Brian Kusmer 2013-08-01 05:47:15
Coming out of the housing downturn there is a lot of speculation on where the housing market is and if there is another bubble that is forming. The housing market is always cyclical and will see fluctuations based on a number of factors. As you know this past downturn was caused by careless banking practices and greed. The difference between what happened in housing in 2005-2007 and now is that during the bubble the buyers were able to borrow up to 125 percent of the value of their home. Another factor is the banks were lending with no income and no asset verification, so even with no job and no assets people were getting loans. What is happening now is much different. There are a few factors on which this housing uptick is a healthy recovery and not a bubble. 1) The buyers are required to have 10 percent down or more (if not FHA or VA loan), in most cases people are required to put 20 percent and for most of the past five years buyers paid cash because the banks made it very difficult to get a loan. So with that kind of equity even if the market increased fast and adjusted slightly with that much cash in homes people will not be releasing them to a bank. 2) When we look at prices in today’s market we are at levels of 2003 and 2004 which means that if the prices increase 30 percent from current we are looking at what prices should be, based on a standard 3 percent cost of living increase for the 10 year price gap. 3) We need to also understand that if prices decreased 50 percent during the downturn they need to increase 100 percent to get back to the same price as before. Example: A $1,000,000 home becomes worth $500,000 it lost 50 percent so now it will need to increase 100 percent to be worth $1,000,000 again. So when the media says housing prices are up 22 percent it means we are headed in the right direction for our properties to get back to their true value. 4) A major indicator is pending home sales and they rose in May to the highest level since late 2006, implying a possible spark as mortgage interest rates began to rise, according to the National Association of Realtors®. The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 6.7 percent to 112.3 in May from a downwardly revised 105.2 in April, and is 12.1 percent above May 2012 when it was 100.2; the data reflect contracts but not closings. Contract activity is at the strongest pace since December 2006 when it reached 112.8; pending sales have been above year-ago levels for the past 25 months. Lawrence Yun, NAR chief economist, said there may be a fence-jumping effect. “Even with limited choices, it appears some of the rise in contract signings could be from buyers wanting to take advantage of current affordability conditions before mortgage interest rates move higher,” he said. “This implies a continuation of double-digit price increases from a year earlier, with a strong push from pent-up demand.” Yun upgraded the price forecast for 2013, with the national median existing-home price expected to rise more than 10 percent to nearly $195,000. This would be the strongest increase since 2005 when the median increased 12.4 percent. Existinghome sales are projected to increase 8.5 to 9.0 percent, reaching about 5.07 million in 2013, the highest in seven years; it would be slightly above the 5.03 million totals recorded in 2007. The PHSI in the Northeast was unchanged at 92.3 in May but is 14.3 percent above a year ago. In the Midwest the index jumped 10.2 percent to 115.5 in May and is 22.2 percent higher than May 2012. Pending home sales in the South rose 2.8 percent to an index of 121.8 in May and is 12.3 percent above a year ago. The index in the West jumped 16.0 percent in May to 109.7, but with limited inventory is only 1.1 percent above May 2012. In conclusion we are looking at a healthy real estate market that is recovering and with interest rates still at historically low rates and pricing still at levels of 10 years ago this is a great time to buy. With the inventory being low in the valley it is also a great time to sell. There are very few times when the market is great for both buying and selling real estate. *Statistical information for pending home sales provided by the National Association of Realtors. *The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing. The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population. Brian Kusmer is a long time Scottsdale resident where he resides with his wife, Amber, and their three children. As a local realtor, he is responsible for the sale of tens of millions of dollars’ worth of real estate each year. His clients vary greatly from investors to homeowners to commercial real estate and land development clients. Over the last 15 years, Brian has received many accolades, honoring his competency as a realtor. As a re/Max agent, he was honored in the re/Max Hall of Fame, the highest tribute available. He has also earned the Lifetime Achievement Award. Brian previously collaborated with a world-wide direct sales company, providing motivational speaking and consulting for sales training. Currently, he is a member of the HomeSmart Elite Group and is a recipient of the Diamond Club Award. Brian can be reached at 602-469-5823 or at email@example.com. For more information feel free to visit www. teamkusmer.com.
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