Home Price Deceleration Doesn’t Mean Home Price Depreciation

Home Price Deceleration Doesn’t Mean Home Price Depreciation

Home Price Deceleration Doesn’t Mean Home Price Depreciation | MyKCM

Experts in the real estate industry use a number of terms when they talk about what’s happening with home prices. And some of those words sound a bit similar but mean very different things. To help clarify what’s happening with home prices and where experts say they’re going, here’s a look at a few terms you may hear:

  • Appreciation is when home prices increase.
  • Depreciation is when home prices decrease.
  • Deceleration is when home prices continue to appreciate, but at a slower pace.

Where Home Prices Have Been in Recent Years

For starters, you’ve probably heard home prices have skyrocketed over the past two years, but homes were actually appreciating long before that. You might be surprised to learn that home prices have climbed for 122 consecutive months (see graph below):

Home Price Deceleration Doesn’t Mean Home Price Depreciation | MyKCM

As the graph shows, houses have gained value consistently over the past 10 consecutive years. But since 2020, the increase has been more dramatic as home price growth accelerated.

So why did home prices climb so much? It’s because there were more buyers than there were homes for sale. That imbalance put upward pressure on home prices because demand was high and supply was low.

Where Experts Say Home Prices Are Going

While this is helpful context, if you’re a buyer or seller in today’s market, you probably want to know what’s going to happen with home prices moving forward. Will they continue that same growth path or will home prices fall?

Experts are forecasting ongoing appreciation, just at a decelerated pace. In other words, prices will keep climbing, just not as fast as they have been. The graph below shows home price forecasts from seven industry leaders. None are calling for prices to fall (see graph below):

Home Price Deceleration Doesn’t Mean Home Price Depreciation | MyKCM

Mark Fleming, Chief Economist at First American, identifies a key reason why home prices won’t depreciate or drop:

In today’s housing market, demand for homes continues to outpace supply, which is keeping the pressure on house prices, so don’t expect house prices to decline.”

And although housing supply is starting to tick up, it’s not enough to make home prices decline because there’s still a gap between the number of homes available for sale and the volume of buyers looking to make a purchase.

Terry Loebs, Founder of the research firm Pulsenomics, notes that most real estate experts and economists anticipate home prices will continue rising. As he puts it:

“With home values at record-high levels and a vast majority of experts projecting additional price increases this year and beyond, home prices and expectations remain buoyant.”

Bottom Line

Experts forecast price deceleration, not depreciation. That means home prices will continue to rise, just at a slower pace. Let’s connect so you can get the full picture of what’s happening with home prices in our local market and to discuss your buying and selling goals.

Where the housing market is going in 2022?

As told by 7 leading forecast models

A perfect storm. That’s the best way to describe the red-hot housing market we’ve seen from coast-to-coast during the pandemic. It was spurred by a combination of recession-induced low mortgage rates, remote work allowing buyers to sprawl further away from their workplace, and a demographic wave of first-time millennial homebuyers entering into the market. Of course, years of under-building means there simply aren’t enough homes available to meet this demand. Cue record price growth.

But how much longer will this run last? After all, home price appreciation of 19.9%—a 12-month record set between Aug. 2020 and Aug. 2021—can’t be sustained forever.

Already, there are signs the housing boom is losing some steam. We’re seeing seasonality—a cooling period that happens like clockwork most years—return to the market after it was absent during the holiday and vacation stretch last year. That’s not all: More homebuyers are finally beginning to push back against surging prices. Indeed, in October 60.3% of sales involved a bidding war, which is down from the all-time high in April (74.5%). There’s also the increased likelihood the Federal Reserve will raise rates to tamp down inflation. Rising mortgage rates would price out some buyers altogether.

What does this mean for home price growth in 2022? To find out, Fortune reviewed seven industry forecast models. But buyers and sellers alike won’t get much peace of mind from these forecasts: The economic models don’t produce anything close to a consensus. Some of these forecast models predict price growth next year will go down as one of the highest on record. Others are forecasting a rate of appreciation that would be the slowest in more than a decade.

Let’s take a look at these models—and also look at why there’s so much uncertainty heading into next year.

Fortune US Home Growth

On the high end of the spectrum are Zillow and Goldman SachsZillow projects home prices will rise 13.6% between Oct. 2021 and Oct. 2022. Meanwhile, Goldman Sachs forecasts a 16% uptick between Oct. 2021 and Dec. 2022 (or 13.5% on an annualized basis). For perspective, the largest 12-month uptick in the lead up to the 2008 housing crash was 14.1%. Simply put: Researchers at both Zillow and Goldman Sachs see priced out buyers falling further behind next year.

“The supply-demand picture that has been the basis for our call for a multiyear boom in home prices remains intact…Of all the shortages afflicting the U.S. economy, the housing shortage might last the longest,” wrote Goldman Sachs in its 2022 outlook.

What’s going on? Well, neither Zillow nor Goldman Sachs foresees the demographic wave of first-time millennial homebuyers letting up. We’re in the midst of the five-year period (between 2019 and 2023) in which the five largest millennial birth years (between 1989 and 1993) are hitting the all-important first-time home buying age of 30. According to their forecasts, there won’t be enough homes to satisfy all of that demand next year.

Fortune US Price Growth

Since 1980, Fortune calculates home prices on average have climbed 4.6% per year. Over the past year, price growth (19.9%) is four times that level.

The good news for would-be home buyers? Among the seven forecast models Fortune examined, four predict we’ll see price growth in 2022 fall back closer to the historical average. That includes Fannie Mae and Freddie Mac, which are predicting U.S. home price growth of 7.9% and 7%. That’s slightly higher than the historical norm, however, it’s hardly the eye-popping numbers we’ve seen during the pandemic. Meanwhile, models released by Redfin and CoreLogic foresee 12-month price growth falling to 3% and 1.9%, respectively.

What do the models predicting substantial price deceleration have in common? They foresee price growth getting chopped down by rising mortgage rates. As of Monday, the average 30-year fixed mortgage rate stands at just 3.1%. By the end of 2022, Fannie Mae projects it’ll hit 3.4% while Redfin’s model says 3.6%. Those jumps are bigger than they might appear at first glance. Let’s say a borrower took on a $500,000 mortgage. At a 3.1% mortgage rate, they’d see a $2,135 monthly payment (not factoring in any taxes or insurance). But if that rate were the 3.6% as projected by Redfin, that payment would rise to $2,273—or nearly an additional $50,000 over the course of the 30-year mortgage.

Another unknown: Will corporate America begin pushing harder next year to bring staffers back into the office? If the workplace is less WFH friendly next year, that could translate into fewer buyers in both second home markets (like the Hamptons) and in the exurbs. That concern is shared by Frank Martell, CEO of CoreLogic, who wrote in the real estate data firm’s latest forecast that “as we head into 2022, we expect some moderation in the current pattern of flight away from urban cores as the pandemic wanes.”

Fortune US Price Growth Mortgage Bankers Forecast

But there is one outlook that is relatively bearish on price growth.

The Mortgage Bankers Association, an industry trade group, is predicting that the median price of existing homes will decrease by 2.5% between the fourth quarter of 2021 and the fourth quarter of 2022. When you look closely at its model, it’s easy to see why: The Mortgage Bankers Association is forecasting that the average 30-year fixed mortgage rate will hit 4% by the end of 2022. Over the course of 30 years, that’d add an additional $90,000 in cost to a $500,000 fixed rate mortgage That said, even if the Mortgage Bankers Association’s price drop comes to fruition, it’d hardly be a housing crash. In fact, in that scenario, U.S. home prices would still be up over 20% from pre-pandemic levels.

Source:  FORTUNE Magazine | 11.29.21  | By Lance Lambert

Buying a home unmarried?

Buying a home unmarried? What to know before signing the deed

Buying Home Unmarried Donna Chabrier Realtor

There’s a growing number of unmarried couples buying homes together, and without proper planning the move may create future problems.

Indeed, 9% of home buyers were unmarried in 2020, according to the National Association of Realtors. While younger millennials, ages 22 to 30 years old, represent 20% of unmarried purchasers, acquiring property as partners is a cross-generational trend.

“It’s happening across the board, and everybody needs to be careful,” said Sheryl Dennis, estate planning attorney at law firm Fields and Dennis LLP in Wellesley, Massachusetts.

That’s because co-buyers have fewer protections and may face legal issues if the relationship sours or one partner dies unexpectedly, experts say.

Applying for a mortgage

For most buyers, financing is the cornerstone of purchasing a home, and the process is more complicated for unmarried couples.

“For anyone buying a home, the first step is always pre-approval,” said Melissa Cohn, regional vice president at William Raveis Mortgage in New York, explaining how the step prompts couples to discuss applying for a joint mortgage, property titling and other critical decisions.

While combining high incomes, excellent credit and low debt may boost the chances of mortgage approval, a less creditworthy borrower can hurt the application, she said.

“Banks will always take the lower of the middle [credit] scores for the unmarried couple,” Cohn said. “So if one has a score below the optimal number required for the loan they are seeking, it could impact the rate and how much they can borrow.”

Property title

Another big decision is how to title the property, which stipulates each partner’s legal rights and ownership, and determines what happens to the home if one partner dies.

“The first question I ask is, ‘what happens when everything falls apart?’” said Matthew Erskine, a Worcester, Massachusetts-based estate-planning attorney at Erskine & Erskine.

While sole ownership grants rights to one person, joint tenancy with rights of survivorship is equal ownership, automatically passing to the other owner when one partner dies.

The third choice, tenancy in common, may be appealing when one partner contributes more because it represents an unequal interest in the property, Dennis said.

However, partners won’t inherit each other’s portion of the property by default, and they may need to specify preferences in a will to determine who receives their share.

Other solutions for additional control may be putting the home into a trust or creating a business, such as a limited liability corporation, Erskine said.

Of course, property laws vary by state, so it’s essential to speak with a local estate planning attorney before making a titling decision.

Property agreement

Regardless of the titling, experts also suggest a property agreement, outlining how much each partner paid for the down payment, home repairs and other expenses.

The contract should also cover how to divvy the property in a break-up, including buy-out provisions, depending on what the couple wants, Dennis said.

“It’s very much a business relationship,” Erskine added.

Plan for the ‘worst-case scenario’

As partners consider a joint home purchase, they may wonder if the decision is a good move, and the answer varies based on each situation.

“It’s really up to the individuals and no one else,” said Douglas Boneparth, certified financial planner and president of Bone Fide Wealth in New York, explaining the choice may or may not make sense, depending on the couple’s goals.

While buying property unmarried requires extra steps — such as planning for the “worst-case scenario” — partners need to weigh the pros and cons like any other financial decision, he said.

“It’s perhaps a little bit more involved, but none of this is weird or odd or abnormal,” Boneparth said, and the trend may continue as couples’ stances on marriage evolve.

Article from Advisor Insight |CNBC. Written by Kate Dore, CFP published online November 5, 2021.

Credit Scores for Homebuying

Minimum Credit Scores

Credit scores are crucial to the homebuying process. Not only does your FICO score determine if you can qualify for a loan in the first place, it will also have an impact on your mortgage terms. Your credit will affect getting the type of loan that will fit your family budget. You should also plan ahead in getting credit card debt paid down and correcting any inaccuracies in your credit report.
What credit score is needed to buy a house? Learn more at: https://bit.ly/CreditScore2Buy

Above List Price = New Norm in Sacramento Housing Market

As reported in the June 11 issue of Sacramento Business Journal,  properties throughout the Sacramento region have sold, on average, 4% above their original list price, according to Metrolist data and local appraiser, Ryan Lundquist. For example, in Roseville buyers paid $32,182 over list price on average whereas Rocklin is $22,238 over list.  This data justifies the recommendation that homebuyers need to factor this “over-list” percentage into their home-buying budget as they are investigating properties and outlining offers.

June 2021 Sellers Market

For the full article, click here. 

Proposition 19

Prop 19

Understanding how Proposition 19 affects property tax implications tied to your property transfer is an important consideration when buying or selling a home.

Starting April 1, 2021, homeowners who are 55 or older or those who lost their home in a natural disaster are allowed to transfer the taxable value of their primary residence to a new home in California. If you purchase a more expensive home, the tax bill will go up but by a lower amount than for other buyers.  This kind of tax transfer can be done three times and homeowners have two years to sell their current home and buy a new one.

The prior rule limited this exemption to a one-time transfer within the same county or between certain counties and only if the replacement property was of equal or lesser value.

Can my client buy/sell now and take advantage of the tax portability benefits before April 1, 2021?

If you wish to obtain the tax benefits of Prop 19 for a transaction that closes before April 1, 2021, whether it is buying or selling a property, I would recommend speaking to a qualified California real estate attorney.

If the replacement property is of equal or lesser value, does the tax basis of the replacement property change?

No. The taxable value of the original property may be transferred and become the taxable value of the new one.

If the replacement property is of greater value, how is the new taxable value calculated?

The new taxable value is calculated by adding the difference between the full cash value of the replacement property and the original property to the original taxable value. For example, if a seller of an original property has a $300,000 taxable value and a full cash value of $1M and then buys a replacement property for $1.5 M, the taxable value of the replacement property would be $800,000.

Can a replacement property be purchased prior to the original primary residence being sold?

Yes. This is how the current rule under Prop 60 works and Prop 19 uses nearly identical language.

How does Prop 19 affect the rules on intergenerational transfers to children or grandchildren?

Prop 19 eliminates the ability for a home to pass from a parent to a child or a grandchild without reassessing the home value unless it’s the child’s or grandchild’s primary residence. If the child or grandchild doesn’t live in the inherited home and instead chooses to rent it out, the tax value can be re-assessed. Right now, family members can transfer a home and the property value won’t be reassessed. They can also transfer other rental or commercial properties and exempt up to $1 million of the assessed value.

If the property is more than $1M over the original tax basis, what is the new taxable basis?

The new taxable basis will be the assessed value of the property at the time of transfer minus $1M.

When do these new rules on intergenerational transfers apply?

The new changes to property transfers among family are set to begin on February 16, 2021.

Where may a claim to transfer a tax basis be made?

Claims may be made with forms provided by the local county assessor’s office.

Source:  California Association of REALTORS®

Interest Rate Buy Down

An interest buy-down is a real estate financing option that Buyers can use to offer list price AND retain an affordable mortgage. By providing a credit to the Buyers, it allows Sellers to get their List Price from a qualified deal. It’s a win-win for both parties. If you have questions, please let me know and my favorite Lender will be happy to explain the details and determine if it will work for you!

Home Buyer’s Guide

 

 

Whether you’re a first-time homebuyer, purchased several homes but it’s been a while, or you’re looking to buy an investment property, “Your Complete Guide to the HOME BUYING PROCESS,” can help you explore your options and answer many, if not all, of your questions.  This is NOT a 50-page book (who has time for that)?  It’s an easy-to-read eleven pages that will be your ongoing reference as you proceed to purchase a residential property.

Still have questions?
Don’t hesitate to reach out via call, text, or email.  Also, let’s stay in touch via social media  — look for the flying icons and click away.

 

 

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