This week, we are going to look at the three reasons to sell your house now instead of waiting: demand is strong, supply is low and new construction will soon be your competition. – The KCM Crew

Part II – Housing Supply is Low

A seller’s ability to sell their home in today’s real estate market will be determined by both the supply of homes for sale and the demand for that housing. In real estate, supply is represented by the current month’s supply of homes for sale (the number of homes for sale divided by the number of homes sold in the previous month).

While there is no steadfast rule that will apply to pricing in every category of housing, here is a great guideline:

• 1-4 months’ supply creates a sellers’ market where there are not enough homes to satisfy buyer demand. Appreciation is guaranteed.
• 5-6 months’ supply creates a balanced market. Historically home values appreciate at a rate a little greater than inflation.
• 7-8 months’ supply creates a buyers’ market where the number of homes for sale exceeds the demand. Depreciation follows.

What is happening across the country right now?

In most parts of the country, supply is dropping like a rock. According to the National Association of Realtors, total housing inventory is below a five months’ supply. This is almost 20% below inventory numbers of just a year ago and at levels we haven’t seen since 2005.

Based on the table above, we can see that the supply/demand ratio is showing a sellers’ market where prices appreciate. This has created positive movement in housing values in most parts of the country.

Sellers have a great opportunity right now. Historically, inventory increases dramatically as we approach summer. Selling now while demand is high and supply is low may garner you your best price.

Tomorrow, we will look at the competition new construction will create.

This week, we are going to look at three reasons to sell your house now instead of waiting: demand is strong, supply is low and new construction will soon be your competition. – The KCM Crew

Part I – Demand for Real Estate is Much Stronger This Year

When selling anything, owners can only hope there is a strong demand for that which they are selling. The great news for today’s home sellers is that the current housing market is experiencing a stronger demand than we have seen in some time.

The  spring housing market of 2013 is projected to be one of the best in years.

Home Sales

The National Association of Realtors (NAR) reports monthly on both pending sales (houses going into contract) and existing home sales (actual closed sales).

In the first quarter of 2013, pending sales have consistently outperformed the numbers reported in 2012. Contract activity has been above year-ago levels for the past 22 months. Before this year, the last time the index showed a higher reading was in April 2010, shortly before the deadline for the home buyer tax credit.

NAR also revealed that closed home sales have been above year-ago levels for 20 consecutive months and sales are at the highest level since the tax credit period of 2009-2010.

Impact on Sellers

This increase in demand has created bidding wars for properly priced homes across the country. This has resulted in two favorable changes for home sellers:

1. They are receiving offers closer to (if not greater than) the list price.
2. The average days it takes to sell a home has dropped by over 20% from last year.

If you are thinking about selling your home, don’t miss out on the strong demand that exists in the current spring market.

Tomorrow, we will look at the supply of housing inventory that is available

This week,we are going to look at the three financial reasons to buy a home now instead of waiting: prices are rising, interest rates are increasing and rents are skyrocketing. – The KCM Crew

Part III – Rents Are Skyrocketing

Whether you own or rent, you will have a monthly housing expense. The question is how that expense will change in the future. When you purchase a home, for the most part, you lock-in that monthly housing expense for the length of the mortgage you take (15 or 30 years for example). When you rent a home, your housing expense is impacted by movements in the supply and demand for rental properties.

Historically, residential rental rates increase by 3.2% on an annual basis. However, in the current housing environment, there is an increasing demand for residential rental properties. This increase in demand has dramatically impacted rates. Zillow, in their most recent report, revealed that rental rates in the U.S. increased by 4.5% over the last twelve months. Other studies have projected rental rate increases of 4-5% over the next few years.

The only way to have control of your housing expense is to buy.

But Isn’t Buying Much More Expensive Than Renting?

Not right now! As a matter of fact, with prices down and mortgage rates at historic lows, it is LESS EXPENSIVE to buy than rent in most areas. In a recent report, Trulia revealed it is cheaper to buy than rent in ALL of America’s largest regions.

According to Jed Kolko, Trulia’s Chief Economist:

“People who didn’t buy a home last year may have missed the bottom of the market, but they haven’t completely missed the boat. Buying remains cheaper than renting in all 100 large metros. Even buyers who can’t get today’s lowest mortgage rates will still find that buying makes more financial sense than renting in nearly all local markets.”

However, Kolko went on to say that this opportunity may soon disappear:

“Although buying a home is still cheaper than renting, the gap is closing. In 2013, home prices should rise faster than rents, and mortgage rates are likely to rise in the next year as the economy improves. By next year, buying could be more expensive than renting in some housing markets, even for people with the best credit.”

Again, the only way to lock-in your monthly housing expense is to take that decision out of the hands of a landlord by owning. With both prices and interest rates set to increase, the best time to buy is right now.

This week, we are going to look at the three financial reasons to buy a home now instead of waiting: prices are rising at an accelerated rate, interest rates are increasing and rents are skyrocketing.– The KCM Crew

Part I – Prices Are Rising at an Accelerated Rate

The price of a home is the major consideration when deciding whether or not it makes financial sense to purchase a house. Experts are not only projecting that house values will increase in 2013. They are also more optomistic in the level of appreciation they are projecting as the market begins to heat up. Here are some examples:

The Home Price Expectation Survey

The latest survey of a nationwide panel of 118 economists, real estate experts and investment and market strategists reveals they project home values to end 2013 up an average of 4.6%according to the first quarter. This is after they had projected a 3.1% increase just three months ago.

Bank of America

In a report titled, Someone Say House Party?, Bank of America analysts revised their projections upward:

“Home prices continue to show momentum amid shrinking inventory and record high affordability, prompting us to revise up our original forecast of 4.7% for home prices this year. We now expect national home prices, as defined by the S&P Case Shiller home price index, to increase 8% this year.”

Capital Economics

According to a report in DSNews, Capital Economics also upgraded their prediction:

“Strong demand and tight inventory have brought existing home sales back to ‘normal’ levels, and further gains are possible, according to the latest market report from Capital Economics. Additionally, market conditions may prompt lenders to “loosen the purse strings slightly” and lend a little more freely.

These conditions, combined with broader economic indicators, lead Capital Economics to revise its previous forecast of a 5% price gain this year up to 8%.”

Morgan Stanley

In an article from HousingWire, Morgan Stanley joined the party:

“Strong momentum in home prices as well as housing activity gave Morgan Stanley analysts enough confidence to upgrade their home price appreciation projections to roughly 7%(from 5%) for 2013, according to its latest global securitized credit report…

“The momentum in most metrics of housing activity is running well ahead of the pace we had expected,” said James Egan, Jose Cambronero and Vishwanath Tirupattur, analysts for Morgan Stanley.” 

Not only are prices projected to appreciate. Experts are actually revising their projections upward as demand maintains its momentum.

Tomorrow, we will look at increasing interest rates.

This week, we are going to look at the three financial reasons to buy a home now instead of waiting: prices are rising at an accelerated rate, interest rates are increasing and rents are skyrocketing.– The KCM Crew

Part I – Prices Are Rising at an Accelerated Rate

The price of a home is the major consideration when deciding whether or not it makes financial sense to purchase a house. Experts are not only projecting that house values will increase in 2013. They are also more optomistic in the level of appreciation they are projecting as the market begins to heat up. Here are some examples:

The Home Price Expectation Survey

The latest survey of a nationwide panel of 118 economists, real estate experts and investment and market strategists reveals they project home values to end 2013 up an average of 4.6%according to the first quarter. This is after they had projected a 3.1% increase just three months ago.

Bank of America

In a report titled, Someone Say House Party?, Bank of America analysts revised their projections upward:

“Home prices continue to show momentum amid shrinking inventory and record high affordability, prompting us to revise up our original forecast of 4.7% for home prices this year. We now expect national home prices, as defined by the S&P Case Shiller home price index, to increase 8% this year.”

Capital Economics

According to a report in DSNews, Capital Economics also upgraded their prediction:

“Strong demand and tight inventory have brought existing home sales back to ‘normal’ levels, and further gains are possible, according to the latest market report from Capital Economics. Additionally, market conditions may prompt lenders to “loosen the purse strings slightly” and lend a little more freely.

These conditions, combined with broader economic indicators, lead Capital Economics to revise its previous forecast of a 5% price gain this year up to 8%.”

Morgan Stanley

In an article from HousingWire, Morgan Stanley joined the party:

“Strong momentum in home prices as well as housing activity gave Morgan Stanley analysts enough confidence to upgrade their home price appreciation projections to roughly 7%(from 5%) for 2013, according to its latest global securitized credit report…

“The momentum in most metrics of housing activity is running well ahead of the pace we had expected,” said James Egan, Jose Cambronero and Vishwanath Tirupattur, analysts for Morgan Stanley.” 

Not only are prices projected to appreciate. Experts are actually revising their projections upward as demand maintains its momentum.

Tomorrow, we will look at increasing interest rates.

Original InfoGraphic by California Association of Realtors (CAR)

We are honored to have Chip Wagner, an icon in the appraisal industry and our good friend, as a guest blogger today. Chip recently addressed the housing inventory challenges in the Chicago region. We believe that his observations can be applied to the majority of markets in the U.S. – The KCM Crew

It’s All About Supply and Demand

Definitions of Supply and Demand:

 Dictionary.com

In classical economic theory, the relation between these two factors determines the price of a commodity. This relationship is thought to be the driving force in a free market. As demand for an item increases, prices rise. When manufacturers respond to the price increase by producing a larger supply of that item, this increases competition and drives the price down.

Investopedia.com

A theory explaining the interaction between the supply of a resource and the demand for that resource. The law of supply and demand defines the effect that the availability of a particular product and the desire (or demand) for that product has on price. Generally, if there is a low supply and a high demand, the price will be high. In contrast, the greater the supply and the lower the demand, the lower the price will be. The law of supply and demand is not an actual law but it is well confirmed and understood realization that if you have a lot of one item, the price for that item should go down.

In real estate appraisal context, the principle of Supply and Demand states that:

The price of real property varies directly, but not necessarily proportionately, with demand and inversely, but not necessarily proportionately, with supply.

My most simple explanation of Supply and Demand is: It is the relationship between sellers present in a market, which is the supply; and buyers looking, which is the demand. This relationship is reported in months’ supply of inventory.

So, what is the latest challenge?

Some (or most) might say that there are not enough “good” homes for sale. This could represent a shortage of supply, something we have not talked about for several years. It is allowing sellers to raise their asking prices and buyers who have been ‘shopping around’ are now willing to pay higher prices based on other homes they are comparing and/or contemplating to the home that they want.

Why do we have a shortage?

• We are coming out of the worst decline (or correction) in real estate values for many generations – some pointing back to the early 1980′s, others are pointing back to the Great Depression.
• In all of Chicagoland, our MLS showed a 37.6% decline in 5 years. The values hit their all-time high in the 3^rd quarter of 2007 at $391,272, and by the 3^rd quarter of 2012, they hit a low of $244,203.
• The mean sales price at the end of the year in 2001 was $239,858, and year-end 2002 was $255,001. Therefore pricing as of the end of 2012 is at the same level that we were 10 years ago – sometime in 2002.

Why aren’t there many “good” homes for sale?

There are several contributing factors:

1. New construction – We are seeing new construction picking up again at all price points, which is certainly a positive. But with fewer builders, and more conservative approaches after getting burned, builders are not keeping up with the demand that is present. This is leaving buyers searching for resales. And because of the slowdown in new construction, (few new homes were built between 2007 and 2012) the nearly-new resales rarely exist.

Lack of new construction is a contributing factor as many builders folded or downsized significantly over the past 5-6 years.

2. Foreclosures – Foreclosures are a trend that is affecting supply of inventory. Banks are slower at foreclosing, in some cases taking over 3 years through the process. In some cases, the buyers aren’t even interested in these properties, and the investors are picking up these properties and flipping them at a profit.

Foreclosure properties, once viewed as a deal perhaps 25% to 40% under market values, are now being sold at only a 7% discount according to RealtyTimes.com.

3. Investors – Investors have entered the market at greater levels, some to purchase properties to rent, others to rehab and flip them. With the high inventory, investors were able to seek out the best deals, now there are fewer homes available for them.

4. Few people really want to sell at the bottom – Personally, I think the biggest reason that our inventory is low is simply because everyone wants to buy at the bottom; but what seller really wants to sell their home at the bottom of the market? That being said, there are many sellers who cannot sell.

Recently, I heard Steve Harney speak at the Leading Real Estate Companies of the World Conference; he stated there are over 10 million people that are still under water and cannot sell their homes. That is a significant number – these are ‘move-up buyers’ that will create a domino effect. A portion may also represent the potential downsizing buyers who have that upper priced home to sell. This is a very complicated situation. There are many opportunities in the market as demand continues to surge.

Move-up sellers have pent up demand and are ready to buy – if they can sell!

Remember, our market dropped 37.6% as a region since 2007 (some areas fell less than 20%, and other areas fell greater than 50%). The buyers with 20% down lost equity in their homes. Buyers with 5% or 10% lost substantial equity in their homes. If they sell today, they don’t have the down payment necessary for that next home.

Various predictions by “experts” suggest our recovery may be anywhere between 2% and 8% annually. At a conservative 4% annual rate of recovery, it is 5 more years before we can reach 20%.  Those who last purchased their home between 2006 and 2008 are being hurt the hardest in today’s market.

One positive is that renters are ready to purchase. Generation X and Y buyers now believe in homeownership; they want to get out of renting apartments because rents continue to go higher than taking out a mortgage. Interest rates remain at historic lows, with no indication of a significant increase of rates on the horizon.

From the 3rd quarter to the 4th quarter, Chicagoland saw its first quarter to quarter increase in sales price since prices began falling five (5) years ago. All indications are that this trend is continuing. But the increase, although welcome news, is very small. (+0.13%). Many communities throughout Chicagoland are seeing more substantial increases, some are not yet seeing increasing values. (44%, or 84 out of 191 communities) saw increases over the past quarter.

Back to Supply and Demand …

A balanced supply of inventory is considered to be 4 to 6 months. A balanced supply is going to be neutral in pricing, while an undersupply is going to lead to upward pressure on prices – a Seller’s Market. An oversupply will lead to downward pressure on prices – a Buyer’s Market.

Our supply of inventory is at its lowest level since the end of 2006 and most areas have been reduced to a balanced supply of inventory, with undersupply observed in many sub-markets in the region.

Chicago Detached housing is 3.88 months, and Attached housing (condos, townhomes, Co-ops and duplexes) is 2.87 months supply!

The anticipation is that the pricing will continue to be pressured upward as the desirable properties (in terms of location and condition/modernization) will be gobbled up. Remember the multiple-contracts driving up values last decade? Many agents are now experiencing these trends again.

Get ready for a wild and crazy ride as our real estate market in Chicagoland is pulled and pushed in all directions in 2013

This could lead to things that do not make sense in the crazed market. Real Estate professionals (Agents and Appraisers alike) must take care to understand all of the nuances in the market signaling the positives taking place.

Just what we need: more complications to try to understand.

Here are a few things to watch…

• Watch the days on market (DOM). Take time to understand if an area’s high DOM may be due to stale listings of homes that are overpriced, distressed and/or in inferior condition.
• Trend the increasing Sales Price-to-List Price ratios – in many sub-markets that I appraise in, I have seen these trend from 93% to 96% or higher just in the past year.
• Track the number of pendings in relationship to the number of listings? One appraiser friend of mine tracks this and calls this “market velocity.” Right now, I see some areas where there have more pendings than listings in a given sub-market.
• Are the pendings priced higher than the previous sales prices? Another indication of an increasing market that I am seeing in many areas.

Welcome to, we all hope, the Housing Market Recovery!