There is big money to make—and big money to miss out on. Right now, tax returns are coming in, inventory is low, home prices are high, and while nothing is guaranteed, the risk seems to be just right for homeowners to make their move and sell.
- Home Prices: Home prices keep climbing, and American homeowners’ level of equity is at an all-time high. According to CoreLogic, 89 percent of homes with a mortgage ended 2014 with positive equity. Homeowners with positive equity don’t just make great sellers, they also make even better buyers: Homeowners who can place a 20 percent down payment keep PMI low. However, prices have been outpacing wage growth for many years. Buyers can only stomach so much more until prices flatten out. According to CoreLogic, home prices rose 6.9 percent year over year in 2015. They are projected to increase by 5.5 percent in 2016 and by less in 2017.
- Inventory: It is human nature to wonder how far one can drive with the meter on E, and many homeowners are similarly riding the wave of price increases as long as they can, freezing inventory in the meantime. This mindset is especially prevalent in booming markets such as San Francisco, Denver, and Seattle. It’s also common in desirable neighborhoods of moderate-growth cities, including Philadelphia, Chicago, and Baltimore, where bidding wars have become common. Homeowners are also freezing inventory in areas that were especially rocked by the recession, such as Las Vegas and Phoenix, where prices haven’t returned and may never return to pre-recession levels. So why is there a dearth of sellers? This is where mortgage rates come into play. Millions of homeowners are locked into some of the lowest rates in history. That isn’t compelling anyone to sell. Then there is the simple fact that in a time of low inventory, homeowners know they may have to buy as high as they sell.
- Single-Family Rental Homes: Why are there not enough homes on the market? Here is one reason that often remains overlooked. There are 90 million single-family homes in the United States, and the stock of rentals for such houses jumped 33 percent to 12 million in 2013 from 9 million in 2006, according to the US Census Bureau. Hedge funds and specialty real estate investment trusts bought up distressed properties in the wake of the foreclosure crisis. Many of these investors continue to buy up property today, depleting supply. “It is the reason the housing market is tight, and these properties are likely to remain rentals for a long time,” said Frank Nothaft, chief economist at CoreLogic.
- Construction Loans: Why can’t builders solve the inventory problem? This seems like economics 101, but builders are still having trouble getting construction loans.“Builders that rely on community banks for financing are still having difficulty getting construction loans,” says Lawrence Yun, chief economist of the National Association of Realtors. “And builders that can obtain financing are having a hard time finding skilled construction workers.”Home builder economists are predicting single-family housing starts will jump to 875,000 in 2016, up 22 percent from 2015.
Selling a home is no easy decision. Will mortgage rates rise and stifle demand? Will builders fail to increase supply, driving prices up further? Will the economy take a surprise tumble, taking home prices down with it? Although there are many unknowns in the real estate market today, it’s clear that now is an excellent time to sell.