The talk of a housing bubble in the coming year seems to be at a fever pitch as rising mortgage rates continue to slow down an overheated real estate market. Over the past two years, home prices have appreciated at an unsustainable pace causing many to ask: are things just slowing down, or is a crash coming?
To answer this question, there are two things we want to understand. The first is the reality of the shift in today’s housing market. And the second is what experts are saying about home prices in the coming year.
The Reality of the Shift in Today’s Housing Market
The reality is we’re seeing an inflection point in housing supply and demand. According to realtor.com, active listings have increased more than 26% over last year, while showings from the latest ShowingTimeShowing Index have decreased almost 17% from last year (see graph below). This is an inflection point for housing because, over the past two years, we’ve seen a massive amount of demand (showings) and not enough homes available for sale for the number of people that wanted to buy. That caused the market frenzy.
Today, supply and demand look very different, and the market is slowing down from the pace we’ve seen. This offers proof of the sudden slowdown so many people are feeling.
What Experts Are Saying About Home Prices in the Coming Year
Right now, most experts are forecasting home price appreciation in 2023, but at a much slower pace than the last two years. The average of the six forecasters below is for national home prices to appreciate by 2.5% in the coming year. Only one of the six is calling for home price depreciation.
When we look at the shift taking place along with what experts are saying, we can conclude the national real estate market is slowing down but is not a bubble getting ready to burst. This isn’t to say that a few overheated markets won’t experience home price depreciation, but there isn’t a case to be made for a national housing bubble.
Bottom Line
The real estate market is slowing down, and that’s causing many to fear we’re in a housing bubble. What we’ve experienced in the housing market over the past two years were historic levels of demand and constrained supply. That led to homes going up in value at a record pace. While some overheated markets may experience price depreciation in the short term, according to experts, the national real estate market will appreciate in the coming year.
A recent survey revealed that many consumers believe there’s a housing bubble beginning to form. That feeling is understandable, as year-over-year home price appreciation is still in the double digits. However, this market is very different than it was during the housing crash 15 years ago. Here are four key reasons why today is nothing like the last time.
1. Houses Are Not Unaffordable Like They Were During the Housing Boom
The affordability formula has three components: the price of the home, wages earned by the purchaser, and the mortgage rate available at the time. Conventional lending standards say a purchaser should not spend more than 28% of their gross income on their mortgage payment.
Fifteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased, and the mortgage rate, even after the recent spike, is still well below 6%. That means the average purchaser today pays less of their monthly income toward their mortgage payment than they did back then.
In the latest Affordability Report by ATTOM Data, Chief Product Officer Todd Teta addresses that exact point:
“The average wage earner can still afford the typical home across the U.S., but the financial comfort zone continues shrinking as home prices keep soaring and mortgage rates tick upward.”
Affordability isn’t as strong as it was last year, but it’s much better than it was during the boom. Here’s a chart showing that difference:
If costs were so prohibitive, how did so many homes sell during the housing boom?
2. Mortgage Standards Were Much More Relaxed During the Boom
During the housing bubble, it was much easier to get a mortgage than it is today. As an example, let’s review the number of mortgages granted to purchasers with credit scores under 620. According to credit.org, a credit score between 550-619 is considered poor. In defining those with a score below 620, they explain:
“Credit agencies consider consumers with credit delinquencies, account rejections, and little credit history as subprime borrowers due to their high credit risk.”
Buyers can still qualify for a mortgage with a credit score that low, but they’re considered riskier borrowers. Here’s a graph showing the mortgage volume issued to purchasers with a credit score less than 620 during the housing boom, and the subsequent volume in the 14 years since.
Mortgage standards are nothing like they were the last time. Purchasers that acquired a mortgage over the last decade are much more qualified. Let’s take a look at what that means going forward.
3. The Foreclosure Situation Is Nothing Like It Was During the Crash
The most obvious difference is the number of homeowners that were facing foreclosure after the housing bubble burst. The Federal Reserve issues a report showing the number of consumers with a new foreclosure notice. Here are the numbers during the crash compared to today:
There’s no doubt the 2020 and 2021 numbers are impacted by the forbearance program, which was created to help homeowners facing uncertainty during the pandemic. However, there are fewer than 800,000 homeowners left in the program today, and most of those will be able to work out a repayment plan with their banks.
Rick Sharga, Executive Vice President of RealtyTrac, explains:
“The fact that foreclosure starts declined despite hundreds of thousands of borrowers exiting the CARES Act mortgage forbearance program over the last few months is very encouraging. It suggests that the ‘forbearance equals foreclosure’ narrative was incorrect.”
Why are there so few foreclosures now? Today, homeowners are equity rich, not tapped out.
In the run-up to the housing bubble, some homeowners were using their homes as personal ATM machines. Many immediately withdrew their equity once it built up. When home values began to fall, some homeowners found themselves in a negative equity situation where the amount they owed on their mortgage was greater than the value of their home. Some of those households decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area.
Homeowners, however, have learned their lessons. Prices have risen nicely over the last few years, leading to over 40% of homes in the country having more than 50% equity. But owners have not been tapping into it like the last time, as evidenced by the fact that national tappable equity has increased to a record $9.9 trillion. With the average home equity now standing at $300,000, what happened last time won’t happen today.
“Not only have equity gains helped homeowners more seamlessly transition out of forbearance and avoid a distressed sale, but they’ve also enabled many to continue building their wealth.”
There will be nowhere near the same number of foreclosures as we saw during the crash. So, what does that mean for the housing market?
4. We Don’t Have a Surplus of Homes on the Market – We Have a Shortage
The supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation. As the next graph shows, there were too many homes for sale from 2007 to 2010 (many of which were short sales and foreclosures), and that caused prices to tumble. Today, there’s a shortage of inventory, which is causing the acceleration in home values to continue.
Inventory is nothing like the last time. Prices are rising because there’s a healthy demand for homeownership at the same time there’s a shortage of homes for sale.
Bottom Line
If you’re worried that we’re making the same mistakes that led to the housing crash, the graphs above show data and insights to help alleviate your concerns.
We’ve all heard the old saying “A picture is worth a thousand words.” And, in real estate, pictures make a huge difference in how quickly you sell your home. Now, thanks to the continued advancement of technology, buyers can have an intimate look into your home they are interested in without ever leaving their couch. And buyers are doing their research, more now than ever before. They are filtering through sites based on location, prices, school districts, square footage, etc. Once they have narrowed down their search to their liking, they are immediately flipping through photos.
Often, the photos are what’s piquing a buyer’s interest in your home and prompting them to take the next step in contacting their real estate agent. That is why it is important to work with a real estate agent in getting professional photography done before putting your home on the market. Your agent should have the expert knowledge and connections to professional photographers to produce images that resonate and appeal to sellers. And the more photos the better, so choosing one or two won’t do the trick! At Karen Cannon, Realtors, we work with the best real estate photographers that have an eye for the right angles, best lighting and provide high-quality photos to capture the best features of your home.
Homes with more photos sell faster, which makes sense because buyers are doing more research than ever before. The more buyers can find ahead of time, the better your chances of getting your home sold quickly. According to the National Association of Realtors 2017 study, Homes with one photo spent an average of 70 days on the market, but a home with 20 photos spent 32 days on the market. Not only do professional photographs help you sell your home quickly, but it can also help you get a better deal, too. For homes in the $200,000-$1 million range, those that include high-quality photography in their listings sell for $3,000-$11,000 more.
And we’re putting an emphasis on the words professional photography because you need high-quality photos. While there are plenty of great HGTV shows with useful information out there, nothing can replace the quality and direction of an agent and a professional real estate photographer. It is often the first impression that buyers have of your home before stepping foot onto the actual property. In fact, 89% of buyers who used the internet to aid their home search found the photos to be very useful. Your agent will have referrals to photographers that specialize in real estate that they have worked with personally.
As time goes on and technology continues to advance, online platforms and visual tools become more robust allowing home buyers more and more insight into a home before ever connecting with the seller or agent. At Karen Cannon, Realtors, we stay on top of the latest trends and constantly look for innovative marketing techniques to help sell our clients home quickly. We take it to the next level with 3D Virtual Tours to let a buyer walk through your home no matter their location.
At Karen Cannon, Realtors, we are local real estate experts for Dunwoody, Sandy Springs and North Atlanta. We live, work and play here, and our agents are hand-picked for their connections in the community. Our clients know about homes coming on the market before anyone else. And our highly effective marketing program allows us to shorten the number of days on the market. We’ve even put homes under contract sight unseen!
If you are thinking about selling your home, or are interested in moving into Dunwoody, Sandy Springs or the surrounding areas, call us at 770-352-9658.
Now that school is back in session, many parents wonder if the school’s curriculum is enough to promote their child’s cognitive development. Fortunately, opportunities for young minds to think, reason, and grow don’t stop when the last bell rings.
Here are five extracurricular activities that will help improve your child’s memory, information processing, problem-solving, and decision-making skills.
STEM Clubs
Extracurricular activities that involve critical thinking are an excellent way to boost brain function. STEM (Science, Technology, Engineering, and Math) clubs have become increasingly popular over the last decade at all education levels and are available through many after-school programs. Unlike the typical classroom, these clubs encourage experiential learning. Children involved in STEM activities develop stronger problem-solving skills and are more likely to remain interested in science and mathematics courses through high school and college.
Athletics
Physical activity is a fantastic way to promote a healthy mind and body. Sports and other recreational activities improve cognitive functions through social, psychological, and fine/gross motor skill development. These activities also promote achievement and recognition, which directly affect a child’s self-esteem. Children who have confidence in their self-worth become better problem solvers and decision-makers. If your child isn’t a fan of team sports, there are plenty of individual sports like tennis, swimming, golf, and fencing in your area that are equally beneficial.
Art Classes
A child’s capacity for creativity plays an important role in how they process new information. Time should be made available for both structured and unstructured creative activities. Unstructured creativity also allows a child to more effectively process, reflect upon, and absorb traditional subject areas in their academic curriculum. Structured creative projects combine the freedom of imaginative thinking with the logic and reason required to complete a task or goal. Art classes, clubs, or camps are a wonderful way to engage both halves of the brain and promote cognitive development.
Scouting
Scouts BSA and The Girls Scouts are accessible in almost every community across the country with millions of scouts in thousands of troops across the nation. In addition to survival and citizenship education, scouting organizations teach self-reliance and decision-making skills. Many of their activities provide an outlet for children to apply these skills in real-world scenarios or incorporate aspects of the other activities listed above. Scouting at a young age is intended to be a family activity and a fantastic way to actively engage with your child.
Virtual Teams
In moderation, screen-time doesn’t have to be a bad thing. Schools are investing in the eGaming industry, which may even become part of the Olympics by 2024. Competitive games improve strategic thinking and making decisions under pressure while creative world-building games improve spatial perception, logistics, and cooperation to achieve a common goal. With the appropriate guidance and structure, virtual activities can be so much more than a way to pass the time.
Nearly all of these activities are already available in your area. Offering a healthy and fun outlet for children to learn and grow is essential for their mental development. Cognitive development is all about change. Extracurricular activities like these are the perfect way to start your child on a path for success in an ever-changing world.
At Karen Cannon, Realtors, we are local real estate experts for Dunwoody, Sandy Springs, and North Atlanta. We live, work, and play here, and our agents are handpicked for their connections in the community. Our clients know about homes coming on the market before anyone else. And our highly effective marketing program allows us to shorten the number of days on the market. We’ve even put homes under contract sight unseen!
If you are thinking about selling your home, or are interested in moving into Dunwoody, Sandy Springs or the surrounding areas, call us at (770) 352-9658 or send us an email at Info@KarenCannon.com. Check out our current listings here.
When buying your first home, it’s normal to be a bit scared – but also excited about plans for the future. You’re anxious to fill your home with memories, and selling is the furthest thing from your mind. However, as time passes and your family grows or kids move out, you might start thinking about looking for a home that’s more suitable for your current lifestyle.
Once you’ve made the decision to sell, it’s common to have a lot of questions about the process, pricing and preparations necessary to put it on the market. It can seem daunting at first, but the KCR team is here to answer your questions and walk you through every step. Here are some tips to help you prepare to sell your first home.
Expect Emotions to Run High
It’s normal to be emotional about your home, and it’s okay to shed a few tears when you start the selling process. You’ve celebrated holidays, entertained friends and family, and hopefully made some great memories in this home. However, as soon as you’ve made the decision to sell, your home becomes a financial asset. You have to think of it as your “property.” As hard as it is, try to remove any emotion from the sale of your property.
First Impressions are Everything
Your property’s condition will determine whether you make a quick sale or struggle through the process. Improve your property as much as possible before putting it on the market – within reason. This means taking a good look around and repairing the small problems that potential buyers will notice. Repair leaking faucets, touch up paint, de-clutter common areas, and plant fresh flowers. Try to see your home as a buyer would when they enter for the first time.
Don’t Try to Go It Alone
Selling your home in Atlanta without a Realtor may seem like a good way to avoid paying commission, but you may end up costing yourself more money if the house lingers on the market or you don’t get top dollar. Often, homes that are listed ‘by owner’ are overpriced (due to the homeowners’ emotional ties to the house and inability to see its value clearly) and may sit on the market for months. In many cases, the seller takes a price that’s less than the market value out of sheer frustration.
At Karen Cannon, Realtors, we understand the current market trends and are knowledgeable in home values so that we know how to price your home correctly to help you maximize the value. Once the house is listed, we’ll walk beside you every step of the way – from the initial conversation with a buyer to the contract and paperwork details.
For every house we list, we provide professional photography and videography, home staging, 3D virtual tours and social media promotion. In fact, 10% of our homes sell prior to listing because of our comprehensive marketing efforts and our connections within the community. Selling your first home can be stressful, and it is our job to take the stress of selling off your shoulders.
If you are thinking about selling your home, call us at 770-352-9658 to schedule a conversation.
