The Lack Of Inventory Remains A Huge Challenge In The Market

The housing crisis is finally in the rear view mirror as the real estate market moves down the road to a complete recovery. Home values are up, home sales are up, and distressed sales (foreclosures & short sales) are at their lowest mark in over 8 years. This has been, and will continue to be, a great year for real estate.

However, there is one thing that may cause the industry to tap the brakes: a lack of housing inventory. According to the National Association of Realtors (NAR),buyer traffic and demand continues to be the strongest it has been in years. The supply of homes for sale has not kept up with this demand and has driven prices up in many areas as buyers compete for their dream home.

Traditionally, the winter months create a natural slowdown in the market. Jonathan Smoke, Chief Economist at realtor.com, points to low interest rates as one of the many reasons why buyers are still out in force looking for a home of their own.

“Overall, the fundamental trends we have been seeing all year remain solidly in place as we enter the traditionally slower sales season, and pent-up demand remains substantial as buyers seek to get a home under contract while rates remain so low.”

NAR’s Chief Economist, Lawrence Yun, points out that the inventory shortage we are currently experiencing isn’t a new challenge by any means:

"Inventory has been extremely tight all year and is unlikely to improve now that the seasonal decline in listings is about to kick in. Unfortunately, there won't be much relief from new home construction, which continues to be grossly inadequate in relation to demand."

Bottom Line

Healthy labor markets and job growth have created more and more buyers who are not just ready and willing to buy but are also able to. If you are debating whether or not to put your home on the market this year, now is the time to take advantage of the demand in the market.

Now Is Time To Sell

We all realize that the best time to sell anything is when demand is high and the supply of that item is limited. The last two major reports issued by the National Association of Realtors (NAR) revealed information that suggests that now continues to be a great time to sell your house.

Let’s look at the data covered by the latest Pending Home Sales Report and Existing Home Sales Report.

THE PENDING HOME SALES REPORT

The report announced that pending home sales (homes going into contract) are up 2.4% over last year, and have increased year-over-year now for 22 of the last 25 consecutive months.

Lawrence Yun, NAR’s Chief Economist, had this to say:

"The one major predicament in the housing market is without a doubt the painfully low levels of housing inventory in much of the country. It's leading to home prices outpacing wages, properties selling a lot quicker than a year ago and the home search for many prospective buyers being highly competitive and drawn out because of a shortage of listings at affordable prices."

Takeaway: Demand for housing will continue throughout the end of 2016 and into 2017. The seasonal slowdown often felt in the winter months did not occur last winter and shows no signs of returning this year.

THE EXISTING HOME SALES REPORT

The most important data point revealed in the report was not sales, but was instead the inventory of homes for sale (supply). The report explained:

• Total housing inventory rose 1.5% to 2.04 million homes available for sale
• That represents a 4.5-month supply at the current sales pace
• Unsold inventory is 6.8% lower than a year ago, marking the 16thconsecutive month with year-over-year declines

There were two more interesting comments made by Yun in the report:

"Inventory has been extremely tight all year and is unlikely to improve now that the seasonal decline in listings is about to kick in. Unfortunately, there won't be much relief from new home construction, which continues to be grossly inadequate in relation to demand."

In real estate, there is a guideline that often applies; when there is less than a 6-month supply of inventory available, we are in a seller’s market and we will see appreciation. Between 6-7 months is a neutral market, where prices will increase at the rate of inflation. More than a 7-month supply means we are in a buyer’s market and should expect depreciation in home values. As Yun notes, we are, and will remain, in a seller’s market with prices still increasing unless more listings come to the market. 

"There's hope the leap in sales to first-time buyers can stick through the rest of the year and into next spring. The market fundamentals — primarily consistent job gains and affordable mortgage rates — are there for the steady rise in first-timers needed to finally reverse the decline in the homeownership rate."

Takeaway: Inventory of homes for sale is still well below the 6-month supply needed for a normal market. Prices will continue to rise if a ‘sizable’ supply does not enter the market.

Bottom Line

If you are going to sell, now may be the time to take advantage of the ready, willing, and able buyers that are still out looking for your house.

Real Estate Performance Is Up

Some Highlights:

• Distressed property sales fell to its lowest number since NAR began tracking it in 2008.
• As you can see, with less distressed properties, sales are up in all price ranges except the $0 - $100K price range.
• Interest rates are still at historic lows, signifying that now is the right time to buy!

Historically Low Mortgage Rates Improve Your Purchase Power

According to Freddie Mac’s latest Primary Mortgage Market Survey,interest rates for a 30-year fixed rate mortgage are currently at 3.47%. Rates have remained at or below 3.5% each of the last 16 weeks, marking a historic low.

The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power.

Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford will decrease if you plan to stay within a certain monthly housing budget.

The chart below shows what impact rising interest rates would have if you planned to purchase a home within the national median price range, and planned to keep your principal and interest payments at or about $1,100 a month.

With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5%, (in this example, $6,250). Experts predict that mortgage rates will be closer to 4% by this time next year.

Act now to get the most house for your hard earned money.

The #1 Reason to Buy Right Now – the money.

First Time Home Buyers, For Buyers

People often ask whether they should buy a home now or wait. Recently released data suggests that waiting may not make sense as prices seem to again be on the rise. Let’s take a look at some of the data and commentary on the subject:

Ed Stansfield, chief property economist at Capital Economics:

“The current tightness of supply conditions would normally be consistent with much faster price growth. The continued steady growth in home sales that we expect this year will only add to this upward pressure on prices.”

Case Shiller Home Price Index

“The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a 4.1% annual gain in March 2015 … with a 0.8% increase for the month.”

Anand Nallathambi, CEO of CoreLogic

“All signs are pointing toward continued price appreciation throughout 2015… Tight inventories, job growth and the impact of demographics and household formation are pushing price levels in many states toward record levels.”

Danielle Hale, Director of Housing Statistics at NAR

“Even without further acceleration, the pace of price growth remains too high. Strong buyer demand and low inventories coupled with relatively low new construction are helping to push prices up, keeping the housing market tipped in favor of sellers.”

FHFA Principal Economist Andrew Leventis

"The first quarter saw strong and widespread home price growth throughout most of the country. Home prices are now, on average, roughly 20 percent above where they were three years ago. This run-up has been historically exceptional and is particularly notable in light of the limited household income growth and modest rate of overall inflation observed during that same time period."

Bottom Line

If you are planning on buying a home in the near future, waiting probably doesn’t make sense from a purely pricing standpoint.

What a Realtor must know

Even though the record-breaking snow fall and frigid winter didn’t slow down a strong start to the Greenwich real estate market in 2015, you still need to make sure you are partnered with an experienced and adept agent. If you are a buyer or a seller it is important to know that the Realtor you decide to work with has the necessary knowledge to complete a successful transaction. The following are some of the Realtors tools that come with experience, motivation and education.

LOGISTICS:
A realtor must know how to navigate the town hall and the departments that have vital information about the property that is being bought or sold.

The Assessor’s office has the tax cards that represent the lot size, square footage of the improvements, the assessment, property taxes and much more. Don’t forget your quarters as these cost .50 cents -- any good realtor could tell you this is the best deal at town hall.

The Records Room is an excellent source of information. If a renovation or addition was done the work needs permits and inspections with a final sign off by the Building Department. Permitted plans for any work that was done to the house are kept on file in the Records Room. This is also where a survey of the property may exist. There are two stamps that need to be placed on the architectural plan. One is blue and says “Plans Reviewed for Zoning Compliance” with a date and a signature of the zoning officer. The other is the final approval which is red and reads “DIV.BUILDINGS. APPROVED. GREENWICH, CONN. with the date of the approval.

HOW WETLANDS IMPACTS GREENWICH RESIDENTIAL REAL ESTATE:
There are major restrictions that the Wetlands Department enforces such as a 35 foot setback, run off, drainage, rain gardens, etc. The G.I.S. Department has the maps on every property in town. These maps show wetlands and contours on the property. This map is a must have both for marketing purposes and buyers knowledge. Not all properties have updated maps so if you’re not sure if wetlands type soils exist on the property it is inexpensive to have a Soil Scientist do a simple study.

GREENWICH HEALTH DEPARTMENT:
There are two of these departments within Greenwich's town hall. The 3rd floor is where you can find the file for the property's septic plan. If not on town sewer, then the home uses a septic system to dispose of waste water. It is crucial to understand the age of the system, its size, condition and design. The amount of bedrooms a house can have is determined by the size of the septic. The amount of bathrooms does not count but access to a bathroom determines what is considered to be a bedroom. For example an attic can’t be finished if it has access to a 2nd floor hall bath and the septic isn’t large enough to support it. If a reserve area is discovered by an engineer by doing “perk tests” then additional bedrooms can potentially be permitted. The reserve doesn’t need to be installed just discovered, designed, and approved by the health department. There are setbacks to a septic tank and leaching fields that can hinder the installation of a swimming pool or expansion of a structure.

FLOOR AREA RATIO (FAR) IN GREENWICH:
A realtor needs to be able to calculate what the F.A.R. is on a property. This determines how many square feet can be built on the lot. The Greenwich Municipal Code has a multiplier for each zone in town that is used to multiply against the lot size. How do you find how many square feet the lot is? You multiply the lot size by a square acre which is 43,560. For example if the lot is .25 and you multiply that number by 43,560 you will discover the lot size is 10,890 sq. ft. The multiplier for the R-12 zone is .315 so the amount of F.A.R. on this particular lot is 3,430 square feet. This includes garage space but does not include finished space that is below grade. To be below grade the first floor cannot be more than three feet above ground. This is discovered by doing a grade plane study with an engineer. The height is calculated on average ten feet away from the foundation around the circumference of the structure. Why is this important to know? Most buyers ask if there is any F.A.R. left on house so it is helpful to give a rough estimate if there is room to expand or is the structure at its maximum potential. Just because there is additional F.A.R. that does not ensure expansion potential.

RESIDENTIAL GREEN SPACE IN GREENWICH:
There is a new restriction on every property in town which is called Green Space. This regulates how much coverage the property is allowed to have which includes patios, driveways, eaves on the roof line of the house, swimming pools and more. The Realtor must know how much coverage there is and the percentage that remains. Thankfully the town hall has supplied the information on their website. One of these days, I'll cover how to navigate GreenwichCT.org the website that hosts many layers of information.

A Realtor must know what their client is buying or selling. Having this knowledge upfront can save a lot of time while searching for the right property or preparing to market a home. To know the market and your future real estate investment you need to know your realtor!