Black Friday Shopping!

Stay Home on Black Friday!  The housing market has already given many homeowners a wonderful gift.  Equity!  As house values have increased, homeowners who were once “underwater” are finding that they now have some equity in their house. 

Having equity increases a homeowner’s options and is generally good for the real estate market.  Read the article below to see how an increase in property values is impacting the real estate market.

Mindless Consumerism:  Buying someone a gift that they do not need or want merely because you feel some false sense of obligation to do so is “Mindless Consumerism”.  I am not saying “Bah-Humbug” or anything like that but, I am generally not a fan of mindless consumerism. . .

. . . A Better Idea:  Save the money that you would have spent on trinkets and put it toward a down payment on a new house or an investment property!  Stuff a stocking with a condo or buy an eight unit (one for each night) apartment building for Chanukah!  I believe that property ownership IS the path to financial independence.

The Most Wonderful Time of the Year!  Have a fun, happy and safe Thanksgiving! 

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Americans Recover Home Equity at Record Pace:
By Kathleen M. Howley – Nov 21, 2013

The number of Americans who owe more on their mortgages than their homes are worth fell at the fastest pace on record in the third quarter as prices rose, a sign supply shortages may ease as more owners are able to sell.  (Click Here to find out how much equity you have in your house! – TB)

The percentage of homes with mortgages that had negative equity dropped to 21 percent from 23.8 percent in the second quarter, according to a report today from Seattle-based Zillow Inc. The share of owners with at least 20 percent equity climbed to 60.8 percent from 58.1 percent, making it easier for them to list properties and buy a new place.

Home sales will pick up very nicely when people gain the equity they need to sell their house and have a down payment for the next one. There’s a magnifying effect on sales — people are able to list their home and sell it, and odds are they’re going to go on and buy another one.

A shortage of inventory has forced homebuyers to compete, driving up prices and leaving some shoppers out of the market. The number of homes for sale reached a low of 1.8 million in early 2013, the fewest in more than a decade, according to data from the National Association of Realtors.

The pent-up demand from people who now have enough equity to sell their homes will help next year. We’ll see the effect during the spring selling season. Not a lot of people put their homes on the market during the holidays.

Price Gains

While the supply of homes limited sales, it boosted price growth. Shortages have caused buyers to compete for properties by raising the price they offer. The median price of an existing home rose 12.8 percent last month. In August, it jumped 13.4 percent, the fastest rate since the height of the real estate boom in 2005.

We’ll see the pace of price growth moderate next year. I believe that prices will gain 8 percent in 2014, compared with 10 percent in 2013.

The real estate recovery has supported economic growth for almost two years as buyers make ancillary purchases such as home decor and appliances. Consumer spending accounts for about 70 percent of the economy. Gross domestic product grew at a 2.8 percent pace in the third quarter, up from 2.5 percent in the prior period.

Furniture, Renovations

Whenever we see a house turn over we see furniture sales and renovations that add to consumer spending. With the real estate market recovering, people are feeling more confident about their situation, which makes them more willing to spend.

About 10.8 million homeowners were underwater on their mortgages in the third quarter, down from 12.2 million in the second quarter, Zillow said. The number of people owing more than their homes were worth peaked at about 15.7 million people in the first quarter of 2012 when real estate prices began to rise.

About 20 million people had negative equity or less than 20 percent equity, down from 21.5 million in the prior three months. Las Vegas, Atlanta, and Orlando, Florida, led major metropolitan areas with the highest rates of borrowers with less than 20 percent equity.

Sales of existing homes fell 3.2 percent in October to a 5.12 million annual rate, the lowest level in four months, according to the National Association of Realtors. There were 2.13 million homes for sale at the end of the month, down from 2.17 million in September, the group said.

Balanced Market

Given the current turnover, it would take 5 months to sell those houses compared with 4.9 months at the end of September. For the past year, the supply of homes has been lower than the six-month level that is considered a balanced market.

More properties on the market means the liquidity of residential real estate will pick up. Anything that increases inventory volume in the market will lubricate sales.

On a house valued at $300,000, the owner would have to owe $240,000 or less to have at least 20 percent equity. If an owner lacking a 20 percent stake in a house is able to get a new mortgage that doesn’t require 20 percent down, the lender typically will require private mortgage insurance, or PMI. On a $300,000 mortgage, PMI could cost $200 a month or more.

The shortage of homes for sale has been worsened by investors buying properties to rent. Institutional investors including Blackstone Group LP have depleted inventory as they built portfolios of single-family houses to turn into rentals. Blackstone has spent about $7.5 billion acquiring 40,000 homes in the U.S.

While that added to the record pace of price growth, the lower inventory has limited options for private buyers.

Institutional buyers have helped prices but they’ve created shortages that have held the market back. An increase in supply means private buyers will have a better chance to find a home.