the National Low-Income Housing Coalition shows just how difficult it is to afford a modest apartment in every state at different income levels and home sizes. On average it will take a wage of $22.10/hr for a 2-bed apartment and $17.90 for a 1-bed apartment to realistically afford rent.
To give perspective on how difficult it is earning the federal minimum wage of $7.25 an hour to pay for rent, for the 2-bed apartment it will take 122 hours per week of work or 3 full-time jobs. The 1 bedroom option will take 99 hours per week or 2-1/2 full-time jobs. Although more possible with 2 people making income for the household, it will still take more than 1 full-time job per person to afford rent!
This market is not forgiving, but luckily as stated previously construction of entry-level homes are on the rise in an attempt to curb the appetite of millennials entering as first time buyers as well as renters looking to land themselves their own home.
5) Effects From Capitol Hill
Passage of the Tax Cuts and Jobs Act at the end of 2017 will have many effects spanning across the economy, but we will be examining what effects it has in particular to the real estate market. There a few that have the largest impact which we will discuss.
Interest Reduction on Mortgages
Previously before this bill, interest could be deducted on $1 million in mortgage debt from purchase along with $100,000 in home equity debt totaling up to $1.1 million in deductions. This new law scratches the home equity deduction even on existing loans and plummets the $1 million cap down to $750,000. So what and who will be impacted? For nearly all homebuyers it will mean nothing. However, those most burdened will be homeowners living in expensive beachfront/coast-side markets. A hitch will be thrown in the plans of those considering bumping up to homes greater than the new $750,000 value ample reason to reconsider along with those already in a home of that value considering moving.
Under the old law it made sense to itemize deductions, of course that’s before rates nearly doubled the old ones of $12,000 for a single filer and $24,000 for a couple filing jointly. Previously for 98% of homes it made sense to itemize as there would be benefits associated.
Now according to Zillow it only makes sense for 14% of homes that actually have the equity value and carry high enough tax bills to itemize over taking the standard deduction.
Receiving the standard deduction over itemizing is not the end of the world, but it does switch things up being that there is no longer a tax incentive where for years that has been case.
Many other previously set deductions have been removed with the passing of this new legislation. Where previously a deduction existed for casualty losses, this deduction now only occurs as an exemption of presidentially declared disasters. Another removed deduction is for moving expenses, this is now only applicable to members of the military.
Capital Gains Exclusion
Most changes associated with passing of the new law appear to be on the more grim side of things. Now that’s out the way, its time to show some positives! Up to $500,000 can be excluded for joint filers, and $250,000 for single filers on capital gains when selling their primary home so long as that has been their residence the past 2 of 5 years.
These are the main effects that homeowners will be feeling across the spectrum of all income classes.
6) Hottest Places to Buy
With reduced inventory and increasing home prices, people are looking across the country for which locations to be the best bet with their investment. An are like this will have steady job growth to complement and rise along with increasing house prices. The goal is to catch them at the start, before these currently well-priced homes move to the over-priced range. Today we will be pointing you towards the Top 3 nationwide
The #1 spot on this list belongs to Orlando according to analysis by Local Market Monitor. Although home prices increased 9% in 2017 the $247,550 average does not come close to the nation’s average of $312,400! This is largely due to the housing crash that was experienced. But don’t let it deter you, the signs are very promising with 7.1% job growth over the last 2 years coupled 7.6% growth in population.
Following close behind at #2 is Provo-Orem, Utah. Although not a town known as well-known as the major cities, this town has an average home price of $266,169 still very well below the national average. It’s population and job growth are nearly identical but slightly below that of Orlando and show very promising price growth by 31% in the following 3 years.
We will be returning to Florida for the #3 spot belonging to Jacksonville. With a very modest $247,809 average home price, and slightly lower job and population growth than #2’s Provo-Orem the numbers are still very reliable with 6.1 and 5.9 percent respectively.
These investment options are not suited for those looking to turn around and make a quick buck. Some areas are experiencing even faster price growth, but the 3 listed above are the most reliable and sustainable over the medium to long term.
7) Hottest Places to Sell
Many locations are beginning to lean over the ledge of affordability. These are markets that have some of the highest possible profit margins yet at the same time pose some of the highest risks in the event that said market begins to fall. Many in these locations are establishing exit strategies before a turn occurs.
#1 Spot on this list belongs to the Denver Metropolitan Area. With an average home price of $379,886, which although well above the national average the real risk posed comes from the homes being overvalued by 45% using the ratio of price to local income. The 3-year projected growth of 26% means that in the near future this already teetering market is very likely to go over the edge.
Capturing the #2 spot is the Miami Metropolitan Area. Average home price in this area is $336,417 sitting modestly above the national average. But with a projected growth over the next 3 years of 25% and being that homes are currently overvalued by 33% soon this area will be heavily overpriced and not one that potential homebuyers are appealed by.
Our #3 spot belongs to 3 areas in California with the same figures; San Bernadino, Riverside and Ontario. Seemingly safe areas for investment with average price of $300,315 comfortably below the national average, predictions over the next 3 years do not show this position being maintained. Forecast has this areas price as growing by 31% accompanied by the overvalue of 31%.
The tried and true method for determining market sustainability in the near future is by comparing home prices to local median income. An average local median income of $90,000 along with a median home price of $270,000 gives you a ratio of 3 which is rational. Housing markets when rising above that ratio are good indicators of a not so pleasant outlook on the horizon.
Overall the real estate market is showing promising signs as it continues to rise. So long as quality research is done on the local market, if you play your cards right the opportunities to win big in scoring the right investment is very real.