The spring home-buying season has begun, and it’s business as usual. The combination of high mortgage rates, and home prices, along with low housing inventory means that home buyers will have to adjust to the reality of elevated home prices and mortgage rates if they want to buy a home in the near future.
Will there be a significant change in the 2024 housing market? There has been discussion about rates dropping a percentage or two, but a 6% loan isn’t going to push current home owners into giving up a home with a 3.5% mortgage. Perhaps 5% will look attractive to first time home buyers…but would you give up your 3.5% mortgage to move in this competitive market?
Of course, lower mortgage rates would stimulate sales…but also drive up property values as it did during the years of 3% and 3.5% loans. Armed with affordable loans, buyers will need to make competitively high offers to land a home in a market with low inventory.
Snapshot of current Lansing area sales entering into the Spring selling season: Lansing Area Market View – April 1, 2024 418 – currently listed homes for sale in the five county greater Lansing area. 249 – homes with accepted offers. (Awaiting inspections and/or appraisal.) 325 – homes listed as Pending. (Have completed inspections and will soon close.) 982 – homes that have closed since January 1, 2024.
Current Mortgage interest rates 30-year fixed – 6.79% ($651 per $1000) 15-year fixed – 6.11% ($849 per $1000)
End of year 2023 sales statistics showed that the average sales price of Lansing area homes increased 4.6% from $229,554 at the close of 2022 to $240,208. This represents an average home value improvement of $10,654.
The fact that there were 979 fewer sales in 2023 (-14.8%) represents a lower number of homes being offered for sale…established homeowners are reluctance to give up a 3.5% mortgage in order to enter into a now 6.9% mortgage on a different home.
Buyer enthusiasm has been strong, especially for those who have recently sold a home and/or are moving into the Lansing area. First time home buyers have been hit hard with the increased interest rates that require budgeting changes and higher down payments. Local lenders and the State of Michigan’s MSHDA program have offered relief with mortgage incentives that accommodate lower income buyers.
Just about any properly priced home has been receiving multiple offers within a few days. Price reductions occurring only with overpriced homes.
Snapshot of the Lansing area sales entering into the Spring selling season: Lansing Area Market View – March 1, 2024 428 – currently listed homes for sale in the five county greater Lansing area. 234 – homes with accepted offers. (Awaiting inspections and/or appraisal.) 283 – homes listed as Pending. (Have completed inspections and will soon close.) 556 – homes that have closed since January 1, 2024.
Current Mortgage interest rates 30-year fixed – 6.9% ($659 per $1000) 15-year fixed – 6.29% ($860 per $1000)
The severity and frequency of insurance claims, along with the cost of goods and services are why carriers are raising their base rates…and your coverage may not be keeping up with inflation. Rising replacement costs means that what used to be covered by your policy may no longer be sufficient.
Home sellers currently receive historically high prices for their homes…yet fewer home sellers are putting their properties on the market…despite the temptation to cash in. The reason is, that mortgage interest rates are more than double what they were just prior to July 2022. Home owners with low interest rate mortgages are unwilling to give them up!
Many are only selling their home if they can pay cash for their next home, downsize to something smaller with less upkeep, or move to a new city and state where a similar home is less expensive than the one they’re selling.
Residential Real Estate Values Depend on Sales The number of available homes for sale (currently 447) is constantly growing or shrinking with market trends dependent on the sales prices of closed listings, time on market, price increases and/or reductions. It’s no secret that inflation, interest rates, uncertain economic conditions, weather, and even politics are having an affect on the 2024 real estate market.
Home Listings are Vital However, 5608 Lansing area homes closed in 2023 with mortgage rates as high as 8%. The 447 currently listed homes represent a residential housing inventory that will be ‘sold out’ in five weeks!
In the new year, homebuyers and sellers are still facing the same challenges as they did in 2023—high interest rates, sky-high home prices, and an inadequate supply of homes. As affordability issues slow housing sales volume, low supplies are keeping home prices high.
Mortgage interest rates reached 8.01% in October, the highest level since 2000, but since then rates have come down. Bankrate.com experts say there’s no likelihood of a housing market turndown as long as lending standards remain strict, and there aren’t enough homes to meet demand.
Banks are tightening their lending standards due to increases in credit card and car loan delinquencies, according to Freddie Mac. This is also impacting mortgage applications, credit lines and refinance activity – loan originations were down approximately 30% in October 2023 from the previous year. The good news is that mortgage delinquencies are low compared to other loan types. Inflation is waning, but still remains above the Federal Reserve’s target of 2%. Consumer spending will decelerate due to slower economic and weaker employment growth which will cause rates to come down in 2024. Continuing homebuyer demand will keep home prices elevating 2.6% in 2024, but with rates dipping as low as 6%, housing will be a little more affordable.
The Federal Reserve’s aggressive handling of inflation by raising overnight borrowing rates to banks has had a positive effect, and further rate hikes appear unlikely as the numbers get closer to the Fed’s target of 2% inflation.
Meanwhile, help is out there for those being squeezed out of the market. FHA-guaranteed loans require as little as 3.5% down. Numerous state and local governments have increased programs for first-time and lower-income homebuyers. Many lenders offer grants, down payment assistance programs, and mortgages with no closing costs. The National Association of REALTORS® offers the Housing Opportunity Program, with resources for homebuyers.
While many potential homebuyers have been knocked out of the market by higher mortgage interest rates and home prices, there’s hope on the horizon that they’ll have better luck in 2024.
An arm’s length sale in real estate is a transaction between an unrelated seller and buyer. In this type of transaction, each party acts independently and in their own best interests. The property is exposed on the market for a reasonable length of time and is unaffected by special financing or sales concessions. Therefore, the sale price most likely reflects the market value.
What does non-arm’s length mean in real estate?
A non-arm’s length sale in real estate is a transaction between a seller and buyer who have a connection by marriage, family, work, etc. Because of their relationship, each party may not be acting in their own best interests. Therefore, the final price may not reflect the market value of the property.
The 7 sale types in real estate
The type of sale can provide some clarity into whether the transaction was (or currently is) an arm’s length transaction, whether a comparable sale should be used, or whether an adjustment is warranted for the terms of sale for a comparable. By knowing the type of sale, you are better able to reconcile a current opinion of market value that falls above or below a current or recent transaction for the subject property.
For appraisals required to be Uniform Appraisal Dataset (UAD) compliant, you must indicate the type of sale for the transaction. You may report any other relevant information regarding the sale type in the appraisal report, including whether more than one sale type applies.
Here are the seven valid sale types, explained in detail below:
REO sale
Short sale
Court ordered sale
Estate sale
Relocation sale
Non-arm’s length sale
Arm’s length sale
REO sale
A Real Estate Owned (REO) transaction is a sale of a home that has been foreclosed and the lender is the owner/seller of the home. The transaction is between the lender and the buyer. Usually these homes are sold “as is” and typically are priced to sell relatively quickly. Sometimes the home is in poor condition or may require extensive repairs.
Short sale
Unlike an REO or foreclosure sale, the homeowner still holds title to the property, but sells short for less than what is owed on the property. Usually, the homeowner is suffering some type of financial hardship which is preventing them from meeting the mortgage payments. The homeowner and the lender must agree to accept a shortage and must approve the sale. Sometimes these sales require extended time to negotiate with the lender and obtain approval for the sale, and there may be some additional costs or outstanding liens that need to be paid off.
Court ordered sale
A court ordered sale may be the result of a dispute among the owners, divorce, death of one of the owners, or a foreclosure where the borrower defaulted on paying the mortgage. Once the redemption period expires (if applicable), the court will issue an order directing the sale or other disposition of the property. This is the point at which the owner has lost control over the ability to sell the property. The property is sold by an official (trustee or sheriff) appointed by the court, usually to satisfy a judgment or implement another order of the court.
Estate sale
The estate is the real estate owned by a decedent at the time of his or her death. The estate is probated so that the real estate can be sold and the proceeds are distributed to the decedent’s heirs. The sale is handled by a representative (executor) named in a will and/or appointed by the probate court.
Relocation sale
Larger companies hire a relocation company to sell the property of an employee that is being transferred or moved to another state. The relocation company may buy the property at an agreed upon price with the corporate employee, then in turn sell the property to the market in an “as is” condition. Often, the property is attempted to be sold quickly, so the property may not be exposed as long as competitive properties in the market.
Non-arm’s length sale
As stated above, a non-arm’s length sale is a real estate transaction in which the seller and buyer have a connection by marriage, family, work, etc. As a result, this type of transaction’s final price may not reflect the market value of the property. Lenders and appraisers view this type of transaction as riskier because the parties involved are not necessarily acting independently of each other.
Arm’s length sale
As explained above, an arm’s length sale is defined as, “A transaction between unrelated parties who are each acting in his or her own best interest.”1 For this type of transaction, the property is exposed on the market for a reasonable length of time and payment is in cash or its equivalent. The property sold is unaffected by special or creative financing or sales concessions. This type of sale is the least risky to the lender and is most likely to be closest to market value.
What is market value?
In general, market value is defined as the most probable price a property should bring in a competitive and open market. This definition requires an arm’s length transaction with each of the parties acting in their own best interests. Additionally, it requires that the buyer and seller are not acting out of undue haste or duress and that the real property has been exposed on the market for a reasonable period of time.
Reference: The Appraisal Institute, The Dictionary of Real Estate Appraisal, 6th. Ed.
If you’re wondering if those sniffles and low-grade headaches you or your family are experiencing could be due to air-borne allergens, you may be surprised to learn that there could be another cause. According to the Environmental Protection Agency (EPA), 90% of our time is spent indoors, so breathing problems could be caused by poor air quality in your home. If you test the air quality in your home, you may get some surprising answers.
Purchase air quality sensors that test for the following:
Humidity: can increase the potential for mold and mildew growth.
Temperature: high temps can cause insufficient humidity and health risks.
Volatile organic compounds: chemical pollutants can come from building materials, carpet, and other installations.
Particulate matter: dust mites and other allergens are airborne.
Air quality index: this measurement is provided by the EPA for both indoor and outdoor air quality.
Air quality sensors test for toxins, harmful gases, and pollutants as well as specific problems such as carbon monoxide, a toxic gas. The sensors take in air, run algorithms to capture the number of particulates, store the data and prepare it for analysis and read out.
The EPA recommends that you monitor your health symptoms for a few weeks to identify improving or worsening symptoms. If you’re nauseous and confused, carbon monoxide may be present, while allergies tend to present with a scratchy throat or watery eyes. Lastly, buy a good air purifier to help remove particulate matter from the air.
Cold weather won’t deter a motivated homebuyer. Corporate relocations often take place before the new year and those employees want to find a home now. Buyers want to get their children enrolled in school before the second semester begins. Homebuyers may feel they have a better chance of finding a home while their competitors nest at home until the snow melts.
You also have a timeline to sell, move, and settle into a new place, perhaps for a new job, birth of a child, up- or down-sizing, etc. Why not sell when there’s less competition from other homeowners who’re waiting to sell until spring?
There are a few things you’ll need to do to make your home attractive for cold weather shoppers:
Decorate for coziness. Some homes are at their best in the winter. Pull out your most fabulous afghans and quilts. Throw some logs on the fire, or keep the gas or electric fireplace on for showings.
Fill the home with evocative aromas. Cinnamon, cloves, and oranges boiling on the stove will stimulate pleasant memories. Use a pine or lavender-based cleanser on your floors and surfaces.
Make a place for muddy shoes. Buy a box of booties and put them next to a chair for homebuyers to put on. Taking their shoes off will make them feel welcome and more comfortable.
Keep the drive, sidewalks, and walkways cleared. Snow drifts are dangerous and could discourage homebuyers. Keep your Berkshire Hathaway HomeServices network professional informed of road conditions.
Mortgage interest rates are hovering at the highest levels in over 23 years, causing mortgage demand to sink to a 27-year low. Waiting for home prices to come down has had little success for homebuyers due to an unprecedented imbalance in housing supply. What can you and other homebuyers do to increase your buying power?
One advantage of higher interest rates is that they can make you money in other investments until you’re ready to buy your home. Start with a debt consolidation loan to pay off high-interest credit cards. Do some research to learn where it’s best to park some cash in savings, the term of the investment(s), and penalties for early withdrawals, if applicable.
High-yield savings accounts. Most savings accounts have variable annual percentage yields (APYs), which means the return is linked to Federal Reserve overnight funds rate changes. Currently, you can get yields between 4.00% and 5.00% APYs while a traditional savings account is 0.50% or less.
Certificate of deposit (CD) accounts. The average 12-month CD is about 1.49%, still much higher than a typical savings account. But many online financial institutions are paying 4.5% to 5% .
Corporate bonds. To raise capital, some corporations issue debt securities which means you’re loaning money to the company in return for regular income payments and the return of your initial capital when the bond reaches maturity. The benefits are lower risk for investment-grade corporate bonds, lower volatility, and greater diversification that’s not tied to the stock market.
Third Quarter 2023 sales statistics (July – September) showed that the average sales price of Lansing area homes increased from $231,429 to $240,458 as compared to the third quarter of 2023. This 3.9% represents an average home value increase of $9,029.
The fact that there were 977 fewer sales to date in 2023 (-18.6%) represents a low number of homes being offered for sale…not from any lack of enthusiasm on the part of buyers. Just about any properly priced home will receive multiple offers and be off the market within a few days. For established sellers, there is a serious reluctance to give up a 3.5% mortgage in order to enter into a now 8% mortgage on a different home. This, and unstable economic conditions is the main reason is the low number of homes to choose from.
Fall sales continue to brisk and show no sign of slowing as we move into November. Traditionally, sale begin to slow as we enter the holiday season.
Lansing Area Market View – October 30, 2023 676 – currently listed homes for sale in the five county greater Lansing area. 261 – homes with accepted offers. (Awaiting inspections and/or appraisal.) 311 – homes listed as Pending. (Have completed inspections and will soon close.) 4690 – homes that have closed since January 1, 2023.
Current Mortgage interest rates (one percentage higher than second quarter) 30-year fixed – 7.83% ($722 per $1000) 15-year fixed – 7.15% ($900 per $1000)
