𧨠Is the red-hot housing market on the brink of a collapse?
đ¤ Have you come down with a bad case of Zillow fever? (Consider me your needle-free vaccine đ)
đ° Are you thinking of selling and want to know how much your home has increased in value?
𤺠Are you a buyer whoâs tired of the competition? Or a numbers person who wants to geek out on mortgage interest rates?
đĄ Whatâs going on with the real estate market in Burr Ridge?
For answers to all of these questions and more, check out my July, 2021 housing market update!
Eric Andersen, B.A., M.Div.
Owner/REALTORÂŽ, Eric Andersen Homes
đ˛ Text/Call: 708.674.6725
đŠ Email: eric@eandersenhomes.com
Transcript:
Weâve just crossed the halfway point of 2021, so nowâs a good time to take stock of where the real estate market is today and to look forward to the 2nd half of 2021 and see whatâs expected to happen there. Iâm Eric, owner and broker at Eric Andersen Homes, and I specialize in Chicagoland real estate, especially in western DuPage and eastern Cook counties. Be sure to subscribe to my channel to make sure youâre always up-to-date with the current real estate market. Weâll begin this market update by looking at the current demand for homes and end by looking specifically at whatâs happening in the Burr Ridge market. So first, letâs look at demand. There was an interesting observation in the June Broker Report. It said, âThis monthâs overall homebuyer demand rating equaled 86 on a 0 to 100 scale. Down from 88 last month. And marking the first sequential decline since November.âA few weeks ago, I was looking at a report from the Mortgage Bankersâ Association, and it indicated that new mortgage applications had decreased by something small, like 1%. And while that may not sound like much, the fact that the number didnât increase was significant. The Broker Report makes the same point: buyer demand is starting to decrease, at least ever so slightly. Meanwhile, sellers are continuing to list their homes. Just the other day, I was talking with an agent in my office who is looking for a home, and he made the point that a few months ago, there were 10 homes for sale that met his criteria. Today, there are over 50. While I suspect thatâs probably more of an increase than is typical, I do think buyers today will have more options or face slightly less competition today than they did last month.The Home Purchase Sentiment index tracks whether or not people think itâs a good time to buy. Buyers have caught on to how competitive the market has been, and only 35% say itâs a good time to buy now. At this time last year, over 61% said it was a good time to buy. And while the market is certainly more competitive today than it was at this time last year, the data shows that buyer demand is beginning to waneâso much so, that there has been a 26% drop in the âis-it-a-good-time-to-buyâ stat. Thatâs not insignificant. Coupled with the low interest rates, this means there is definitely opportunity to secure a purchase, hopefully with at least a little less competition, in todayâs market. When you look at the data from ShowingTime, the MLS app that tracks showing activity, we see that showing activity has decreased by almost 9% since last month. In fact, the pace of showings is back to where it was last winter, winter being one of the traditionally slower times of year for real estate. My own showing calendar makes the same point. If I was averaging 20 showings per week a month ago, Iâm probably down to about 15 today. In other words, Iâm still out showing a lot of homes, but today I have a more of a chance to catch my breath, and even hopefully eat dinner, whereas last month I had to forego some of those silly things like sleep and food because I was out showing so much. So what weâre seeing is a slight downtick in demand, but the demand is still certainly out there. Make no mistake, itâs still a sellerâs market and buying a home right now is a full-contact sport. So if you are in the market to buy, be prepared to put your best foot forward. But buyer fatigue is starting to set in, and this is not a market for those casually looking. The summer market traditionally brings out some of the most serious buyers, particularly for those looking to get into a new school district. The competition level has only further discouraged the lookie-loos from coming out. Itâs too competitive for them. This is good news for sellers, as it means youâre less likely to get unmotivated, pretend buyers clowning around through your home right now. This is happening for several reasons, including record price appreciation. Last week, Case-Schiller said homes nationwide had appreciated 14.6% over the past year. Normal appreciation is around 2 or 2.5%, and this is over seven times that in a single year, which is obviously significant, especially if youâre thinking of selling. Nowâs a great time to cash in. Again, youâd typically have to wait *seven years* to get this much of an equity increase as weâve seen in the past 12 months. Inventory is still near record lows even though itâs looking like itâs starting to pick up, and homes are continuing to sell for record levels over asking price. Several of my own listings have sold over asking price, and sometimes before weâre even on the public MLS. Overall market time remains at record lows, as do interest rates. Last year, the 30-year fixed rate loan hit a record low 16 times. Add to that the fact that people spent 2020 trapped at home, realized they didnât love it there, were forced to save because they couldnât go out, and many received government stimulus money. Those conditions created a case of Zillow fever like Iâve never seen. As bad as the pandemic has been, Zillow Fever has been nearly as bad. You can consider me your vaccine for that. If youâre thinking of waiting to purchase until things cool off, prices are not likely to decrease anytime soon, and interest rates are so low itâs hard to imagine them going anywhere but up. As of this recording, the average 30-year fixed rate loan was at just over 2.8%, compared to the long-term average of 7.85%. As everyone learns in Econ 101, price is largely driven by supply and demand. In real estate, when the available supply exceeds 7 months, meaning it would take, on average, 7 months to sell off all of the available inventory, thatâs considered a buyersâ market. Anything below 6 months favors the seller. Today, the national average is sitting around 2.5 months. Thatâs not just a sellersâ market, but a sellersâ market on steroids. The notion that prices will drop suddenly or weâll be in a buyersâ market any time soon doesnât seem likely, though hopefully we are making our way toward a more neutral market and restoring balance to the Force. On the seller side, equity has increased dramatically. According to CoreLogic, the average increase in equity over the past year was $33,400 nationwide, which is almost a growth of 20% in equity. And just over 38% of homes are owned free and clearâthe paid off home mortgage. Dave Ramsey would be proud. As he always says, in his view, the paid off home mortgage has replaced the BMW as the status symbol of choice. And, speaking of Dave, I am one of his endorsed local providers for real estate in the Chicagoland area. Iâve found his teachings on personal finance to be helpful, and frankly, I probably wouldnât be selling homes or have my own brokerage if it werenât for Dave. I highly recommend his podcasts and books, and helping buyers find the right home at the right price at the right time is my priority, so donât hesitate to reach out to me for guidance. Iâm here to be a resource for you for the long haul. But back to sellers. With all of the increase in equity, 20% on average nationally, sellers are starting to get the idea that maybe, just maybe, this might be a good time to sell. Indeed, O sellerâit is. Never been better, in fact. The chief economist at First American said, âIt looks like existing inventory is starting to inch up which is good news for the housing market parched for more supply.âParched, indeed. This market has been incredibly thirsty for new listings, and sellers are the Gatorade. This quote from realtor.com sums up the current market well: âThe improvement we saw in new listingsâ growth from May to June shows sellers are entering the market historically later in the season which could mean weâll see home buying continue into the fall as buyers jump at new opportunities.â If youâre thinking of selling, now is a great time, but itâs important not to be too unrealistic. Now is a great time to cash in, but as the saying goes, pigs get fat while hogs get slaughtered. In other words, feast but donât get too greedy. Being overly ambitious will almost certainly be counterproductive. But if you wait, you are missing out on a very attractive market. There really hasnât been a better time to sell, and sellers are starting to catch on. But at the same time, buyers are starting to wonder about the wisdom of buying now. As inventory increases and the pool of buyers decreases, that should cause appreciation to at least slow down and make for a more competitive market among sellers. Looking ahead to 2022, letâs also consider a few forecasts. Mortgage rates are expected to increase. All of the four major forecasters see rates increasing over the next year, with an average rate above 3.5% and the Mortgage Bankersâ Association projecting rates at 3.9% by the 2nd quarter of 2022. Of course, only time will tell what the rates will actually be, but thereâs a strong consensus that they will increase. The question is by how much and when. But this is something buyers need to know: it is going to cost you more money in the future to buy a home than it does today. Over the life of the loan, this could mean tens of thousands of dollars more to buy a home at the same price point today as it will in a year. For example, on a 30-year loan of $500,000, you will pay almost $240,000 in interest at the current rate of 2.8%. At 3.5%, the same loan of $500,000 will cost you over $308,000 over 30 years. To put it simply, waiting one year is expected to cost you $68,000 in interest alone, and home prices are expected to increase, too. In short, youâll get more for your money today than you will in one year. In terms of home prices, we see a universal expectation that appreciation will decrease in 2021, but it is still increasing. Some of the more bullish forecasters have it at over 10%, while the more bearish ones are between 6-8%, with an average of 8.9%. Thatâs a far cry from the current appreciation of 14.6%, but whatâs important to note is that prices are expected to continue to go up, and well above the typical 2.5% year-over-year increase. If Dr. Seuss sold real estate, he might say appreciation is slowing, but itâs still growing. As weâve said, prices are driven largely by supply and demand, so keeping our eye on inventory will be key. New construction certainly hasnât kept pace with the inventory crisis, largely due to the costs of lumber. And while that is starting to decrease, builders are still having a hard time finding labor, or qualified people who are available to build their homes. Lots are also selling for a premium, so that remains a challenge for builders, too. A good friend of mine is a builder at Ryan Homes, and he says theyâve cut back on the number of new homes they are building. New construction permits remain down from where they were expected to be at the beginning of 2021, so while new homes are continuing to be built, there arenât enough to fill the void left by the lack of new builds over the past 13 years. So look for new construction, but itâs not enough to solve the inventory problem. Some buyers and agents have asked me about forbearance, suggesting that once forbearance ends, weâre going to have a foreclosure crisis. But as you can see, the number of homes in forbearance is continually decreasing, so it is not likely that weâre going to get a major bump in inventory due to foreclosures. Plus, a recent study showed that 96% of homeowners have at least 10% equity, which means that if someone is experiencing financial hardship, most homeowners can easily sell their home and still put money into their pocket. Foreclosure only becomes a serious concern when the level of equity is either negative or very low.The other concern Iâve heard about sometimes lately is whether or not weâre in a bubble. But inventory and equity levels just donât bear that out, at least in the macro. One area where there may be a bubble risk is in areas where buyers have been purchasing a second home, for example, in beach towns or vacation areas. As you can see, that market increased by 25% from last year, while the primary home market only increased by 5%. And, as you can see, investment properties are way down. But for someone who maybe has buyerâs remorse and is thinking of selling their second home quickly, that could be a challenge, though even that could help solve the inventory problem weâve been having. In general, more inventory is desperately needed. This quote from J.P. Morgan indicates the fact that itâs actually a good time to buy or sell. âHomebuyers – interest rates are still historically low though they are inching up. Housing prices have spiked during the last 6 to 9 months but we donât expect them to fall soon. And we believe that they are more likely to keep rising. If youâre looking to purchase a new home, conditions now may be better than 12 months hence.âTurning to the local market in Burr Ridge, there are several things worth noting. New listings have been steadily decreasing over the past 3 years, as you can see. 2020 saw a decrease in 11.2%, while this year we are down an additional 3.1% over 2020, or a full 14% from where we were in 2019. As you would expect, then, that has meant an increase in sale price. Prices actually dropped by about about 3.5% in 2020, but they have since shot up by a full 15% here in 2021 vs. where they were in 2020. Again, this is largely a function of low inventory and illustrates the supply/demand principle weâve been discussing. Market time has also followed suit, which also increased in 2020 but has come back down in 2021. While itâs still higher today, at 81 days, versus the 62 days of 2019, the increase in sale price of $62,500 over where were were in 2019 is probably more than enough to justify an additional 19 days on market. Just to do the math, an increase of $62,500 over 19 days comes out to an average profit of $3,289.47 per day. Not a bad return on investment for a couple of weeks, if you ask me. Itâs also worth commenting on market time. As competitive as it is, sometimes buyers will ask me whatâs wrong with a home thatâs been sitting on the market for 45 days, which, I know, seems like an eternity right now. And the answer is, nothing, at least, not necessarily. 45 days is still a solid two weeks below median market time. Just because some homes are selling within hours of listing doesnât mean this is the norm. And for sellers, while it is possible to sell very quickly, or even directly off the private listing network, that doesnât mean thereâs a problem with your home if it takes two months to sell. Thatâs still par for the course, even in this market. Well, I hope youâve found this market update helpful. As always, if youâre thinking of buying or selling a home in Burr Ridge or the eastern DuPage/western Cook counties, contact me today. And, if you enjoyed this video, be sure to subscribe to my channel and come back each week for updates. Iâm Eric with Eric Andersen Homes here to remove the headache from real estate and provide expert guidance for your next purchase or sale.