January 22: Good news on Existing Home Sales; what has more value, square footage or lot size?

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. See more

Agents around the nation received some good news this morning. Existing-Home Sales surged back in December, increasing 14.7 %, a solid snap back as more buyers reached the market before the end of the year, and the delayed closings resulting from the rollout of the Know Before You Owe initiative pushed a portion of November’s would-be transactions into last month’s figure.  Led by the South and West, all four major regions saw large increases in December.  Sales are now 7.7 percent above a year ago.

 

Lawrence Yun, NAR chief economist, says December’s robust bounce back caps off the best year of existing sales (5.26 million) since 2006 (6.48 million). “While the carryover of November’s delayed transactions into December contributed greatly to the sharp increase, the overall pace taken together indicates sales these last two months maintained the healthy level of activity seen in most of 2015,” he said. “Additionally, the prospect of higher mortgage rates in coming months and warm November and December weather allowed more homes to close before the end of the year.” The median existing-home price was $224,100, up 7.6% YOY,  the 46th consecutive month of year-over-year gains. Total housing inventory dropped 12.3% to 1.79 million existing homes available for sale.

 

Renovation loans:

 

The pace of new construction has been stagnant over the past few years while buyers continue to battle both rising home prices and limited homes available for sale. Who knows these facts better than Realtors? Since the 2008 catastrophe, there are still a large number of homes in foreclosure or short sale positions. Older homes in need of repair and modernization are also on the market. But buyers are looking for move-in ready homes right? Are buyers overlooking the potential of older homes and unoccupied, post-foreclosure homes due to the necessity of remodeling and updating?

 

For many buyers, especially first time homebuyers, renovating a home post-closing may seem out of reach because they do not have the liquid assets to do desired renovations. This can obviously have a big influence on a buying decision when the needy property is in the right location for a particular buyer. So just how can a prospective homebuyer make improvements to a property without cash and with little equity?

 

That is where an FHA 203K or Fannie Mae Homestyle loan comes in. Home buyers can take a property in need of attention and turn it into dream home.

 

Renovation financing considers the purchase or acquisition price supported by an appraisal, then adds in the proposed improvements. The financing is then based on that after improved value. Correcting the defects are included in the improvements, allowing closings to proceed without having to address any “as is” issues.

 

Be sure to let your buyers know that renovation loans aren’t scary, nor do they require liquid assets to turn a toad into a prince. In fact, a renovation loan will allow your borrower to create their dream home in a location that may have been otherwise financially out of reach.

 

 

 

Interesting fact:

 

 

It is the time of year to consider the potential for frozen pipes. Why do the pipes freeze and burst? Most of us would answer “because the pipe got to cold.” According to Leonard Morse-Fortier, engineer and staff consultant at Simpson Gumpertz & Heger Inc., that answer doesn’t explain how pipes can be vulnerable, or what makes some pipes freeze and break while others do not.

 

Actually, it is more common for the ice to form within the pipe and try to expand along the length of the pipe, according to a study from the University of Illinois at Urbana-Champaign.

Water is incompressible, so where water is confined between the expanding ice and a closed fixture, the pressure increases until the pipe ruptures. The rupture will occur at the weakest part of the pipe holding the confined fluid. Therefore, the pipe most likely bursts away from the actual freeze location, and water pressure in a confined volume is a critically important part of the underlying cause. Interesting right?

 

If you would like to read more facts about frozen pipes and solutions available, click here.

 

Single family building gaining on multi-family:

 

The pace of one-unit starts dropped in every region of the U.S. in December, most notably in the west, with a 6.2% drop month-over-month. Year-over-year however, the northeast, south, and west all saw positive growth (a massive 25% increase in the Northeast), while the midwest posted a notable 18.9% decrease in 1-unit starts compared to December 2014.

 

Overall, permits fell 3.9% in December, attributed to a 13.5% drop in permits issued for structures with 5 units or more. Conversely, permits issued for 1-unit structures and 2-4 units structures increased month-over-month, 1.8% and 27.6%, respectively. Builders in the Northeast and South secured the most permits for single-family structures in December, with a 3.7% and 3.6% increase, respectively.

 

The pace of single-family home completions is still lagging behind the pace of starts, but the gap narrowed this month due to an 8.8% increase in completions during December, coupled with the 3.3% decrease in starts. The midwest posted the most dramatic change month-over-month for 1-unit completions with a 38.3% increase, followed by the West (11.3% increase) and South (3.9%). The Northeast was the only region to post a decrease in December, with single-family completions down 9.3% month-over-month.

 

You can read the details and view the tables in the U.S. Census Bureau and Hud joint press release regarding new residential construction statistics for the month of December.

 

Square footage trumps lot size:                                                   

 

According to the National Association of Realtors 2015 Profile of Home Buyers and Sellers report, the biggest requirements for families with children is as follows: 62% of those with kids 18 and under say the quality of the neighborhood is important, while 50% are looking for a good school district and 49% want the home to be convenient to their jobs.

 

Those statistics make sense but there is another requirement in the running. Becoming more prevalent, particularly for the millennials, is square footage in lieu of a larger lot size. Allotting private space for each family member to decompress under one roof, is becoming a higher priority than a large yard.

 

In the San Francisco area, for instance, an indoor play space is the priority, a patio or small yard is more than adequate and actually preferred as less maintenance is required. On the flip side, buyers in areas that are spread out geographically, aren’t necessarily interested downsizing lawns. However, an indoor play area is becoming a priority in these areas as well. So why is square footage so significant today?

 

It could be that the sheer volume of toys and possessions are much larger today than in past generations. Toys spread throughout the house is not optimal in todays’ warp-speed lifestyle. Another possibility is that parents are more inclined to visit parks or choose family-friendly neighborhoods where kids can safely play while observed by a parent. Children today do not stay outside from dawn to dusk, unsupervised like the days of old. With this in mind, the potentiality for a flex room (multi-use room) is becoming a hot item. A home with a room, easily transformed from a dining room, for example, (only needed a few days out of the year) back into a playroom used year round is perfect use of space as opposed to the expense of adding an additional room.

 

 

Old people in this industry are easy to amuse: http://img0.liveinternet.ru/images/attach/c/5/3970/3970473_sprite198.swf. (You may have to cut and paste the link into your browser.)

Rob

 

(Copyright 2016 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)