The stock market took a blow to the face this month and that may seem like trouble, but it is more than likely just a sell off to take profits off what has been a monumental rise in equity value since 2016. The red hot stock market has been a major factor in the Fed decision to tighten things up with interest rates and that has in turn led to some minor softening in the real estate market, particularly for the single family residential market.
The Wall Street blues could lead to a more robust interest in putting all that sell off cash into mortgages that are now bringing investors a decent 4.5% - 5.5% ROR. That bodes well for buyers as a stable lending market will settle in nicely to our near neutral market conditions.
Analysts continue to project that the next two years will see home prices outpace inflation but the media is painting a grim picture because the rate of growth is expected to slow substantially. But double digit housing inflation is not sustainable and the market is simply settling in to a more normal growth rate.
Buyers should understand that even though prices are not skyrocketing, they are still inching upwards and getting in sooner offers more opportunity for equity growth, equity growth is good. Don't be misled by media reports of a slowing market to mean that prices are reversing and getting lower, they are not. Some overpriced listings are being reduced to points they should have been at all along but the median continues to creep up.
It seems like interest rates are stabilizing and historically speaking a 5% mortgage is still a fabulous deal. Here's to 2019 and solid year for real estate!
Musings on the state of the market with tips, information and a little fun.
Friday, December 28, 2018
Friday, December 21, 2018
Happy Holidays!
Wow, 2018 is nearly done and it was a good year for real estate locally. Some say it was flat or 'softer' to which I say, "yes it was." But frankly, that is good. A crazy market that puts too much favor on one side of the transaction is great for the favored but terrible for the 'unfavored' side.
2018 brought us a transition into a near neutral market. Sellers are still favored a bit on the entry level price point and buyers tend to hold an edge at the high end. In the majority middle from 90% of median to 120% of median, we seem to have a solid neutral market and that keeps things fair, and dials back the intensity in a positive way.
Looking ahead to 2019 is a challenge as some variables for the coming year are unpredictable. Will mortgage rates remain flat? The stock market may play a role in that equation. The last six months has had a flat and volatile stock market and that tends to bring some money into the mortgage side. Should that continue then rates should remain relatively stable in 2019 and that bodes well for real estate.
The economy continues to move forward at a very healthy clip and that means that buyers feel good about making big financial decision like buying a house or upgrading their current home. One of the issues we are facing that may be playing a role in the move from seller's market to neutral is the segment of homeowners that bought a house around 2012 when rates were in the middle 3's. Home values were depressed and they are sitting on a sizable tank of equity. This is the point that historically they make the move up to the house they wanted back then but couldn't afford. But now rates are little higher averaging closer to 5%. Now let's be VERY CLEAR, 5% is still a remarkably low rate for a mortgage, but it is also remarkably higher than 3.75%. I wonder how many of those sitting on that 3.5% to 3.75% mortgage from 2012 are saying they will just stay put. It seems from an anecdotal viewpoint, that the pace of listings is steady but the pace of buyers has slightly softened. Data seems to suggest that is the case at the moment but it is not conclusive.
Will those 2012 homeowners make the move in 2019? That is the big question. 7 years has long been the standard average move rate for a homeowner. If they do, the entry level may get some much needed relief and the middle market might get a shot in the arm, so to speak. This is the scenario that I feel is best for the local market. If we keep pushing positive volume without exerting excessive pressure in any one segment, that is a sustainable situation.
Whatever the the economics deliver for 2019, it should be a good healthy market for real estate. Getting a 30 year loan at 5% is still a great deal for the buyer.
2018 brought us a transition into a near neutral market. Sellers are still favored a bit on the entry level price point and buyers tend to hold an edge at the high end. In the majority middle from 90% of median to 120% of median, we seem to have a solid neutral market and that keeps things fair, and dials back the intensity in a positive way.
Looking ahead to 2019 is a challenge as some variables for the coming year are unpredictable. Will mortgage rates remain flat? The stock market may play a role in that equation. The last six months has had a flat and volatile stock market and that tends to bring some money into the mortgage side. Should that continue then rates should remain relatively stable in 2019 and that bodes well for real estate.
The economy continues to move forward at a very healthy clip and that means that buyers feel good about making big financial decision like buying a house or upgrading their current home. One of the issues we are facing that may be playing a role in the move from seller's market to neutral is the segment of homeowners that bought a house around 2012 when rates were in the middle 3's. Home values were depressed and they are sitting on a sizable tank of equity. This is the point that historically they make the move up to the house they wanted back then but couldn't afford. But now rates are little higher averaging closer to 5%. Now let's be VERY CLEAR, 5% is still a remarkably low rate for a mortgage, but it is also remarkably higher than 3.75%. I wonder how many of those sitting on that 3.5% to 3.75% mortgage from 2012 are saying they will just stay put. It seems from an anecdotal viewpoint, that the pace of listings is steady but the pace of buyers has slightly softened. Data seems to suggest that is the case at the moment but it is not conclusive.
Will those 2012 homeowners make the move in 2019? That is the big question. 7 years has long been the standard average move rate for a homeowner. If they do, the entry level may get some much needed relief and the middle market might get a shot in the arm, so to speak. This is the scenario that I feel is best for the local market. If we keep pushing positive volume without exerting excessive pressure in any one segment, that is a sustainable situation.
Whatever the the economics deliver for 2019, it should be a good healthy market for real estate. Getting a 30 year loan at 5% is still a great deal for the buyer.
Friday, December 14, 2018
Minneapolis Eliminates Single Family Zoning
The New York Times reported that a serious proposal in Minneapolis to eliminate the single family housing zones in all or parts of the city has been passed. Apparently Minneapolis has a bit of a housing crisis and city leaders feel that allowing more multi-family in existing single family neighborhoods will resolve the problem.
This is dangerous and city leaders used the ugly history of racism and segregation to bring about the change. There is a sordid past time of cities using the power of zoning laws to keep specific ethic groups (among other groups) separated from others. By citing the racist history of zoning, are they admitting to having current racist policies in Minneapolis? I never would have pegged Minneapolis in that light in this modern age, who knows? I certainly hope not. Although zoning laws have a nefarious past, modern day zoning is designed to support all residents from all walks of life and to protect them from having a factory built next door, or a large apartment building being stuffed onto a lot that can't support the density. The dark past is just that, the past. Today, zoning is far more likely to aid citizens then harm them.
The real problem is multifaceted. First home owners of all ethic groups move into these single family neighborhoods for a variety of reasons, among which are quiet streets, large and private yards, lower crime, and a more suburban lifestyle. The trade off is that they often have a longer commute and find themselves needing to drive everywhere rather than walk or bike.
Often the homeowners have paid a bit of a premium for this quiet culdesac with the big back yard. Eliminating the single family designation allows home owners in the area to start packing in additional units on their land. This will eliminate the quiet and private aspects for some and likely reduce their property values. Furthermore the suburban infrastructure is almost certainly unable to support the increased density which will lead to traffic and heavy wear on streets. This further erodes the value of the property.
Rather than eliminate single family zoning, why didn't Minneapolis just make it more difficult to zone new areas in single family and thus make multi-family zoning easier for developers. A lack of new single family zoning would lead to strong property values for existing homes and the increased multi-family zoning would support more affordable housing in the future. That sounds like a win-win, but apparently not as far as Minneapolis officials are concerned.
People often pour their life savings into owning a home, and zoning, when done right is designed to protect those homeowners from a neighbor building something on their property that ruins the rest of the neighborhood. It is one thing to lighten the restrictions on adding a unit or subdividing an over-sized parcel. But wiping out the single family zoning altogether sounds like a serious case of overkill.
It will be interesting to see the fallout in Minnesota as this new legislation is absorbed into existing developments and future developments. My guess is that Minneapolis has opened Pandora's Box and God only knows what's lurking within.
This is dangerous and city leaders used the ugly history of racism and segregation to bring about the change. There is a sordid past time of cities using the power of zoning laws to keep specific ethic groups (among other groups) separated from others. By citing the racist history of zoning, are they admitting to having current racist policies in Minneapolis? I never would have pegged Minneapolis in that light in this modern age, who knows? I certainly hope not. Although zoning laws have a nefarious past, modern day zoning is designed to support all residents from all walks of life and to protect them from having a factory built next door, or a large apartment building being stuffed onto a lot that can't support the density. The dark past is just that, the past. Today, zoning is far more likely to aid citizens then harm them.
The real problem is multifaceted. First home owners of all ethic groups move into these single family neighborhoods for a variety of reasons, among which are quiet streets, large and private yards, lower crime, and a more suburban lifestyle. The trade off is that they often have a longer commute and find themselves needing to drive everywhere rather than walk or bike.
Often the homeowners have paid a bit of a premium for this quiet culdesac with the big back yard. Eliminating the single family designation allows home owners in the area to start packing in additional units on their land. This will eliminate the quiet and private aspects for some and likely reduce their property values. Furthermore the suburban infrastructure is almost certainly unable to support the increased density which will lead to traffic and heavy wear on streets. This further erodes the value of the property.
Rather than eliminate single family zoning, why didn't Minneapolis just make it more difficult to zone new areas in single family and thus make multi-family zoning easier for developers. A lack of new single family zoning would lead to strong property values for existing homes and the increased multi-family zoning would support more affordable housing in the future. That sounds like a win-win, but apparently not as far as Minneapolis officials are concerned.
People often pour their life savings into owning a home, and zoning, when done right is designed to protect those homeowners from a neighbor building something on their property that ruins the rest of the neighborhood. It is one thing to lighten the restrictions on adding a unit or subdividing an over-sized parcel. But wiping out the single family zoning altogether sounds like a serious case of overkill.
It will be interesting to see the fallout in Minnesota as this new legislation is absorbed into existing developments and future developments. My guess is that Minneapolis has opened Pandora's Box and God only knows what's lurking within.
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