APRIL / MAY 2021 NEWSLETTER

A TASTE OF THE 1970s?
Inflation is edging higher, which doesn’t bode well for interest rates. The consumer price index rose 1.7% year over year in February after having sunk to nearly zero in the early months of the pandemic. The increase was driven by higher prices for used cars, utilities, meat, and health care. In addition, rental housing costs rose 1.5%. And while February home prices rose 15% for the year, they’re not in the index.

Besides causing consumer irritation, inflation can push up mortgage rates. The Federal Reserve recently said it won’t raise interest rates until at least 2023. No matter, mortgage rates will still climb.

Millennials have never experienced 1970s-era inflation, but they could get their first taste. Then, inflation averaged 7.1% annually, topping out at 11% in 1979—the same rate as the 30-year fixed mortgage. The primary cause? Excessive printing of money. And something similar is occurring now.

The Fed prioritized reducing unemployment and keeping inflation under 2%. But its goals have loosened, and inflation as high as 5% may be tolerated.

So why does inflation lead to higher mortgage rates? Lenders don’t want to issue loans at very low rates, knowing that, if they did, their returns would fall. While the Fed has said it won’t change very short-term rates, it can’t control long-term rates, which can easily rise if lenders get nervous about inflation. For now, mortgage rates are still very attractive at around 3%.
One component to monitor is housing rents, which, before the pandemic, were rising by 3.8% annually. Rental demand softened due to the pandemic, but now that jobs are returning, vacancies are falling and rent increases may again approach 4%. As a result, inflation will end the year above 2%. Higher inflation looks likely in 2022 and beyond. As mortgage rates head higher, becoming a first-time homeowner will get tougher. But current owners have fewer worries. In the 1970s, the median home price rose from $23,000 to $55,700, an average annual gain of 9.9%—and a reminder of the wealth-building potential of homeownership.

Housing Inventory Remains at Record Low
Housing inventory remained at a record low of 1.03 million units at the end of February, down by 29.5% year over year, which is a record decline. Meanwhile, homes are practically flying off the shelves.

FRAZZLED BUILDERS RESET EXPECTATIONS UNDER CRUSHING DEMAND
More buyers are turning to the new-home market for greater inventory options, but builders are struggling to keep pace. Some smaller firms have temporarily stopped signing new contracts in order to catch up with existing orders, according to reports. Larger home builders are experimenting with blind auctions and shifting away from fixed prices, and they’re increasingly accepting bids on contracts and putting customers on wait lists.

Rising construction costs and delays for items such as appliances, cabinets, and Sheetrock are causing longer timelines to complete projects. To deal with the market pressure, about 19% of builders say they are delaying sales and home starts, and 47% are adding escalation clauses to contracts to recoup higher material costs, according to a National Association of Home Builders survey conducted in April. “We’ve shut off sales until homes are nearly completed,” Greg Yakim, a partner at Texas builder CastleRock Communities, told Bloomberg. “We have huge waiting lists.”

Financial flexibility is increasingly needed on the parts of buyers who are flooding the new-construction market. Contracts for new homes typically lock in the sales price prior to construction. But as costs soar, some builders are limiting the number of contracts they sign each month. This strategy aims to mitigate the burden of construction costs, which can spike dramatically between the start and finish of one project.

About 63% of home builders nationwide say they are limiting the number of contracts they sign each month, according to a recent survey conducted by Austin, Texas–based real estate advisory firm Zonda. “It’s something that we’ve never seen,” says Vaike O’Grady, regional director for Zonda. “The builder’s job has gone from trying to sell homes to trying to build homes.”

Some builders are even starting to accept bids for empty lots and contracts. For example, homebuilding giant D.R. Horton recently sent a notice to local real estate pros in the Austin area announcing a final phase of a new subdivision. The company gave buyers a week to submit bids on the yet-to-be-built homes. “Due to demand, we anticipate receiving multiple offers on many of our properties and are advising customers to put forth their highest and best offer for consideration,” read D.R. Horton’s notice.

In another example, a couple in Austin told Bloomberg that they offered a bid $17,000 above the $330,000 starting price for a contract on a new home in D.R. Horton’s Tiermo community and were turned down. The couple says company officials told them: “You weren’t even close.”
Home builder Lennar recently sent an email to brokers in Punta Gorda, Fla., announcing that in its brand-new Babcock Ranch community, the company would accept open-ended bids on homes instead of publishing specific sales prices.

Builders also are finding ways to protect themselves legally against fluctuating prices. Some construction contracts in Atlanta, for example, now include opt-out clauses for both the builder and buyer, local real estate pro Trish Byce told Bloomberg. “Builders cannot give you a firm price today,” she says.
3 THINGS TO PRIORITIZE WHEN SELLING YOUR HOUSE

Today’s housing market is full of unprecedented opportunities. High buyer demand paired with record-low housing inventory is creating the ultimate sellers’ market, which means it’s a fantastic time to sell your house. However, that doesn’t mean sellers are guaranteed success no matter what. There are still some key things to know so you can avoid costly mistakes and win big when you make a move.

1. Price Your House Right
When inventory is low, like it is in the current market, it’s common to think buyers will pay whatever we ask when setting a listing price. Believe it or not, that’s not always true. Even in a sellers’ market, listing your house for the right price will maximize the number of buyers that see your house. This creates the best environment for bidding wars, which in turn are more likely to increase the final sale price. A real estate professional is the best person to help you set the best price for your house so you can achieve your financial goals.

2. Keep Your Emotions in Check
Today, homeowners are living in their houses for a longer period of time. Since 1985, the average time a homeowner owned their home, or their tenure, has increased from 5 to 10 years (See graph below):

This is several years longer than what used to be the historical norm. The side effect, however, is when you stay in one place for so long, you may get even more emotionally attached to your space. If it’s the first home you purchased or the house where your children grew up, it very likely means something extra special to you. Every room has memories, and it’s hard to detach from that sentimental value.

For some homeowners, that connection makes it even harder to separate the emotional value of the house from the fair market price. That’s why you need a real estate professional to help you with the negotiations along the way.

3. Stage Your House Properly
We’re generally quite proud of our décor and how we’ve customized our houses to make them our own unique homes. However, not all buyers will feel the same way about your design and personal touches. That’s why it’s so important to make sure you stage your house with the buyer in mind.
Buyers want to envision themselves in the space so it truly feels like it could be their own. They need to see themselves inside with their furniture and keepsakes – not your pictures and decorations. Stage, clean, and declutter so they can visualize their own dreams as they walk through each room. A real estate professional can help you with tips to get your home ready to stage and sell.

Bottom Line
  • Today’s sellers’ market might be your best chance to make a move. If you’re considering selling your house, let’s connect today so you have the expert guidance you need to navigate through the process and prioritize these key elements.

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Licensed in the State of Oregon since 1997
Patti Williamson
Principal Broker Owner / GRI
If you have questions or are ready to buy or sell, don't hesitate to reach out!


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