Thursday, July 12, 2018 / by Robert Woessner
Changes over the Last Decade
Over the last decade, real estate has taken some heavy blow in the values of houses due to the incessant fluctuation in the value attached to homes and an unstable market at times.
This whiplash has caused a setback to investors in real estate. At the start of the last decade, there was an unprecedented increase in the prices of real estate, which resulted to the bursting of the real estate bubble in 2006 and the beginning of an even greater financial crisis.
After this crisis, a deep fall in the prices of real estate followed immediately, with the Case Shiller Housing Index losing thirty-three percent (33%) from its 2006 apex to the 2012 nadir.
But almost as quickly as possible, investors flooded back to real estate, knowing fully well that getting in at this lowest point could be very lucrative for them.
Since the start on the recovery of housing two year ago, there has been a yearly 10% increase in price on the national real estate market according to the Case Shiller Index Report.
This rapid increase in price has greatly reduced home inventory on the real estate market because most potential sellers are very careful in taking part of what appears as a buyers’ market.
This can be very frustrating especially for first time homebuyers who are faced with a double threat of banks being very careful of lending to any individual they haven’t given a mortgage to before and homeowners reluctant to sell while there is a good prospect of a price increase if they just hold out a little while longer.
But according to the new data that was shown recently, the fast increase in the prices of homes we experienced in 2013 is anticipated to drop drastically this year.
History has it that the prices of homes tend to increase just slightly higher than inflation, and from all indication, it is evident that the market will follow the same pattern again.
Although the index still reveals that prices appreciated in a manner that doubles last year’s digit, the fact that the prices of homes have ceased from increasing on a monthly basis indicates that valuation will start leveling off.
Low-priced home sales have encouraged the recovery over the two previous years. This huge discount drew the attention of buyers to increase prices up 31.8 percent from what it used to be 2011.
Recent Changes – Easier to Buy Harder to Sell
According to joint report from RealtyTrac and Clear Capital, it was most affordable to buy a house in the first quarter of the year 2015 despite the average price of homes in the U.S. increasing three times the average weekly wage nationally over the previous year.
Data were analyzed by Clear Capital from its Home Data Index to ascertain counties at lowest risk and highest risk based on affordability and prospect for increase in price.
According to the vice president of RealtyTrac, Daren Blomquist, “Despite the fact that the prices of homes outstrip wage growth continuously in most local markets, to some degree, this analysis shockingly reveals that affordability is increasing in majority of the markets, thanks to slowing price growth of homes and declining interest rate, which is making it possible for wage growth to meet up in most markets. Nationally, buying a house with an average price in the first quarter of 2015 has been the most affordable in two years and almost double as affordable when compared to the second quarter of 2006 (this is when affordability was at its worst state in the past 10 years).”
He also said, “At the local level, we are seeing several markets where wage growth outstripped or matched price growth of houses over the previous year.”
Average appreciation of home price outstripped average wage growth between the 1st quarter of 2014 and the 1st quarter of 2015 in three hundred and ninety-seven out of five hundred and eighty-two (68%) United States counties examined for the report.
But at this same period of time, the mean interest rate on mortgages for a fixed rate of thirty years dropped fifty-seven (57) basis points (13 percent), from 4.34 percent in the 1st quarter of 2014 to 3.77 percent in the 1st quarter of 2015.
This big interest rate, coupled with wage growth outstripping the appreciation of home prices in 32 percent of counties implied that purchasing a house in the 1st quarter of 2015 needed a meagre share of the average wage relative to a year ago in three hundred and thirty-nine of the five hundred and eighty-two counties (58 percent).
Main markets where wage growth outstripped price growth of homes in the 1st quarter (which is in opposition to the national trend) included Orange County, California in the L.A metro area; Cook County, Illinois in Chicago metro area; New York, Brooklyn; Fairfax County, Virginia in Washington D.C. metro area; and Riverside County in the Southern California metro area, where the mean weekly wage in the 1st quarter was up 10 percent from previous year, double the 5 percent growth in average home prices during the same period of time.
Purchasing a house in any part of the country was most affordable in the last ten years in the 1st quarter of 2012, when house rental per month required 32 percent of average wages, while purchasing a house in any part of the country was least affordable in the last ten years in the 2nd quarter of 2006, when house payment per month required 70.7 percent of average wages.
Before now, real estate experts are exclusively in charge of information related to real estate, and they held it very secretly so that potential sellers and buyers had to consult them for this information.
But this whole thing has been changed by the internet.
According to Rick Sharga, the vice president of auction.com. “For over 200 years, 90 percent of real estate transaction has been basically under the control of real estate experts. This model has been significantly changed with the aid of the internet, putting the customer in charge.”
NAR (National Association of Realtors) and Google completed a study recently about the state of the current real estate market.
In their research, one of the topics they focused on was the effect of technology on real estate.
Ponder on it, normally, when you wanted to sell or buy a home, the first step is to contact an agent of real estate, discuss your priorities, and then look out for properties until you get the one that suits your wants and needs, and then go to view it. But with the help of technology tools in real estate, this long-standing, simple, single scenario is changing.
From the study carried out, the scenario above is being changed by a new marketing strategy referred to as Zero Moment of Truth (ZMOT) which is that expected moment of time when old ways of shopping and buying are outstripped digitally, through technology tools like social media, search engines, online videos, etc. In terms of technology and real estate, what ZMOT means is that buyers take much of their time in pre-shopping more than ever before, and this usually takes place before they ever meet a real estate agent.
With digital media, this whole process happens so easy. Here are some results of how technology has affected real estate in recent years:
- Out of ten homebuyers, nine of them depend on the internet as the first step to source for resources for home research.
- Of these nine homebuyers, 89 percent of them still employ the services of real estate agents during the selling or buying process.
- 52 percent of prospective buyers make use of the web as their number one step when searching for houses instead of newspaper classifieds, magazines, or seeking an agent.
- 20 percent of searches related to real estate are done through the use of mobile devices.
- An average number of eleven searches are performed online before homebuyers decide on taking further action.
Having the knowledge that most home buyers now visit the internet for pre-shopping when they want to buy a home, it is reasonable for real estate agents or home sellers to harness the web. This can be done by making sure that:
- The house you are putting up for sale is electronically available on the website of the real estate agent.
- You add a lot of pictures of the house. This will give buyers a better view of what they want and can also entice them.
- You use social media platforms such as Twitter, Facebook, Pinterest to the best of your advantage.
- You keep the buyers engaged on any further request and information.
- You do not totally abandon traditional methods because you never can tell where the opportunity will come from. Moreover, some people still prefer this traditional method.
The Future of the Real Estate Market
Since 2007, the year 2015 is considered the most outstanding year for housing. 2016 is a new year and the forecast for the year has been carried out by realtor.com®.
With the current economic growth, it is evident that employment will increase steadily, which imply that there will be more money in circulation and people will be able to upgrade to a modern house or purchase their first house.
Below is a closer look at trends that will have huge effects on the real estate market in 2016.
- We will experience a return to normalcy. 2016 will experience increase in growth of the prices and sales of homes, but this will happen at a pace slower than that of 2015.
This slow pace does not signify any problem at all—it is a return to normalcy.
Over the past fifteen years, we have lived through abnormal trends, now we are gradually seeing signs of good conditions.
Definitely, 2016 will be a great year of change.
The outstanding trend for housing in 2015 will continue into 2016 as great improvements in personal financial status will cause more buyers between the ages of twenty-five and thirty-four to move the market again, but most of these buyers will be new to the market, thus requiring other age groups to play bigger roles. This will take place at a slow and steady rate.
- Builders will concentrate on building houses that are affordable.
One area of housing that is still lagging is the single-family construction.
Most builders are focused on making more money by building housing units that are of higher prices thus neglecting the low-income earners.
There will be a changing process on these in 2016.
- High-cost markets will be affected the most by higher mortgage rates
In 2015, it was said that mortgage rates would increase, and it was so—but subsequently, they decreased.
We anticipate similar fluctuations in 2016, but the aim of the Federal Reserve (FR) to guide the increase of interest rates should culminate in a more reliable upward shoot in mortgage rates.
- House rental that is already unaffordable will experience a further increase in price more than the prices of homes.