The case of the disappearing homes

Overcoming roadblocks

We all know the homebuying process can run the gamut of emotions. There’s the exhilaration of closing a deal, the frustrations of deals falling through, and all the madness in between.

However, nothing can be more heartbreaking than when buyers hit financial issues in the process, and see their shot at a home slip away. It can sometimes seem like the end.

But that’s where we can help. 

As agents, it’s so crucial for us to help our clients explore all the options that can help them get past those roadblocks and into their homes.

In today’s Foundation Plans, we give you some tips on how to do this. Consider it a quick-start guide. Frankly, it would take 2,000 newsletters for us to explain all the options out there, and how to navigate all of them. But we think it’s a good start.

Remember: we are our client’s allies. When they run into trouble, we want to be there to help them, and financial knowledge is some of the best help we can offer.

- James and David

Total value of U.S. housing market sees big gain

The total value of U.S. homes jumped 5%, or $2 trillion, in value over the last year. According to Redfin, that’s the biggest gain in nearly a year, as a shortage of houses for sale propped up values. Here’s what else Redfin reports:

• The total value of the U.S. housing market is $47.5 trillion, up 13.3% ($5.6 trillion) from two years ago

• In December 2023, the average U.S. home had a value of $495,183, up from $474,740 one year earlier.

• Home values are growing faster in suburban and rural areas than in urban areas

  • Rural homes – 6.3% increase YOY

  • Suburban homes – 5.6% increase YOY

  • Urban homes – 3.6% increase YOY

Our take

That last bullet basically sums up the housing market over the past few years. Even though many workers are returning to offices and moving back to urban neighborhoods, a lot of Americans continue to work remotely. We don’t see this changing for a long time… possibly a long, long time. This is why we think home values in suburban and rural areas will continue to see this type of growth relative to urban areas. Those areas are becoming highly desirable places to live.

Single-family housing shortfall increases

The gap between single-family (SF) housing starts and household formations was at 7.2 million at the end of 2023, up from 6.5 million in 2022. That means there is now a shortfall of 7.2 million SF homes due to a decade of underbuilding in the United States, according to Realtor.com’s latest report on housing supply and buying trends. 

Although new construction of SF homes has increased in the past two years, household formation has outpaced housing starts over the past decade. However, when multi-family (or apartment) construction is included in the analysis, it reduces the gap to 2.5 million homes. 

Here are the metros with largest shortfall in single-family homes:

1. Deltona–Daytona Beach–Ormond Beach, FL

2. San Antonio–New Braunfels, TX

3. Palm Bay–Melbourne–Titusville, FL

4. Allentown–Bethlehem–Easton, PA-NJ

5. Grand Rapids–Kentwood, MI

6. Stockton, CA

7. Riverside, San Bernardino–Ontario, CA

8. Providence–Warwick, RI-MA

9. Bakersfield, CA

10. Miami–Fort Lauderdale–Pompano Beach, FL

Our take

We have known about this shortfall in SF homes for a while now. The increase in apartment construction has helped a lot, but we haven’t been building enough for over a decade. It’s going to take time to close the gap. We encourage you to study this report carefully because it’s packed with a lot of insight regarding current buying trends. For example, it reveals that today’s new home buyers are younger, more affluent, and more pet-friendly compared to today’s “non-new” home buyers. In the past, new-home buyers have been boomers, but today’s new-home shoppers are more likely to be millennials.

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Biggest inventory spikes and drops over the past year

Active listings on a national level are up 15.7% year-over-year, according to Lance Lambert’s inventory tracker. Over the past 20 months, housing markets where active listings have returned to pre-pandemic levels have experienced weaker home price growth, while housing markets where active listings remain far below pre-pandemic levels have, generally speaking, seen resilient home price growth.

Here are the markets that have seen the highest and lowest YOY active listings growth:

Our take

As we have been saying since the start of this year, we are seeing increases in the number of active listings in multiple markets across the country. This is great news for buyers because the increase in inventory is going to combat the uptick in mortgage rates. Of course, it’s not going to have too big of an effect, but it’s enough incentive to get them to buy now during the spring season and refinance later this year or beyond.

Schematics

The news that just missed the cut

• Learn how homebuyers are taught to negotiate agent fees

• Here’s why regional banks have so much commercial real estate exposure

• These countries give you citizenship if you buy their real estate

• What $1 million buys in the world’s most expensive real-estate markets

• The features today’s buyers are demanding the most

Foundation Plans

Advice from James and David to win the day

As agents, we should be prepared to help buyers navigate the financial side of the home-buying process. Today we’d like to give you some tips on how to help your buyers when they run into financial issues during the process.

Down payment or closing cost issues – If a buyer is short on their down payment, there are options. First, find out exactly how much the lender requires, and see if it would help the buyer to switch to a different loan product. Ask if it is possible to use gift funds to make up the difference. Sometimes, borrowers can cash out an investment account, 401k, or another account to build up their down payment. They could also get a co-signer and solve the problem. That’s not all. Check to see if your buyer qualifies for any of these down payment assistance programs.  

Debt-to-income ratio issues –  Encourage buyers to pay down debts and not take on any new debt until after closing. Typically, the total debt-to-income ratio should be 36% or less, and the total housing expense should be 28% or less. If your buyer has a high DTI, several strategies could help lower it. The buyer could pay off a credit card / student loan / car loan / etc. Find out if the loan has to be paid off or just paid down. Ask the lender if a different loan product would require a different ratio. If your buyer is self-employed, their DTI is based on their post-tax or net income, not their pre-tax or gross income. Because many self-employed individuals take a lot of business deductions to reduce their tax burden, they often wind up with a low taxable income. Consequently, they should consider taking fewer deductions to increase their net income. This may result in a higher tax burden, but it can make qualifying for a mortgage easier. 

Credit score issues –These issues need to be dealt with at the very start of the homebuying process. They come in two forms: low scores or a specifically damaging item like a tax lien or a recent default. Find out which one you are dealing with. If the buyer’s score is too low — by about 15 points or less — it is probably fixable with a few easy remedies. Ask the buyers to use one of the credit reporting services like Experian to update their credit and correct errors. If the buyer’s credit score is too low for the loan product, the borrower might need to switch to FHA or a more lenient type of mortgage.

As you can see, this is a big topic and we’ve only begun to scratch the surface. It’s key that agents approach these issues with a problem-solving mindset, and that they know all the options out there. Start here and here to learn more

To learn more about Estate Media, visit their website.

Just in Case

Keep the latest industry data in your back pocket with today’s mortgage rates:

That’s it for this edition of the Blueprint!

Remember: each day is a gift and a new opportunity to lead the life you want and to become the person you want to be. The mistakes and missteps you’ve made in the past don’t define you. Live as intentionally as you can and be ruthlessly focused on the goals you’ve set out to achieve. You can do it!

Have a fantastic weekend, and we’ll see you back here on Tuesday!

- James and David