It turns out that six years of steady growth in home values may finally be turning what would normally be a homebuyer away from the market. But don’t worry, there are plenty more on the way.
For the last five years, my story has been the same: low inventory in the under-$400,000 market was driving prices up, and competition has been fierce. Finally, that story is about to change.
Everyone talks about first-time homebuyers getting priced out of the market. And I can see where that is true. But now, it seems others are getting priced out as well.
It is commonly understood that homeowner’s buy homes in 7- to 10- year cycles. In fact, mortgage interest rates are loosely tied to the yield on the 10-year Treasury because of this. Well, if you bought your $350,000-house 7- to 10- years ago, you bought near the bottom of the market.
Since then, home values have gone up so fast that here you are, with a couple of company raises in hand, ready to move up. The problem is that the $550,000 houses that you want to move up to look very similar to the house you already are in.
So if you can instead use your extra money to remodel and improve the house you are in, why move?
I have seen a huge uptick in interest for our renovation loan products. We offer several, including one where we appraise the house based on the after-construction value and then make a loan based on that value. For conventional loans we can go up to 95 percent of that value. For FHA its 96.5 percent. I have partnered with several builders who now offer financing as one on their list of services.
If you are an agent wondering if this works on a purchase as well – it does. If your client wants their finishes to be up-to-date like in new construction, but doesn’t want to pay new construction prices, they can instead by a home built maybe 10-15 years ago and upgrade it. They’ll get a bigger yard and a bigger house in the process. And after they close, we’ll pay the contractor to do the work.
So all of this begs the question: if existing homebuyers are tending more to staying put, and first-time homebuyers are finding it difficult, shouldn’t there be more inventory coming onto the market? I asked the expert here in Atlanta, Mitchell Palm of Smart Real Estate Data. His short answer was “no.”
“Essentially, existing home sales are nearly flat, only up 2.0 percent through July (August data is still rolling in),” he said. “At the same time, inventories continue to go down by about 1 percent, creating a decrease in months of supply.”
Nationally, data is showing a slowdown in the housing market. A recent article in the Financial Times stated that the number of home sales in July fell 1.5 percent from the prior year. This was the fifth month in a row to show a decline. Here in Atlanta though, we have one thing that many cities do not: tons of businesses, and people, moving here.
“The demand is most certainly still there,” Palm said. “What is helping to fuel the real estate market in Atlanta is the influx of companies locating here and bringing all those jobs and homebuyers.”
And those new residents are helping to slow the slowdown here in Atlanta. But all that said, many of the agents I talk to are feeling the pinch. Our industry is one where when things are good, everyone wants to become a Realtor or mortgage banker. And when it’s bad, they don’t.
So right now, we have a lot of agents with a smaller amount of deals. We’ll likely see a thinning of the industry over the next several months – Wells Fargo recently laid off 638 workers from its home mortgage division. Eventually we’ll have the right amount of agents and bankers for the amount of work that’s available. And when the market expands, those that stuck it out will have more work than they’ll know what to do with. And they’ll ride that wave right up until everyone wants to be a Realtor or mortgage banker again.
Geoff Smith is a mortgage banker with Assurance Financial focusing on residential home loans for refinances and home purchases.
*The views and opinions expressed in this column do not necessarily reflect the views of Assurance Financial Group