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House Market Prediction I will show you that a slowing housing market is a good thing. The US appreciation rate is at 19%. The average appreciation rate since the ’90s is 4%. The past several years have yielded extremely high appreciation rates. That seems great if you’re a homeowner. However, it’s not sustainable. For example, […]
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January 2021 –
I’ve noticed something odd in the house market. I want to bring it up to explain it and give three easy tips on how to navigate it.
First, I need to bring up the last house market crash of 2008. Here’s the chart. Basically what happened was that house prices were inflated. You can only inflate home prices so much. They can’t go higher than salaries. What happens is when prices get high people can’t afford them because their salaries don’t match.
Then the housing prices must come down. The fed tries their best to raise interest rates to slow the inflation down and steady the house price growth rate. Year over year the growth rate line ideally should be more straight across instead of up and down. It’s better to have a steady, gradual increase instead of a huge up and down wave.
I’m a real estate agent that looks at housing market data every single day. As a real estate professional the way that you arrive at a home value is by pulling market data to create a comparative analysis.
What that means is that you’re gathering data from homes that have sold recently and that are in the neighborhood of the home being sold. All of this data goes in an equation to help determine how much the house is worth. That’s called the market value.
The price is not pulled out of a hat. You don’t just guess at what a home is worth. There’s a couple other variables. Precisely how does this home compare to all the others. What’s the square footage difference? What is the location? How much renovation has been done?
The biggest variable is location. Second to that is square footage. Third to that is updates. That’s how you come up with the market price. The price comes from the local market.
Here’s what I’ve noticed recently. The price is calculated using a comparative analysis. Then, because we have these hugely popular companies like Zillow that come up with their own price, we always check that because the seller is checking how much their home is worth there.
They love to go to the Zillow search box, put in their address and see their magic number. Now this magic number typically has matched pretty close to the market value comparative analysis. Usually when we do a comparative analysis these two numbers are pretty close.
For example, in the past, the comparative analysis for a $500,000 house on Zillow would come in at $498,000 or $510,000.
Recently however, the comparative analysis is $500,000 and Zillow is $700,000. That’s a pretty big difference between these numbers. What’s going on is that Zillow has a lot of power. Disclaimer, I’m not a Zillow employee. I don’t have behind the scenes look at how they do their algorithms.
I’m observing something that I’ve seen happen lately. Where there’s this big price gap. I’m pointing this out because they feed data to people. Data about the result of your home value. This has huge impact on the market. People go to Zillow, put their address in and believe whatever price pops up.
What happens on the real estate side is that the agent is trying their best to provide an accurate market value for their Client’s home. They do all the research, pull the comps, create the report and go to present it to their Client. The client has looked at Zillow and says “My home is not worth $500,000! That’s an insult. I looked it up on Zillow and it’s worth $700,000.”
What’s happening right now is that because we have low inventory there are not enough houses on the market for the number of buyers. The number of buyers are very high because of the amazing interest rates. These interest rates are pretty incredible. If you have good credit you could be as low as 2.4 percent right now which is a lifetime of savings.
If you have not so good credit it’s still great at 3.25. You really can’t lose with that. There’s a ton of buyers getting amazing interest rates and not enough houses. So what happens is that, for now, Zillow does actually have the power to sort of pull this number out of their hat.
Why do they do this? They want people to come to their website and be happy. If you go to their website and you punch in your address and maybe your home was appraised or refinanced a year ago at $500,000. You’re thinking of selling. You punch in your address and wow it’s $700,000 now. You’re really happy and you love Zillow. That’s why they’re getting away with it right now.
The problem is that you can only have this massive gap for so long. On a macro economic sense what this does potentially is create another bubble. All of these house prices are going way way up and they can only go up this quickly for so long. People only make so much money. We all know this because we experienced this before.
What should we do? Here’s three tips.
If you’re someone who is downsizing now is your opportunity to set yourself up really well for retirement. For example, if you have a big house and you no longer need it. Maybe your kids have gone to college and you’re downsizing. What you do is sell high. If you sell right now you make out like a bandit. Unless you relocate you will also buy high but if you’re downsizing you can pay cash and have your smaller home paid for. That is very smart.
The other strategy is if you’re in a great area. It’s desirable like Nashville is. You sell and you move to a place that’s maybe not as desirable. You get the same house for less. Once again you leverage your equity and pay as much cash as you can so that your debt is less.
Here’s the next thing I recommend. If you’re a buyer you’re looking at these inflated prices that can only last for so long. You’re out there home shopping and you’ve got an amazing interest rate. What you do is look for the homes that are actually comping out at market value.
The only way that you’re going to find these is if you have your agent do their research. Pull the comps on every property you like. Look for the ones that are actually at market value. Beware that if you go to Zillow and punch in the amount it could be inflated.
For the buyer there’s not much inventory right now. You’ll be tempted to pay the inflated price. Let’s say the interest rates go up. They have to go up at some point. When they go up and you’ve paid this incredibly inflated cost what’s going to happen is that you’re going be stuck with it. You’re not going to be able to move for quite some time. So just be aware of that.
Here’s a bonus tip. If you’re the seller that is thinking, “Wow my home has gone up so fast in the last year! I can’t believe it. If I pull some of my equity out and have some fun, go on vacation and do a couple little upgrades on my home I’ll sell it for even more. This growth rate is incredible. In another year my home will be worth almost a million dollars.”
I implore you not to do that! Don’t take out all your equity and spend it frivolously. Especially if you’re thinking of moving soon. If you’re thinking you’re going to be there another 10 years go for it. Take some out. Do some renovation. Just know that this growth rate, especially the inflated one, is partially being driven by companies like Zillow. It can’t continue with a home value annual increase of as much as 30% every year. That is not sustainable.
If you’re thinking of selling within the next year or two don’t pull your equity out. Be smart. Save your equity. Sell high and then pay as much cash as possible for your next home. Don’t get stuck with a big massive bag of mortgage and home that you really shouldn’t have spent going to Disneyland.
The best time to sell a house is when inventory is low. When inventory is low you have less competition. Less competition means that buyers have less housing choices. This lack of homes to chose from drives your sales price up and lowers your time on the market. Read more >
The housing market in the Nashville area is doing remarkably well considering the Covid-19 crisis. The suburbs will most likely continue to enjoy premium sale prices.
Premium sale prices occur due to low inventory on the market. In addition, the suburbs will be more favored at this time because they are situated farther away from the downtown area . Furthermore, people looking to buy, invest or refinance will appreciate the incredibly low mortgage interest rates for the 30 year mortgage.
Average Days on Market: 36
ADM is the number of days that the average home sits on the market before either closing or being removed.
Success Rate: 57%
Real Estate Market Percent of Houses Sold that were Listed & Sold in 2018
Sale to Close Price Gap: 12%
This is the current real estate market gap between list price and closed sale price.
2018 Annual Market Home Value Increase: 7%
The average payback in a home’s resale value for the cost of the remodel: 56%
Median Home Purchase Price in Williamson County, TN: $550,000
New Building Permits
Williamson County – Top 10 counties to invest in the nation. Issued the newest building permits in the country. 35 permits have been issued for every 1,000 homes.
Williamson County; 35 permits per 1,000 homes.
Maury County; 33 permits per 1,000 homes.
Davidson County; 31 permits per 1,000 homes.
September 17, 2022
House Market Prediction I will show you that a slowing housing market is a good thing. The US appreciation rate is at 19%. The average appreciation rate since the ’90s is 4%. The past several years have yielded extremely high appreciation rates. That seems great if you’re a homeowner. However, it’s not sustainable. For example, […]
