Roy Oppenheim provides a summary of the current real estate market and where it’s heading the remainder of the year for homeowners.
National home prices seem to be rising at a very moderate rate. As of this month home prices are up 1.56% year-to-date. Last year during this period we were witnessing a 2.1% year-to-date increase. That’s about a 25% drop in growth. Of course, some price increase is better than none, or even worse, a declining home market. However, it’s hard to ignore the fact that the rebound is slowing down. Just a few days ago Morgan Stanley revised their 2014 total home sale projections from 5.75 million to 5 million.
Washington is also concerned with the slowdown of the housing rebound. For the past year, top policy makers in the White House have been worried that the housing sector, which is historically key to an economic recovery, is struggling to hold its traction. Due to these worries, the Obama administration and federal regulators are now –get this– advocating for policies to LOOSEN lending practices by banks. In the coming weeks, six agencies are expected to finalize rules that propose to abandon earlier rules requiring larger down payments on mortgages.
So why is home value growth slowing down when most are convinced that the market has bottomed out, the stock market is hitting all time highs and the economy seems more robust?
Top 7 reasons why home value growth is slowing down:
Cash transactions are beginning to decline: Although the absolute number of cash buyers in the market remains steady, the aggregate amount of cash that they are spending is beginning to reduce.
Cold weather: The strongest decreases in existing home sales this year is coming from the West/Midwestern region of the country. This year’s extended winter and below normal temperatures in such regions may be a real contributing factor to the decline of the national average growth rate of home price.
Investor buying is heavily decreasing and traditional buyers are coming in: In nearly every major city in this country, the volume of distressed home transactions has declined by an average of 45% year over year. However, in Miami, distressed homes made up 40.5% of home sales last year. This year that proportion has only dropped to 36%.
First time home buyers are not in good positions: First time home buyers, typically individuals in the 25-34 age range, are struggling with high student loan debts which challenge their home affordability and pose challenges to their credit worthiness.
Too many adult children living with parents: From 1985 to 2011,the average percentage of adult children living with their parents was around 14%. Today a whopping 31%–36% of adult children are still living at home. Parents, the housing market needs your assistance!
Supply is not reducing: The overall amount of inventory on the South Florida market seems to remain stagnant. Basic economic fundamentals hold that inventory must go down for price to go up.
Interest Rate Increase: Year over year, interest rates have gone up one full point.
It’s not all bad news though. Things could be a lot worse. Let’s remember that although price growth is not as strong as it was a year ago, there is still growth going on! Home values are still down around 14% from 2007 peak prices.
Additionally, most of the adverse factors mentioned above don’t seem to apply to the South Florida market. Foreign investors down here are awash with cash, supply IS reducing and the transactions involving distressed properties still account for over 1/3 of total transactions. As we have learned, fast growth is not necessarily a good thing. A slower moderate growth increases the likelihood of sustainability which promotes future growth by providing confidence in the market.
Roy Oppenheim – Oppenheim Law’s practice areas include real estate and defending homeowners and investors from foreclosure, arranging short-sales, loan modifications, commercial litigation, and business related matters. Roy is also the creator of the South Florida Law Blog,named the best business and technology blog by the Sun-Sentinel. Connect with Roy on Twitter, Facebook, Google+, LinkedIn and YouTube . –