We were talking with some friends last night about how much financial support is going towards kids, and how it will affect real estate in the future.
On one hand, it’s the Bank of Mom and Dad, and helping to keep the market afloat when funding home purchases at these lofty prices for those kids with regular jobs.
However, for those kids who never get to the point of financial stabilization, the selling of the parents home will become the lottery ticket to solve their money issues.
I suggested that this is where the ibuyers could do the most harm by taking advantage of people who want and need a quick sale and who aren’t that familiar with the values.
When we were in Las Vegas for that one-day vacation, I saw more than one ibuyer ad on TV, and they were very enticing. The kids who have been strapped for years and then inherit their parents’ house might jump at the chance to get their hands on quick money – and likely leave some on the table.
Will anyone step up to protect the unsuspecting? A new challenge/opportunity for realtors!
We featured this bank-owned property earlier as an online auction (which didn’t work out).
They did find a cash buyer – I hope they got in the house to take a look around!
This is a typical example of an REO sale these days. The former owners paid $1,650,000 in 2007, and used a 31% down payment. The original $1,137,500 mortgage was funded by World Savings, and undoubtedly it was a neg-am loan.
It looks like the buyers stopped paying in 2010, but instead of foreclosing and losing a truckload, the bank (Wells Fargo, who bought World Savings) just waited until they knew market value was high enough that they wouldn’t lose money:
The price at the trustee’s sale in November was $1,365,016, and they sold it traditionally for $1,350,000. It means that after paying closing costs, the bank received 100% of the principal back, plus around $150,000 of the neg-am interest that accrued.
These days, banks are only foreclosing once they can make money on them!
“Since last year, several forces have helped increase the market potential for existing-home sales,” said Fleming. “House-buying power, driven by falling mortgage rates and rising household income, contributed to a gain of 183,000 potential home sales compared with one year ago. Compared with May 2018, rising house prices also contributed positively, increasing the market potential for home sales by 41,000.
“Additionally, loosening credit standards boosted the marketing potential for home sales by more than 60,000 sales over the last year. Some modest growth in new-home construction also added 1,000 potential home sales,” said Fleming. “Finally, the growth in household formation, as millennials continue to form households, contributed nearly 81,000 potential home sales compared with a year ago. Despite all the positives, the market potential for home sales remains nearly 80,000 units below the level of a year ago.”
Unprecedented Homebody Era is Here
“Collectively, the aforementioned market forces contributed to a positive gain of 366,000 potential home sales, but it was not enough to offset the loss of 446,000 potential sales due to the impact of rising tenure. The average tenure length, the amount of time a typical homeowner lives in their home, has increased dramatically in the last year,” said Fleming. “Since existing homeowners supply the majority of the homes for sale and increasing tenure length indicates homeowners are not selling, the housing market faces an ongoing supply shortage – you can’t buy what’s not for sale.
“Before the housing market crash in 2007, the average length of time someone lived in their home was approximately five years. Average tenure length jumped to seven years during the aftermath of the housing market crisis between 2008 and 2016,” said Fleming. “The most recent data shows that the average length of time someone lives in their home reached 11.3 years in May 2019, a 10 percent increase compared with a year ago.
“Two trends are driving the increase in tenure length. The majority of existing homeowners have mortgages with historically low rates, so there is limited incentive to sell if it will cost them more each month to borrow the same amount of money from the bank,” said Fleming. “While mortgage rates have come down compared with last year, they are still below the 3.5 percent mortgage rates of 2016.
“The second trend influencing tenure is seniors aging in place. A recent study from Freddie Mac shows that if seniors and adults born between 1931-1959 behaved like earlier generations, nearly 1.6 million housing units would have come to market by 2018,” said Fleming. “Improvements in health care and technology have made aging in place easier, which has meant fewer homes on the market.
“So far in 2019, the market potential for existing-home sales has benefited from lower mortgage rates and rising household income, all contributing to stronger house-buying power,” said Fleming. “Surging consumer house-buying power coupled with rising household formation has resulted in strong demand for homes.
“Yet, today, we are in an unprecedented homebody era as many existing homeowners continue to feel rate-locked into their homes and seniors continue to age in place. Looking ahead, more than half of all existing-homes are owned by baby boomers and the silent generation and they will eventually age out of homeownership,” said Fleming. “But right now, housing supply remains tight – you can’t buy what’s not sale — and market potential is lower because of it.”
The NAR is pushing their latest propaganda above – but they they gloss over the fact that YoY rates were only 1/4% better in March and April when those decisions were made to close the sales in May.
Rates started rising in 2018, and you can see how it affected the pendings below. In a fortuitous change this year, rates are dropping and will probably see their 2019 low point in the next couple of weeks as the markets prepare for a Fed rate cut in July – but we aren’t seeing a bump in pendings just yet:
July is probably as good as it’s going to get for the rest of 2019!
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