Your home: Housing affordability is on the decline. Time to make your move!

I tried to reel you in with a scary headline. I hope it worked. My purpose is not to be dramatic but to share with you the reason why “now” is the time to get into the market. Buyer or seller. Today’s market offers benefits to both sides.

But first, a discussion about affordability. When I refer to housing affordability, I am referring to the percentage of a household’s income that must go to make the principal and interest payments on a home mortgage. Historically, it would take 21.6 percent of a family’s household income to cover their principal and interest payment. That would then leave 78.4 percent to pay for everything else in your life. Not too bad right?

Well it could be better. Take a look at the graphic below:2014 Slide 11At the end of 2013 it took only 14.2 percent of the household income to cover housing costs. That is 6.4 percent below the historical average. Now here is the kicker. If you look at 2012, the percentage was 12.7 percent. Therefore, in one year we have seen a loss of affordability of 1.5 percent. At that pace we would be back to the historical average in less than five years. Truly, I don’t see it taking longer than four years. And here is why.

The combination of slowly rising interest rates and rapid appreciation of home values have set us on a course for more losses in affordability. As I shared in my last column, the appreciation of the median home value was up 11.5 percent in 2013. I would bet we will see a higher increase in 2014 based on current trending.

If you have heard the term “house poor” before, or you have been house poor before, then you clearly understand affordability and the impact that it can have on your life. By house poor, we mean that your housing costs are such a large percentage of your income that you don’t have anything left to do the fun things in life. Fun things like vacation, or home improvement projects, or just a nice dinner out. So think of it this way: As housing affordability decreases, so can your choices around where you spend your money. And isn’t it better to have more choices?

Take a look at the slide below putting housing affordability in perspective.

Slide 13

If you look to the left, you will see some housing statistics from 1989. The numbers to the right in the brackets are adjusted for historical inflation (2 percent per year). The mortgage rate in 1989 was 10 percent. If you glance to the right, you will see the average mortgage rate for 2013 was 4 percent. Now look at the monthly mortgage payment in 1989. It was $825. If you adjusted that payment for inflation, it should be $1,551. But it is not! Instead, due to low interest rates and a corrected housing market, that payment is $941. Today’s affordability is saving you more than $600 a month. WOW! Affordability is truly the gift of today’s real estate market.

Finally, both buyers and sellers are impacted by decreases in housing affordability. As interest rates and home values increase, buyers are steadily losing buying power. A good rule of thumb is that a buyer will lose 10 percent of his or her buying power for every 1 percent increase in interest rates. For example, if a buyer were looking to purchase a $250,000 home based on her comfort level with the mortgage payment, and rates then increased by 1 percent, she would then have to purchase a $225,000 home to keep the mortgage payment the same. In our market, $25,000 can make a big difference in the size, location, and overall level of update in a home.

The other side of the coin is that as rates and values improve, some buyers will be forced to purchase less of a home or even choose to leave the market altogether. Fewer buyers equals less demand. A smaller buyer pool (less demand) may force a seller to concede more than he would have to in a stronger market. And when the seller does sell, the current rate will also affect their buying power.

I will say it again, affordability is truly the gift of today’s real estate market. Unwrap it why don’t you?

Your home: Did I overpay for my home?

Did I overpay for my home when I bought it?

As Realtors, we get this question a lot. Especially from clients and potential clients who bought a home in 2005, 2006, and even 2007. And 99 percent of the time the answer is, “No!” I mean that in the nicest way possible, of course.

Consumers had no idea what was going to happen to the real estate market starting in 2007. Yes there were signs of trouble, but even most Realtors ignored them or were in denial. I was one of the denial Realtors. I really thought that the real estate crash was just something the coasts would suffer. Boy was I wrong!

Back to the consumer. When most buyers purchased during the peak market, they made the best decision they could with the information that they had at the time. Hindsight is always 20/20 and that is great for life lessons — but not for blame or judgment.

So if you bought a home during the peak of the market, don’t blame yourself. Blame the market. The great news is that the market is improving at an incredible pace. And even if you did purchase at the peak, you could be close to the point where you are in a positive equity position.

Take a look at the charts below:



In 2013, the national median home price increased by 11.5 percent. That is the second highest single year increase since the National Association of Realtors began collecting data. That trend of improvement is currently continuing in 2014. Although we are still approximately 13 percent behind the peak values of 2006. So what can I take from these numbers?

If your home value did suffer from the down market, there is a light at the end of the tunnel. The number of homeowners who are currently “upside down” on their mortgage is rapidly decreasing. I love that news. And so do many of our clients. Based on current trends, I could see values getting quite close to the 2006 numbers by the end of 2014. Of course, I don’t have a crystal ball. However, the pace of the current market appears to be even more intense than 2013. So we will see if I am right in 2015.

So back to the question, “Did I overpay for my home?” Some buyers in today’s market have this same concern. As homes are selling with multiple offers the first day on the market, buyers are worried that they are getting caught up in the moment and overpaying for a home. The answer for their concern is the same, in most cases: “No, you did not overpay.” As I mentioned earlier, although values are rapidly rebounding, they are still 13 percent below the peak. There is still room for improvement. Especially if we look at the long term trend based on inflation. So even today’s top values will allow room for appreciation as we look to the years to come.

I have learned a valuable lesson and will make a sincere commitment to all of you. My goal is to keep you aware of the trends in our market and to never deny the facts again. I want our clients to always be ahead of the market, never chasing it.

Your home: Another one bites the dust! 43 showings and 13 offers!

HiResII (14 of 33)The seller’s market strikes again! I am speaking of our most recent listing at 7900 Tomahawk Road and its incredible story. First and foremost, congratulations to our clients Tod and Carolyn. They have done a beautiful job remodeling their home and clearly the market appreciated all of their efforts. Way to go guys!

Yes, 43 showings in two days. That is not a typo. To be accurate, 32 showings last Saturday and 11 last Sunday. It was a “perfect storm” in the real estate world. First you start with a great home. Then you add to the equation the fact that inventory is still quite low (although it is increasing in most areas). Finally, you price that great home competitively and sit back and enjoy the show. And it was a show. Carolyn even had friends calling and asking if she was having a party and didn’t invite them due to the number of cars around the house.

Showing numbers like this are incredible. You may remember a few weeks ago that our team record for showings in one day was reset by the Larigans on 71st Street. They had 28 showings in one day. Well, it didn’t take long for Tod and Carolyn to steal the trophy with 32 showings in one day. But showings don’t always equal progress. Sometimes showings are just showings. The goal, of course, is an offer. Or in Tod and Carolyn’s case, 13 offers.

I couldn’t believe it myself. Offers just kept showing up in my inbox. Our team’s Director of Operations, Rebecca Holcombe, kept sending me an updated summary of all the offers throughout the day. First it was five, then eight, then ten, and finally 13. We knew we had priced the home competitively, yet we had no idea how many buyers were looking for a home like Tod and Carolyn’s. Carolyn, in her kind way, even asked me, “Do you think we slightly underpriced our home?” And my response was, “Heck yes!” Maybe I used other words, I don’t remember exactly. The good news was that we had built in an insurance plan to protect our clients sales price and equity.

You see, we communicated to all buyers that we were not considering any offers on the home until Sunday. This “slow down” of the process allowed all potential buyers to see the home AND allowed them the time to make a calculated offer. Therefore the sellers were able to accept the best offer for them. Isn’t it great to have options? When you only have one offer, you have to work with it. When you have 13, you get to pick the best one.

Now, you buyers out there, I feel your pain. My wife and our Lead Buyers Specialist, Leah, is already feeling the effects of this market. She is on MLS more than she or I would care to admit. She is constantly looking for any new homes that fit our clients criteria. Additionally, she is networking daily with other agents to find out what is “coming soon” to the market. I call her “The Hunter.” She is amazing! And her clients think so too. I have seen her find so many great homes for her clients. Many of which came from her proactive efforts to hunt for a home. From door knocking, to letter mailing, to picking up the phone and calling her friends and past clients. She will find her clients a great home no matter what.

But when inventory is this low, it is tough. And great homes sell very quickly and usually with more than one offer. So you have to be on it every day. A part-time Realtor can really suffer during these fast-paced times. They just cannot respond to the market quickly enough.

I was at Rolling Hills Presbyterian the other day picking up my youngest son, Harry, from school. As I walked in, I overheard one of the moms saying, “We are going to see a home this afternoon that we really like, but has already had four showings today. I hate this market!” I laughed a little. Then she kind of gave me the “stink eye.” I explained that I was a Realtor and that I understood her frustration. And I do. It is not easy for buyers right now. You just have to keep the faith.

If you would like to be one of our success stories, please email us or give us a call. We would love to help!

Your home: Who’s in charge here: buyers or sellers?

So, just who is in charge in this market? The seller or the buyer?

In a balanced market, meaning neither a buyer’s nor a seller’s market, the answer is that no one is in charge and it is a level playing field for both parties. However, we are not in a balanced market right now. In most parts of town we are still in a seller’s market.

These micro-markets exist all over the city. Specific subdivisions, areas around local schools, or even in some cases just one or two streets of an area can be a micro-market. This is why it is extremely important that you have an intimate knowledge of what is going on in your neighborhood when you are selling your home. Or what is going on in the neighborhood that you would like to move to.

So who’s in charge? Well let’s speak to the areas that are currently seeing a seller’s market. You guessed it: the sellers are in the driver’s seat in this example. But read closely. They can be kicked to the “shotgun” position pretty quickly if they are not careful.

A seller’s market (appropriately named) occurs when the demand from the buyers in the market is higher than the supply of homes available to them. I will use a recent listing client as an example. This week I met with an awesome couple who will be selling their first home. They live in Gardner in St. John’s Trace. It was a new construction boom area in the early 2000s. When I performed their market analysis, I discovered some exciting news. There are no active listings in their subdivision. By “no” I mean zero. So when their home comes on the market in the upcoming weeks they will likely have no competition. In addition, five homes have sold in their subdivision in the last 30 days. This certainly puts them in charge. They will most likely get the price they want and the terms (closing and possession dates, etc..) they prefer in this scenario.

So in the Gardner example, how on earth could a seller lose control of the process? They seem to be 10 feet tall and bulletproof right? Not necessarily.

Let’s say that the Gardner home goes under contract immediately — the first day on the market. And for more than list price. Yahoo! The sellers are happy and the buyers are happy that they found a home. Yet in the back of their mind the buyers feel like the market is a little unfair. Here they had to jump out the first day a home came on the market and pay more than full list price. When a buyer pays top dollar or even more than top dollar for a home, they often expect it to be in top market condition. So when the buyer gets to the home inspection, they want perfection. They paid for it right? At least that is how it feels to them.

Therefore, in pursuit of perfection, the buyer hands the seller a list of repair items that were discovered during the inspection a mile long. We coach our buyers that inspection requests should be limited to safety concerns, structural issues, and health concerns (like mold or radon). However, in the case of the buyer in pursuit of perfection, the repair requests are for every little thing wrong with the house.

The seller in this case might feel like the buyer is being ridiculous. Why should we agree to all of this? We had several interested buyers in our home. So the seller responds agreeing to only the major concerns. The buyer, now questioning if they rushed into this purchase too quickly, cancels the contract. Who is in charge now? The buyer.

The seller now has a history of selling quickly and then flipping out of contract. “What is wrong with this home?” potential buyers might ask. And do you think that the seller will achieve more than his asking price the second time around? Probably not.

A really fast paced market can often result in regret or second guessing on the buyer’s part. So beware. One way to avoid this second guessing during the inspection process is for the seller to perform a pre-inspection. This way both buyer and seller go into the inspection period “eyes wide open.”

Even when the deck seems to be stacked for only one side, buyer or seller, the pursuit of a win-win seems to always lay the foundation for a more calm and successful sale. The Golden Rule certainly applies to real estate. Keep in mind that what you put into a real estate transaction, you will most likely get out of it.

New featured listings in Prairie Village

Check out the virtual tours of two new properties listed by the Taylor Made Team in Prairie Village:

7900 Tomahawk (Click for tour)

5306 W 71st Terrace (Click for tour)