The appraisal can be a stressful process and may threaten to derail transactions. Twenty-one percent of REALTORS® say “appraisal issues” delayed their sales contracts in October, according to the most recent REALTORS® Confidence Index. Appraisal issues led to 13% of contracts being terminated. The appraiser evaluates the home’s lot size, condition (both inside and out), foundation, neighborhood, and any other amenities that add or decrease value.
Source: REALTOR® Confidence Index
Real estate professionals should prepare their sellers for the appraiser’s visit. Advise your clients to do a deep cleaning inside and outside the home, touch up paint, fix any minor maintenance issues, and have relevant paperwork—such as details about the home and comps—ready to hand over to the appraiser.
Appraisals can come in below a property’s sale price for several reasons. For example, buyers in competitive markets may have driven up a home’s sale price in a bidding war, or an appraiser may find a property defect. Perhaps an addition to the house didn’t have a construction permit, which the appraiser would label as “cost to cure,” according to an article from HomeLight.
If an appraisal comes in low, the seller likely will have to negotiate with the buyer over the price again. Homeowners can challenge a low appraisal, but success is likely limited, Bill Gassett, a real estate pro with RE/MAX Executive Realty in Hopkinton, Mass., writes for RISMedia. Homeowners will have to prove a mistake was made during the appraisal, such as incorrectly recorded square footage. The seller could request another appraisal, but that isn’t a guarantee of a higher price.
Home prices typically decline when economic activity constricts—but not in 2020. The economic downturn resulting from the COVID-19 pandemic has coincided with a booming housing market. Existing-home prices for all housing types jumped 15.5% year over year in October to $313,000, according to the National Association of REALTORS®.
Home prices at all market levels are accelerating at the fastest rates in the past six years. The lowest price tier saw an increase of 10.9% year over year in October compared to 9% for the low- to middle-price tier, 8.5% for the middle- to moderate-price tier, and 7.4% for the high price tier, according to CoreLogic data.
All states showed annual price increases, but Maine led the 50 states with a 14.9% hike in appreciation. Idaho (13.1%) and Arizona (12%) followed. New York saw some of the lowest annual increases in October, but prices there were still up 2.6% year over year. On a metro level, the following large cities saw some of the highest price gains in October annually:
Storage areas in a home can be viewed as a premium, particularly as house hunters have reportedly been looking for additional space since the beginning of the pandemic.
A cluttered closet can make the space look small. Home stagers know the importance of organization and staging a closet to not only show off its storage space but to also improve a home’s appearance.
To make closets feel more spacious, leave the closet floor space open and clear of any items, home stagers say. Leaving the floor space open can make even the most cramped closet feel more spacious. Also, have hangers spaced an inch apart to create an uncluttered look, too, Suzanne O’Donnell, owner of My LA Organizer, told Apartment Therapy.
Home stagers often recommend home sellers follow “the 80/20 rule” when staging closets. “Most of the time, we only use 20 percent of the items in our closets,” Cindy Lin, founder of STAGED4MORE School of Home Staging, told Apartment Therapy. “If you are selling your house, pack up 80 percent of your closet—this way, you can show off the spaciousness.”
Limit any visual noise in the closet, use matching hangers, remove extra hangers, and stow any smaller items in a basket or box, Eve Rusakova, owner of Studio 74, suggested to Apartment Therapy. She also recommends coordinating clothing by color.
“Human brains naturally like order and balance,” Lin adds. “When you group and sort items with similar sizes and by colors, it will put the brain at ease, making the closet more attractive to buyers.”
Faced with more expensive home prices, home buyers are bringing more money to closing. The median down payment on a single-family home and condo purchased in the third quarter increased by nearly 67% compared to a year ago. Median down payments are at the highest level recorded since at least 2000, according to a new analysis from ATTOM Data Solutions, a real estate data firm.
The median down payment of $20,775 was 6.6% of the median sales price for homes purchased with financing in the third quarter. The median loan amount was $275,500, the highest level since 2000.
ATTOM’s research shows the following 10 metros saw the highest median down payments in the third quarter:
San Francisco-Oakland-Hayward, Calif.: $243,000
Los Angeles-Long Beach-Anaheim, Calif.: $154,000
Oxnard-Thousand Oaks-Ventura, Calif.: $138,300
Boulder, Colo.: $123,600
Santa Rosa, Calif.: $118,550
San Diego-Carlsbad, Calif.: $112,000
Bridgeport-Stamford-Norwalk, Conn.: $106,600
Boston-Cambridge-Newton, Mass.-N.H.: $76,000
Naples-Immokalee-Marco Island, Fla.: $76,000
Fort Collins, Colo.: $69,125
Down payments can be among home buyers’ chief obstacle to achieving homeownership. The Federal Housing Administration offers loans with lower down payment requirements catered to first-time home buyers. Mortgages backed by FHA comprised 10.3% of all residential property loans originated in the third quarter, ATTOM Data Solutions reports.
The housing markets expected to be the strongest in 2021 are tech hubs with strong job creation, state capitals where home shoppers may get more square footage for their money, and smaller cities with greater affordability, according to a new analysis from realtor.com®.
But none of these areas boast the cheapest home prices in the nation. In most of them, buyers will pay more than the national median home price of $348,000, realtor.com® notes. “The housing markets in tech towns are thriving because that industry is doing well,” says Danielle Hale, realtor.com®’s chief economist.
The housing markets identified on realtor.com®’s list are expected to experience higher price growth and more sales than other markets across the country. Median list prices are expected to increase 6.9% in these markets compared to 5.7% nationwide. Home sales in these areas also are expected to jump 13.1% compared to 7% nationally.
To develop the list, realtor.com® researchers factored in past sale prices and the number of sales; rate of new construction; and previous and anticipated economic, household, and income growth. They tracked 100 of the largest metro areas in their study. Here are the seven metros realtor.com® predicts will outperform other housing markets in 2021:
Home buyers are taking on bigger mortgages as they compete in a fierce housing market and face higher home prices. The average home purchase loan amount reached $375,000 last week, according to the Mortgage Bankers Association. That represents the highest average home mortgage since the MBA began the survey in 1990.
In general, financial analysts recommend that monthly housing costs should not exceed 30% of take-home pay. Those monthly housing costs should include more than just the mortgage payment too, but also property taxes, homeowners insurance costs, private mortgage insurance (if applicable), and homeowner association fees. For example, The Motley Fool says that if a household earns $3,000 a month after taxes that would then give them $900 to spend on their monthly mortgage payment and those additional housing expenses.
Many homeowners have spruced up their homes during the pandemic. But major remodeling upgrades could result in homeowners needing to update their insurance, too. Otherwise, the home may be under-insured if a disaster ever strikes.
“Remodeling your home can lead to higher insurance rates, since a home remodel often increases the rebuild cost of a home,” a new report from QuoteWizard.com states. “Your dwelling coverage limit should match the rebuild cost of your home.”
In general, expect to pay about an extra $36 for every additional $10,000 of added rebuild cost after a remodel, QuoteWizard.com’s report notes. Broken down by project, insurance rates likely will increase by an average of $54 after a $15,000 upper-grade bathroom renovation. After a $50,000 kitchen upgrade, insurance rates could increase by $180. Further, a home addition of about $48,000 for, say, a 20-by-20 family room (or 400 square feet) could increase rates by $173. A deck upgrade of about $10,000 could increase insurance rates by an average of $36 a year, the report notes.
The quality of the updates could also have an impact on premiums. For example, an updated roof that uses low fire resistance or window update with weak window panes could also result in an increase in home insurance premiums, the report notes.
Homeowners may want to talk to insurers before they start a major remodeling job so they can brace themselves for any added premium costs. Insurance companies factor in several variables when setting premiums, such as your claims history, home’s value, the home’s age and material, safety features, climate, and local property crime rates, and more, QuoteWizard.com notes.
Property damage comprises more than 98% of all homeowner insurance claims. Of property claims, wind, hail, fire, and lightning are the most common reported damages, the report finds.
Mortgage rates are on a continuing streak of record lows. For the fourteenth time this year, the 30-year fixed-rate mortgage averaged its lowest on record: 2.71%, Freddie Mac reports. The previous record low of 2.72% was set just last month.
Could home buyers be starting to take the low rates for granted?
“Despite persistently low mortgage rates,home sales have hit a wall,” says Sam Khater, Freddie Mac’s chief economist. “While home buyer appetite remains robust, the scarce inventory has effectively put a limit on how much higher sales can increase. Unfortunately, the record low supply combined with strong demand means home prices are rapidly escalating and eroding the benefits of the low mortgage rate environment.”
Freddie Mac reports the following national averages with mortgage rates for the week ending Dec. 3:
30-year fixed-rate mortgages: averaged 2.71%, with an average 0.7 points, falling from last week’s 2.72% average. Last year at this time, 30-year rates averaged 3.68%.
15-year fixed-rate mortgages: averaged 2.26%, with an average 0.6 points, dropping from last week’s 2.28% average. A year ago, 15-year rates averaged 3.14%.
5-year hybrid adjustable-rate mortgages: averaged 2.86%, with an average 0.3 points, dropping from last week’s 3.16% average. A year ago, 5-year ARMs averaged 3.39%.
Freddie Mac reports average commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.
Mortgage rates have hit new record lows 13 times this year, the latest in November. But will the downward trend continue this month?
Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®, believes rates will continue to hover near record lows, with the 30-year fixed-rate mortgage averaging around 2.9% for the month of December. “With the holiday shopping season around the corner, I expect employment to continue to improve and consumer spending to rise—especially as people will spend more time shopping around the internet, boosting e-commerce sales,” Evangelou says. “In the meantime, these ultra-low mortgage rates will continue to boost homebuying and homebuilding activity.”
Low mortgage rates help home buyers offset some of the financial burden of rising home prices. Current homeowners are unlocking savings, too. A record number of homeowners are eligible to refinance into a lower mortgage rate, saving an average of $309 per month, according to new research from Black Knight.
“While there is great excitement about vaccines becoming reality in the months ahead, the virus is currently raging more than ever, and there is no sign of more stimulus,” says Greg McBride, chief financial analyst at Bankrate. “These are immediate risks to the economic recovery and will keep mortgage rates in check through the end of the year.”
As for 2021, economists mostly predict that mortgage rates will remain low, though they may tick up slightly. Evangelou predicts that rates won’t go above 3.1% in the first quarter of next year.
Other real estate organizations also are predicting low rates to stick around. Fannie Mae predicts the 30-year fixed-rate mortgage will average about 2.8% through the end of next year. The Mortgage Bankers Association predicts a 2.9% average in December and a 3.3% average for 2021. Freddie Mac predicts an average of 3% over the next 13 months.
Evangelou says home buyers should lock in the low mortgage rates now if they can. “However, for buyers who are not financially ready yet to purchase, rest assured that mortgage rates are expected to stay historically low for a long time, since the Fed will allow inflation to run above 2% for a while without raising rates,” she told Bankrate.
Buyer competition remains strong, and low inventory is pushing home prices to new highs—so sellers are likely to keep their market advantage next year, according to realtor.com®’s 2021 housing forecast. Home price growth may slow but will continue an upward trend, along with property appreciation for sellers, realtor.com® predicts.
The forecast notes that housing affordability is likely to worsen: “Buyers in 2020 received a huge boost in affordability as mortgage rates pushed to new lows throughout the year. However, a lack of inventory and strong demand drove prices up, erasing most of the boost,” realtor.com® notes. “As mortgage rates are no longer able to counteract rising home prices, affordability will be tested for buyers across the board in 2021.”
Housing shortages will largely continue to persist, though realtor.com® forecasters predict the number of listings to slowly rebound in 2021. “Additional homes hitting the market will offer buyers some relief in 2021, but it won’t be enough to tip the scales in favor of buyers,” realtor.com® notes. “As inventory slowly begins to replenish and buyer demand for homes remains steady, sellers will continue to be in the driver’s seat.”
However, the ongoing COVID-19 pandemic and the possibility of a double-dip recession are two major wild cards that could lie ahead in 2021, realtor.com® notes.
