Where Are Home Values Headed Over the Next 12 Months?

As shelter-in-place orders were implemented earlier this year, many questioned what the shutdown would mean to the real estate market. Specifically, there was concern about home values. After years of rising home prices, would 2020 be the year this appreciation trend would come to a screeching halt? Even worse, would home values begin to depreciate?

Original forecasts modeled this uncertainty, and they ranged anywhere from home values gaining 3% (Zelman & Associates) to home values depreciating by more than 6% (CoreLogic).

However, as the year unfolded, it became clear that there would be little negative impact on the housing market. As Mark Fleming, Chief Economist at First American, recently revealed:

“The only major industry to display immunity to the economic impacts of the coronavirus is the housing market.”

Have prices continued to appreciate so far this year?

Last week, the Federal Housing Finance Agency (FHFA) released its latest Home Price Index. The report showed home prices actually rose 6.5% from the same time last year. FHFA also noted that price appreciation accelerated to record levels over the summer months:

“Between May & July 2020, national prices increased by over 2%, which represents the largest two-month price increase observed since the start of the index in 1991.”

What are the experts forecasting for home prices going forward?

Below is a graph of home price projections for the next year. Since the market has changed dramatically over the last few months, this graph shows forecasts that have been published since September 1^st.

Bottom Line

The numbers show that home values have weathered the storm of the pandemic. If you want to know what your home is currently worth and how that may enable you to make a move this year, contact your local real estate professional.

Home Equity Gives Sellers Options in Today's Market

Homeownership is one of the best ways to invest in your financial future, especially as your home equity grows. Home equity is a form of forced savings that can work to your advantage as the value of your home appreciates. Across the country, home equity was increasing before the health crisis swept our nation, and it continues to grow throughout the year, giving sellers powerful options in this market.

According to the just-released Q2 Homeowner Equity Insights Report by CoreLogic:

“U.S. homeowners with mortgages (roughly 63% of all properties) have seen their equity increase by a total of nearly $620 billion since the second quarter of 2019, an increase of 6.6%, year over year.” 

Dr. Frank Nothaft, Chief Economist for CoreLogic, attributes much of the equity growth to rising home prices:

“The CoreLogic Home Price Index registered a 4.3% annual rise in prices through June, which supported an increase in home equity.”

As the map below shows, CoreLogic also indicates that home equity is increasing in every state:

“In the second quarter of 2020, the average homeowner gained approximately $9,800 in equity during the past year.”

What Does This Mean for Sellers? 

When equity is rising, as it is today, you may have more invested in your home than you realize. Mark Fleming, Chief Economist at First American, notes:

“As homeowners gain equity in their homes, they are more likely to consider using that equity to purchase a larger or more attractive home – the wealth effect of rising equity. In today’s housing market, fast rising demand against the limited supply of homes for sale has resulted in continued house price appreciation.”

If you’ve been considering making a move – whether that’s to get into a bigger home or to downsize to a smaller one – it’s a great time to reach out to a real estate professional to learn how to put your equity to work for you. You may be in a position to pay that equity forward toward your next home purchase and afford it sooner rather than later.

Bottom Line

If you’re thinking of selling, reach out to a trusted real estate professional so you can take advantage of what the current market has to offer today.

Is Now a Good Time to Move?

How long have you lived in your current home? If it’s been a while, you may be thinking about moving. According to the latest Profile of Home Buyers and Sellers by the National Association of Realtors (NAR), in 2019, homeowners were living in their homes for an average of 10 years. That’s a long time to time to be in one place, considering the average length of time homeowners used to stay put hovered closer to 6 years.

With today’s changing homebuyer needs, especially given how the current health crisis has altered our daily lifestyles, many homeowners are reconsidering where they’re at and thinking about moving to a home with more space for their families. Here’s why it might be a great time to make that happen.

The real estate market has changed in many ways over the past 10 years, and current homeowners are earning much more equity today than they used to have. According to CoreLogic, in the first quarter of 2020 alone, the average homeowner gained approximately $9,600 in equity. If you’re considering selling your house right now, you may have accumulated more equity to put toward a move than you realize.

Dialing back 10 years, many homeowners also locked in a fairly low mortgage rate. In 2010, the average rate was only 4.09%. This motivated homeowners to stay in their houses longer than usual to keep their rate low, rather than moving. Just last Thursday, however, average mortgage rates hit a new historic low at 2.86%. Sam Khater, Chief Economist at Freddie Mac explains:

“Mortgage rates have hit another record low due to a late summer slowdown in the economic recovery…These low rates have ignited robust purchase demand activity, which is up twenty-five percent from a year ago and has been growing at double digit rates for four consecutive months.”

Ten years ago, we couldn’t have imagined a mortgage rate under 3%. Looking at the math today, making a move into a new home and locking in a significantly lower rate than you have now could save you greatly on a monthly basis, and over the life of your loan (See chart below):As the example shows, you can save a substantial amount every month if you qualify for today’s low mortgage rate, and the savings can really add up over the life of a 30-year fixed-rate loan.

Bottom Line

As a homeowner, you have a huge opportunity to move up right now. Whether you want to save more each month or get more home for your money based on your family’s changing needs, it’s a great time to reach out to a local real estate professional in your area. Buyers are actively looking for more homes to buy, and you can win big by making a move if the time is right for you

The Beginning of an Economic Recovery

The news these days seems to have a mix of highs and lows. We may hear that an economic recovery is starting, but we’ve also seen some of the worst economic data in the history of our country. The challenge today is to understand exactly what’s going on and what it means relative to the road ahead. We’ve talked before about what experts expect in the second half of this year, and today that progress largely hinges upon the continued course of the virus.

A recent Wall Street Journal survey of economists noted, “A strong economic recovery depends on effective and sustained containment of Covid-19.” Given the uncertainty around the virus, we can also see what economists are forecasting for GDP in the third quarter of this year (see graph below):Overwhelmingly, economists are projecting GDP growth in the third quarter of 2020, with 5 of the 9 experts indicating over 20% growth.

Lisa Shalett, Chief Investment Officer for Morgan Stanley puts it this way:

“Indeed, the ‘worst ever’ GDP reading could be followed by the ‘best ever’ growth in the third quarter.”

As we look forward, we can expect consumer spending to improve as well. According to Opportunity Insights, as of August 1, consumer spending was down just 7.8% as compared to January 1 of this year.

Bottom Line

An economic recovery is beginning to happen throughout the country. While there are still questions that need to be answered about the road ahead, we can expect to see improvement this quarter.

---

Get the KCM Real Estate Blog

The Housing Market Recovery Index

Earlier this month, realtor.com announced the release of their initial Housing Recovery Index, a weekly guide showing how the pandemic has impacted the residential real estate market. The index leverages a weighted average of four key components of the housing industry, tracking each of the following:

1. Housing Demand – Growth in online search activity
2. Home Price – Growth in asking prices
3. Housing Supply – Growth of new listings
4. Pace of Sales – Difference in time-on-market

The index then compares the current status “to the last week of January 2020 market trend, as a baseline for pre-COVID market growth. The overall index is set to 100 in this baseline period. The higher a market’s index value, the higher its recovery and vice versa.”

The graph below charts the index by showing how the real estate market started out strong in early 2020, and then dropped dramatically at the beginning of March when the pandemic paused the economy. It also shows the strength of the recovery since the beginning of May.

It's clear to see that the housing market is showing promising signs of recovery from the deep economic cuts we experienced earlier this spring. As noted by Dean Mon, Chairman of the National Association of Home Builders (NAHB):

“As the nation reopens, housing is well-positioned to lead the economy forward.”

The data today indicates the housing market is already on the way up.

Bottom Line

Staying connected to the housing market’s performance over the coming months will be essential, as we continue to evaluate exactly how the housing market is doing in this uncharted time ahead.