In this Real Estate News Brief for the week ending January 25th, 2020… we’ll look at homeseller profit, FICO score changes, and the financial impact of “curb appeal.”
We begin with just one economic report from that last week.
The National Association of Realtors reported a big jump in existing home sales despite the lack of inventory. They were up 3.6% in December to a seasonally-adjusted annual pace of 5.54 million homes. That’s almost 11% more than a year earlier, in December of 2018. The strong sales activity reduced an already tight inventory to a 20-year low. NAR says it dropped from a 3.7-month supply in November to just 3 months in December. A well-balanced market usually has a six-month supply.
MarketWatch says, many of the nation’s existing homes were bought by investors during the downturn and are being used as rentals. Those investors are not expected to put those homes on the market any time soon because the rental business is booming. CoreLogic’s Single-Family Rent Index shows that rents were up 3% year-over-year in November, with rents rising faster for low-end homes. (1)
That will push many homebuyers into the new-home market, although builders haven’t been able to keep up with demand. Just to put things into perspective, Realtor.com reports that between 2012 and 2019, 5.92 million single-family homes were built. During that same period, 9.76 million new households were formed. The gap — 384 million households or families that need a place to live. Yes, the rental business is in hot demand.
Mortgage rates dipped again this last week. Freddie Mac says, the average 30-year fixed-rate mortgage was down five basis points to 3.6%. That’s the lowest they’ve been since the end of October.
In other news making headlines…
Home Prices Climb, New Listings Decline
Low mortgage rates helped boost home prices in December. A new report from Redfin says they were almost 7% higher compared to the year before. The median is now $312,500 across 217 housing markets.
According to Redfin’s chief economist, Daryl Fairweather, prices keep rising because buyers are hungry for those low mortgage rates. He also says, the strong economy contributed to homebuyer demand while the low inventory helped to boost prices.
The supply of for-sale homes dropped almost 15% in December because of the sales activity and a drop in new listings. Fairweather says, new listings were down 5% in December year-over-year. He says, “The lack of homes for sale is going to fuel competition and price growth in 2020.”
Homeseller Profit Hits 13-Year High
Homesellers enjoyed big gains in 2019. ATTOM Data Solutions says the average seller received gains of about 34% or $65,000. The average gain in 2018 was about $58,000. Homesellers haven’t seen this kind of profit since 2006, before the housing market crashed.
ATTOM’s chief product officer, Todd Teta, says, “The nation’s housing boom kept roaring along in 2019 as prices hit a new record.” He says, low mortgage rates are helping right now, but he says there were signs of a profit slowdown in 2019 which creates some home price uncertainty for the 2020 buying season. (2)
FICO Score Changes on the Horizon
It could be tougher to overcome a few blemishes on your credit score starting this summer. The Wall Street Journal reports that the Fair Isaac Corporation, which is also known as FICO, will be making some changes in how it penalizes borrowers for things like missed payments or high debt. It also plans to flag people who sign up for personal loans because of the growing amount of consumer debt.
The Journal says, consumers with FICO scores below 600 who also miss payments or have other credit issues will experience bigger declines in their scores. Financial experts say that consumers should also keep their revolving debt below 30% of their credit limits. FICO, says the average credit score is currently more than 700. That’s reportedly the highest on record. (3)
The Importance of “Curb Appeal”
Improving the curb appeal of your home can really pay off. A new study published in the Journal of Real Estate Finance and Economics shows that a home with a well-groomed yard can fetch 7% more than a similar house with poor curb appeal. Researchers say that percentage grows to about 14% in slower markets where buyers have more options. (4)
Researchers came up with those numbers by analyzing almost 90,000 properties in the Denver metro. They also advise people to “pick neighbors carefully” because the condition of those yards also factor into the equation. They account for about a third of the additional value.
One study author says, everyone knows that curb appeal has value, but until now, it hadn’t been quantified. Among the things that contribute to low curb appeal are lawns that haven’t been mowed and cracked or broken pavement. Raking up the leaves might also be a good idea!
(3) FICO Changes
(4) Curbside Appeal