Tim and Julie Harris Real Estate Coaching 2014 Real Estate Predictions. The Overall theme for 2014…bifurcation.
bi·fur·cat·ed bi·fur·cat·ing : to cause to divide into two branches or parts : to divide into two branches or parts Many real estate markets will consist of the real estate haves…they have equity and can sell. And the have-nots. No equity, no moving…stuck in their present homes for potentially years to come. In other words your real estate market will be bifurcated. As a real estate agent your job will be very challenging because you will be required to work with both equity home owners AND underwater owners. The key is knowing how to help all sellers (and buyers) and not allowing yourself to ignore any segment of the market. Today’s smart successful agent has learned to service the entire real estate market. In 2014 there will be a real sense of bifurcation as well in the real estate industry. Again, Haves and Have-Nots. On one hand there will be the agents who are improving their skills and embracing opportunities. These agents embrace the mindset that they are here to help others and its OK to make a lot of money doing so. These agents will experience explosive income growth in 2014. Then there will be the agents who are stuck in the past who refuse to evolve to take on challenges.
Did you know that a recent study by the National Association of Realtors proved the fact that Agents WITH advanced educations and designations earn TWICE as much as those without?
For years the top 20% of agents earned 80% of all the income. In 2014 the income distribution will be closer to 10% of the top agents earning 90% of the income. As you read out 2014 real estate predictions the question you must answer for yourself is which agent will you be? A real estate HAVE or have-not?
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1) Double Digit Home Price Appreciation Comes To An End.
Home prices will continue to climb nationally less than 5% in 2014 (vs over 10%). 2013 will be remembered as a banner year for home value appreciation as home prices rose in 225 of the 276 cities tracked. in 2013 prices nationwide increased by 10.9 percent, pushing the median price for existing homes up by $30,000, to $215,000. By mid-2014 prices are expected to climb back 7% from 2010. Even with that level of home value increases there will be home owners who will still be underwater for at least 10 years.
“….. on average 4.3 percent annual appreciation in home values with a low of 5 percent depreciation and a high of 8.4 percent appreciation. For 2015, the average predicted appreciation is 3.8 percent, and for 2016 it drops to 3.5 percent. Overall, in the next five years, experts predict 4.2 percent annual appreciation, which amounts to a total 28 percent gain in home values.” Source: Zillow “The housing market has seen a period of unsustainable, breakneck appreciation, and some cooling off is both welcome and expected,” said Zillow Chief Economist Dr. Stan Humphries. “Rising mortgage rates, diminished investor demand and slowly rising inventory will all contribute to the slowdown of appreciation.”
Why not? Investors, and specifically, institutional investors with vast sums of cash. They have bought approximately 100,000 homes, the majority of them previously foreclosed properties. They bought the homes in a limited number of markets, mostly in the West, and pushed prices dramatically higher in these regions, as competition for the properties increased. These investors are leaving the market…(see prediction #4)
2) Interest Rates Will Rise.
The Mortgage Bankers Assn. expects to see $1.19 trillion in new mortgages written during 2014, down 32% from $1.75 trillion this year. Brinkmann from the Mortgage Bankers Association expects mortgage rates to rise above 5% in 2014 and to increase further to 5.3% by the end of 2015. 3) New Mortgage Rules Will Directly Effect Buyers Ability To Obtain A Loan. New mortgage rules will take effect in January of 2014 and the residential real estate market could be in for some major changes.
“Currently, the federal government backs roughly 90 percent of all new mortgage originations in the U.S. in some form,” said Pulsenomics founder Terry Loebs. “In 2000, prior to the bubble, the government backed about 50 percent of new mortgages.”
How will these changes effect your buyers? For example, your buyer make $60,000 a year. Add in a $500 a month car payment and $100 a month credit card payment. Right now, they would qualify for a mortgage up to $190,000. But when the new reform act kicks in next year, you’ll only qualify for $160,000.
3) Sellers Market Will Continue.
Inventory will continue to be a problem. Nationally, there are under one million units currently available. Inventory needs to increase 50-60% to 1.5 million to get back to a sustainable level. Rising prices and higher mortgage rates will make buying more expensive in 2014 than in 2013. In the past year, sales of existing homes and condos rose by 11 percent, to 5.29 million — almost the highest level in four years. The National Association of Realtors expects sales to remain about the same in 2014.
4) Boomerang Buyers Return To The Market.
According to an exclusive poll of LoanSafe.org and AfterForeclosure.com’s members: • 79% of those who lost their homes during the crisis are interested in buying again. • 41% report that their income is higher than when they first purchased and 24% report that it is the same. • 63% report that their other debt obligations are lower (30% said “significantly lower”) and 22% report it being the same. • 46% report the desire to purchase in a lower price range and 29% report wishing to purchase within the same price range.
“There are literally millions of ex-homeowners who may be qualified to buy a home again, but are unaware of the help that is readily available to them through existing and new loan programs.”
“Boomerang” buyers are investing more into the purchase of a new property than in the past: survey responses indicate that they aren’t just putting down the minimum required. Over 50% stated that they plan to make a down payment of 10% or more as part of their next home purchase. It can be argued that the 0% down payment programs of the past made it easier for homeowners to walk away from properties they were essentially renting from the bank. Higher down payments suggest that “After Foreclosure” buyers are in for the long haul and don’t intend to make the same mistakes the second time around.
5) Investors have been the major player in the housing recovery. In 2014 the large ‘Wall Street’ investors will make their exit..
According to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, investors purchased 69% of “damaged” properties in April 2013.
“The [housing price] growth is being propelled by institutional money… The question is how much the change in prices really reflects the market demand, rather than one-off market shifts that may not be around in a couple of years.” (Source: Popper, N., “Behind the Rise in House Prices, Wall Street Buyers,” New York Times Dealbook, June 3, 2013.)
“The very price appreciation that got the ball rolling now is starting have a different effect. Hedge fund investors are starting to make an exit. ”Prices have risen to a point the ROIs — return on investment — are no longer attractive.” Sean O’Toole ForeclosureRadar.com
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Why is it expected that investors will leave the market as fast as they entered? Simple, they aren’t making the money they had planned on. For example:
“Single-family rents in the cities surrounding Phoenix proper— where all the ‘investors’ bought all the foreclosures—have plunged 25 percent in the past 5 months,” says Hanson, who recently visited the market, meeting with rental agents and investors.
Rising prices on homes in various pockets of the U.S. housing market are a direct result of large institutional investors buying in. What happens with these same investors go from net buyers to net sellers?
”If the investors gets sidelined—along with first-time buyers who are already sidelined—this housing market falls apart quickly,” says Mark Hanson, a California-based housing and mortgage analyst. Hanson points to still-high levels of negative equity, which has kept many homeowners stuck in place.” Source: CNBC
6) Large institutional investors now control more homes than any other entity.
Who is the single largest owner of single family homes in the country? (Hint: Not the government) The Blackstone Group L.P. Blackstone has spent more than $4.0 billion for 24,000 homes in the U.S. housing market that it plans to rent out. For example, Blackstone bought 1,400 properties worth more than $100 million in Atlanta last year. (Source: Bloomberg, April 25, 2013.) And what happened to prices for homes in Atlanta? According to CoreLogic, a housing data compiler, home prices in Atlanta increased 12.4% in the 12-month period ended February 2013, compared to a 10.2% increase in the overall U.S. housing market. For institutional investors, at the end of the day, it’s all about the profit; they are buying homes and renting them out all in search of a higher return on their money. But institutional buying of American homes will not sustain a recovery in the U.S. housing market. * Investors have gorged themselves on homes and have declared that they are no longer net buyers.
“Higher prices are reducing returns on investment, and investors are responding by cutting back on their purchasing plans until conditions sort out,” said Chris Clothier, a partner in MemphisInvest.com and Premier Property Management Group, which commissioned a national survey of investors conducted by ORC International. “Fewer foreclosures, rising property values and competition from hedge funds are making it tough to find good deals on distress sales.”Source: CNBC and this: “Investors, and specifically, institutional investors with vast sums of cash. They have bought approximately 100,000 homes, the majority of them previously foreclosed properties. They bought the homes in a limited number of markets, mostly in the West, and pushed prices dramatically higher in these regions, as competition for the properties increased.”
7) Nearly 40% of ALL Homeowners With A Mortgage STILL Underwater.
Negative equity is the greatest barriers to a full and robust housing recovery. Homes for sale will remain low nationwide because so many homeowners don’t have the equity to move up (or even down). That lack of listings has depressed sales and pushed prices higher—good for the equity dilemma but bad for potential buyers.
At nearly 40% percent, the “effective” negative equity rate—borrowers who have less than 20 percent equity in their homes—is still staggering. To buy a new house, most homeowners need at least 20 percent equity to pay all the needed expenses, including today’s high down payments. CNBC.com “Negative equity will remain a factor for years to come and must be considered part of the new normal in the housing market,” Zillows Chief Economist Stan Humphries said. “Short sales will remain a persistent feature of the market as many homeowners remain too far underwater for reasonable price appreciation alone to help.”
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Supporting Info from Realtytrac: – 10.7 million residential homeowners nationwide owe at least 25 percent or more on their mortgages than their properties are worth. Represented 23 percent of U.S. residential properties with a mortgage. – 8.3 million homeowners are either slightly underwater or slightly above water. These homeowners represented 18 percent of all U.S. homeowners with a mortgage as of the beginning of September 2013
But wait…there’s more! In case you didn’t know it there is little to no tracking on the number of DEFAULTED second mortgages. In other words when you read the reports about the number of mortgage delinquencies they are only reporting on the defaulted FIRST MORTGAGES. You and I both know that 9/10 when you are working with an underwater owner their negative equity is on the second and maybe a little on the first. Well surprise..surprise. Turns out the number of second mortgages (HELOCS, Second Mortgages etc) in default are increasing…..ASD Coaching Students Have known about this increasing trend for years. The loans are a problem now because an increasing number are hitting their 10-year anniversary, at which point borrowers usually must start paying down the principal on the loans as well as the interest they had been paying all along. More than $221 billion of these loans at the largest banks will hit this mark over the next four years, about 40 percent of the home equity lines of credit now outstanding.
8) Total Homes Sold In 2014 Will Not Improve Over 2013.
The number of homes sold next year will be consistent with what is predicted for this year – around 5.1 million units. Bottom line, 2014 will feel very much like 2013.
Robert Shiller thinks a full housing recovery is a long way off. He thinks it could take 40 years before home prices rise to pre-2007 levels. Read the entire post here.
NARs Mr. Yun outlined his housing-market forecast for 2014 at NAR’s annual conference here, predicting that existing home sales will remain flat at roughly 5.1 million units, prices will rise by 6% and interest rates, currently at 4.16%, will jump to 5.4% by the end of next year.
9) New construction units may increase by 25% .
The forecast for 2014 is for 1.13 million housing starts, up from 776K in 2012. According to NARs Chief Economist Mr. Yun a projected 25% increase in new-home construction starts from the 2013 pace of about 600,000 single-family units. Sales of newly built homes will increase by 18.5% to 510,000 from 430,000.
10) Foreclosures Must Increase…why?
According the a recent report from LPS. Nationwide, there are 3,152,000 properties with mortgages 30 or more days past due; 1,283,000 of those are 90 or more days delinquent but not in foreclosure. Add to that the 1,276,000 loans that are part of the pre-sale foreclosure inventory, and there are 4,427,000 non-current home mortgages in the United States. In Nevada and Florida, the delinquency rates are 13.2 percent and 12.2 percent, respectively. (Reuters) – Well over a million U.S. homeowners are months behind on payments on government-backed mortgages, raising the risk federal housing agencies will end up facing the cost of managing a fresh flood of foreclosed homes, two government watchdogs said on Thursday. Read the entire article here
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Here are the facts from Realtytrac.com: – 10.7 million residential homeowners nationwide owe at least 25 percent or more on their mortgages than their properties are worth. Represented 23 percent of U.S. residential properties with a mortgage.
[VIDEO] What is the #1 money making opportunity in real estate? Short sales. Nearly 40% of all homeowners with a mortgage are STILL underwater. New short sale programs for all lenders expected. Get ahead of the curve and learn the 2014 short sale secrets. Watch the FREE Short Sale training video and download the quick close short sale guide now.
– 8.3 million homeowners are either slightly underwater or slightly above water. These homeowners represented 18 percent of all U.S. homeowners with a mortgage as of the beginning of September.
“For those who are still underwater, I don’t think this feels like much of a recover” …short sales and REOs today represent 25 percent of all home sales. “That’s a substantial percentage of the market.” Sean O’Toole ForeclosureRadar.com
11) Whatever you want to call it (Shadow Inventory etc) there ARE AT LEAST 7 Million Defaulted NOT FOR SALE Homes (Yet).
Five Star Institute economist Mark Lieberman has shown that banks are keeping more than 7 million homes off the market in order to “reduce listings, create the illusion of ‘scarcity,’ and push up prices,” Whitney reports. The housing market recovery, then, is “a complete hoax.”Read the entire article here.
“I think this is the leading edge of a trend,” said Blomquist. “We’re not going to see bank repossessions as high as we did at the peak in September of 2010, when we saw over 100,000 in one month, but those numbers are going to inch up because this is a market where it just makes sense for banks to get rid of this distressed inventory and to sell it.”
* Moody’s reports that “Almost 40 percent of delinquent loans have been delinquent for three or more years.” * Banks foreclose on 250,000 properties each quarter. That’s 2,700 homes per day. That number is expected to DOUBLE. * 600,000 homeowners will go into default over the next two years. * Shadow inventory, which is made up of loans that have been delinquent for at least 90 days, is more than seven times the inventory of REOs that Fannie Mae, Freddie Mac and HUD currently own.
12) The number of VACANT Homes across the US is at an all time high: (Remember Dear Reader that we are in a so-called housing shortage) *
There are currently 18,700,000 vacant units across the country, according to Census data. The question now is, if you KNEW with 100% certainty that your real estate market was going to change back into a (potentially depreciating) buyers market..what should you be doing NOW to prepare?
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13) Reshuffling of the ‘listings portal deck’.
Realtor.com will regain its dominance in many markets as the go-to online resource of homes for sale. This will happen as a direct result of the current trend away from listings syndication to Zillow and Trulia.com. Taking the lead set by the Austin Board of Realtors, eight Austin real estate brokerages have decided they will not share their listings with third-party websites, such as Zillow and Trulia.
14) Buying Buyer Leads Trend Levels Off.
Agents are coming to their senses when it comes to buying Buyer Leads. Its a proven well know fact that if you have just ONE listing you can generate dozens of motivated buyers leads. (Imagine how many leads you will have when you have 10 listings!) The key is learning how to be a listing agent. Back to the word BIFURCATION. On one side you will have Listing Agents. Listing Agents will (more than ever) control the market. If you want to last in real estate you have no choice but learn how to list homes. The other end of the spectrum will be agents who don’t know how to list homes (yet). The so-called Buyer Agents. Buyer agents have been buying leads provided by the listing syndication companies (Zillow, Trulia, Realtor.com) in earnest for almost 10 years. What happens when the listing agents revolt against syndication? (see prediction #12)
15) New Headwind For Real Estate Industry with no clear solution: Age.
The real estate industry is facing a new challenge: finding enough younger agents. As the overall economy continues to improve and more jobs are created its doubtful that many younger agents will be attracted to the real estate industry. 42 percent of the real estate executives surveyed said the need for more agents is their number one concern. They’re worried that younger, qualified candidates are going into other industries, and they’re taking their talents with them.
“Younger agents are much more adept with technology and the internet and all the other tools that people want to use when they first start looking for a home. The surveys show that older agents are more reluctant to adopting the new technologies,” Hawkins says. “Clearly there’s a resurgence in the housing market among the Gen X and Gen Y participants, and that’s the next market,” says Kevin Hawkins, the vice president of Imprev Inc., a Bellevue real estate marketing firm that did the survey. “The concern of brokers is not just for today, but what business is going to look like tomorrow.”
While buyers are getting younger, agents are not. Only six-percent are under the age of 34.
“The average age of a realtor is 57 years old. The average age of an American worker is 41 years old. If you look at the typical age of a first time home buyer, it’s 31. So, there’s clearly an age gap,” he says.
16) Economy Expected To Continue Slow and Steady Recovery…leading to what will feel like a stronger housing market in 2014 vs 2013.
Freddie Mac economists believe “housing will remain generally affordable in most parts of the country.”
“Even if rates were to go to 5 percent next year, housing in most of the country would remain affordable,” Frank Nothaft, Freddie Mac’s chief economist, notes in the report. “Large metro areas along the Atlantic and Pacific coasts are already expensive for the typical family, so rising rates will have a bigger effect there. But in most of the country, incomes and home prices are such that rising rates by themselves will not be enough to end the recovery. What we need is some better income growth.”
Economic growth is expected to be in the 2.5 percent to 3 percent range, more than half a percentage point better than what is expected for this year. Economic growth will help spur more jobs, and Freddie economists predict that the unemployment rate will fall below 7 percent by mid-2014.