When the financial crisis hit, the housing market changed dramatically. In less than a year, prices dropped and the equity that homeowners had in their homes disappeared, seemingly overnight. Many people who were ready to sell their homes at that time had to put those plans on hold until the market recovered. No one will tell you that today’s market has fully recovered, but there are positive changes underway, and the changes are happening rapidly. For home-owners who had to wait to sell their homes, today may be the day they were waiting for.
You may now have equity in your home
The reason is simple: Prices have increased dramatically. Many homeowners may not realize it, considering how far the real estate market fell when the housing bubble burst, but in the past 12 months, prices have actually rebounded at a fairly remarkable pace In fact, according to the Case-Shiller Home Price Index (a composite of prices in 20 major metropolitan area), prices rose 11.8% year over year in February of 2013. This is the biggest yearly increase in prices since November of 2005, when the market was almost at its peak. The result is that people are lining up to buy homes in today’s market. So, why have prices increased so quickly?
Fewer homeowners are in danger of losing their homes
When the housing crisis hit, the result was that mil- lions of people found themselves in danger of losing their home to foreclosure. The struggling economy created financial hardships for homeowners and many needed to sell their home as a result. However, because home values dropped so precipitously, they owed more on their mortgages than the homes were worth.
These homeowners are called "distressed" homeowners, and in recent years they’ve numbered in the millions. Today, however, these distressed homeowners may find themselves in a much better position.
According to the National Association of REALTORS, distressed home sales are at their lowest point since 2008, when the foreclosure crisis started. Since most of the distressed properties have been sold off, they are no longer having such an intense effect on prices. This means that non-distressed sellers today find themselves in a much better position than at any point since the housing crisis began.
Investors are buying as many homes as they can
Investors know that the fundamental rule to successful investing is simple: Buy something for less than what you can sell it for down the road. This is certainly true of real estate investing, and the decline in housing prices at the height of the housing crisis has resulted in investors coming out in droves and buying all the properties they can get their hands on.
And it isn’t just individual investors who are buying one or two properties. Large investment firms and hedge funds are buying up huge swaths of properties to take advantage of an unprecedented opportunity. Their intention is to rent out the properties to generate cash flow for themselves, but the result is that large quantities of these homes have been bought up by these investment firms, taking them off the market in bulk.
And it isn’t just individual investors who are buying one or two properties. Large investment firms and hedge funds are buying up huge swaths of properties to take advantage of an unprecedented opportunity. Their intention is to rent out the properties to generate cash flow for themselves, but the result is that large quantities of these homes have been bought up by these investment firms, taking them off the market in bulk.
There have been fewer homes built in the past 5 years than at any time in the past 50 years
Generally speaking, the real estate market needs about 6 months of inventory in order to keep up with normal supply and demand. This means there should be enough homes for sale that it would take 6 months to sell them all.
In today’s market, there is significantly less inventory than that. In fact, nationally there is about 4.7 months of inventory available. This number doesn’t tell the whole story, however. In some metropolitan areas, there is less than a month’s worth of inventory. There are even some cities that only have a few days of inventory for sale!
At the same time, more people want to buy homes today than at any time in the past 5 or 6 years. Interest rates are at near record lows and a new generation of homeowners is trying to buy their first home.
In today’s market, there is significantly less inventory than that. In fact, nationally there is about 4.7 months of inventory available. This number doesn’t tell the whole story, however. In some metropolitan areas, there is less than a month’s worth of inventory. There are even some cities that only have a few days of inventory for sale!
At the same time, more people want to buy homes today than at any time in the past 5 or 6 years. Interest rates are at near record lows and a new generation of homeowners is trying to buy their first home.
There are fewer homes to sell and more people who want to buy them. Make no mistake about it, today’s market is a seller’s market and people who sell their home today are in the strongest bargaining position in years.
Today’s market is a seller’s market
So, with fewer distressed homeowners driving prices down, investors buying as many properties as they can, and homebuilders just now ramping up to build new homes to meet the demand, prices have been increasing. For people who have waited to sell their home, this puts them in the driver’s seat.
Do you know what your home is worth today? Or what are homes in the area selling for? These are all questions to which the answers have changed significantly in the last few months, and knowing what your specific situation is will help you make more informed choices.
As a real estate agent in today’s market, I make it my business to have the most up-to-date information and can help you understand exactly what your current situation is. If you have been underwater, it is entirely possible you are not anymore. If you have been holding off until the market started to recover, that time is now.
Contact me today for a free valuation of your home and let me help you determine your best option. Arm yourself with information and make a more informed choice. It might just end up being an incredibly profitable decision.
Rob Sales, CDPE Advanced, CIAS, DPP
