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Financially irrational real estate market

Written by Louise Bolger on . Posted in Business, Real estate | Development.

New Year’s Eve is tradition­ally the night of hope for the new year, resolutions and good wishes. When it comes to the real estate market, 2026 isn’t promising much of a variation from the old year, but hope is eternal and humans are optimistic.

Homeowners are locked in place trapped by their low-interest rate mort­gages designed as a vaccination against recession when the pandemic hit. This is not a new topic; anyone who reads real estate news online or in the paper can find discussions practically every day about why homeowners with high equity and low mortgages won’t move.

There are millions of homeowners who are wealthier on paper than at any time in history. They have record equity, incredi­able low interest rates and many with homes that have appreciated by double digits in only a few years.

So, what’s the problem? You would think they would be running to their local broker to list their home and cash in. The problem is, per Realtor.com, for these owners to buy a typical home in today’s market would require an estimated payment of more than 73% than they currently pay. For most that’s a non-starter; even if they can afford the extra payment, the physiological effect won’t let them budge.

When mortgage rates started falling, almost overnight, to as low as 3%, demand surged for the lower rate to refinance or to purchase. Buyers saw a pathway to purchase their first home or move up home because with lower rates the monthly carrying costs took a nose­dive resulting in more people qualifying for higher mortgages.

With buyers coming out of the wood­work, it didn’t take long for the inventory to get snapped up, pushing prices upward. Builders were attracting buyers so fast the supply chain could not keep up the labor, supplies and zoning changes necessary to meet the overwhelming response.

All of this competition pushed prices up so far that values surged by 25% to 40% in some markets.

Needless to say, homeowners were celebrating their new equity and looking down the road at long-term stability. But if it’s too good to be true, it usually is, and it didn’t take long for inflation to take over, forcing the Feds to move rates in the opposite direction. Within 18 months mortgage rates more than doubled, passing over the 7% mark. This dried up the refinance market and buyers were having trouble living with the shortage of inventory and higher priced properties, along with a doubling of interest rates.

The real estate market froze, but not because of a lack of homes alone. It froze because those who owned homes couldn’t justify leaving them. This is completely the opposite of a healthy market. A healthy market should encourage mobility, opening up space for new home buyers, keeping the cycle going.

The real estate structure needs some creative ideas and one of them is portable and assumable mortgages. At one point we had a fair number of assumable mortgages, but that market is rarely offered anymore. Portable mortgages exist in other countries and would certainly open up the mobility of properties. Also, incentives to downsize, like tax credits and closing cost incentives, could also unlock homes. Whatever it is, someone should take the lead on this, whether it’s lenders or political office holders.

Paying more for less is not in the American DNA so it may take a long time to release millions of homeowners from the mortgage trap.

Happy New Year and best wishes for a prosperous year.

Signs of a real estate turnaround

Written by Louise Bolger on . Posted in Business, Castles in the Sand, Real estate | Development.

Did you hear it? Did you hear buyers and sellers, and, of course, real estate professionals slightly exhal­ing the breath they have been holding for over a year now?

There are definite signs that we might start seeing a turnaround in the real estate market, although based on the July sales statistics for Manatee County, we really don’t see it here. You could argue there is a leveling off but certainly nothing to get excited about.

Across the country, however, the National Association of Realtors is report­ing a definite uptick of the market. Sales of existing homes rose unexpectedly in July, raising hopes that the stalled housing market is improving and setting up for a busy fall. Home sales nationally were up 2% from the prior month, which is only a slight gain, but a gain nonetheless.

Manatee County is still showing a decline in the number of properties sold and a decline in the median sale price as well. The inventory of available single family homes in Manatee County in July was 4.8 months, compared to last July’s availability of 3.9 months – a substantial increase. The national median existing home price in July was $422,400, while Manatee County’s median single-family sales price was $489,900.

Mortgage rates have edged down to their lowest level of the year. The average rate for a 30-year fixed rate mortgage declined last month to 6.58%. The hope here is that if the recent decline continues, it could set the state for a better-than-expected fall selling season.

In addition, the Federal Reserve has sent strong messages that rates could be cut. This in conjunction with inventory rising and prices dropping could open the door for first-time and marginal buyers. The Sunbelt, specifically Texas and Florida, have led the nation in the decline in prices.

Buyers are getting more leverage in making offers and choosing a property. However, first-time buyers are still not out of the woods. First-time buyers accounted for 28% of purchases in July. That was down from 30% in June and 29% in July of last year. If the 30-year fixed rate mortgage declines to 6% or below, we will finally see the first-time buyers coming back. We need first-time buyers, even first-time investors to spur the market above them.

Just for the fun of it, I read about a survey of the most expensive neighbor­hoods in the United States compiled by Zillow. Out of the top 10 most expensive neighborhoods, seven of them were in Florida and three were in California. The number one spot went to Coral Gables Estates in Coral Gables, Florida running over Beverly Hills, California. The second spot was Port Royal in Naples, Florida and the third spot was Old Cutler Bay, Florida.

And since we’re talking about Florida high-end listings, Miami’s upper end properties are trying a new tack. They are delisting their properties, not removing them from the market, but delisting, which is not the same thing. About half the sellers in this category are taking a pause until later in the year, probably around November. They believe the market will be more favorable to buyers at this time and also hopefully building a competitive edge since everyone wants something they can’t have. We’ll see if the psychology of this works, but it’s an interesting step either way.

So as we all look forward to the fall and the positive expectations we’re hearing, most of us are all just waiting to exhale.

Housing market the only thing frozen in August

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

If you’re one of the lucky homeowners who was able to lock into dirt-cheap mortgage rates, well done. You’re one of the winners in today’s peculiar and lopsided housing markets.

This isn’t the first time we’re talking about it and will not be the last. Nevertheless, high interest rates have had an unexpected impact on the country’s housing market. Usually, when mortgage interest goes up, home prices go down. Not this time. Home prices keep pushing up because of the lack of inventory to choose from.

It’s almost getting monotonous to keep saying it, but the fact is there was a “lock-in” effect of ultracheap mortgages secured when interest rates were low, which trapped owners in their homes. It was an unforeseen consequence of years of easy money. Are you listening, Federal Reserve?

Two-thirds of outstanding mortgages in this country have a rate of below 4%, according to Morgan Stanley. The current typical rate is 7%, so homeowners who may want to move will be paying a lot more in their monthly mortgage payments today. Hence, frozen.

The byproduct of lower home sales is the economic consequence related to purchasing a home. People normally splurge to fix up houses before putting them on the market or renovate them after they move in. This important economic category of work has dried up not only for home contractors but also for professionals handling the logistics of transactions like attorneys, appraisers and real estate and mortgage brokers.

The only light on the horizon is the Federal Reserve, which left the door open to lower rates at their September meeting. Also, they have penciled in four rate cuts by year-end 2025 with the prediction being that rates could fall to 4.1% in a year.

Builders in some parts of the country are building smaller, more affordable new homes to attract buyers looking for a lower price point. As an aside, the U.S. house size exploded by 150% between 1980 and 2018, according to Census Bureau data. In 2022, the median house size hit 2,300 square feet. Everybody likes space but maybe it’s time to reduce the footprint of homes. Do kids really need their own bedroom and playroom?

So that news is good, but what about people who really need to sell and move on? Young people on a career path need to consider where they will live and how much that will cost before interviewing for a higher position that involves relocating. Seniors who want to downsize or move closer to family are also reluctant to sell. Even if they can tap into their existing equity, the assumption is their living expenses will be high wherever they go.

As more owners stay put, the number of homes on the market has fallen. Tight supply is pushing prices higher, shrinking the pool of buyers who can afford a home and leaving buyers who can afford one thinking they are overpaying. The National Association of Realtors reports there is around a five-month supply of inventory available. This availability number should be about 62% for a healthy market. The availability for single-family homes in Manatee County as of the June sales statistic is four months.

Even if you’re feeling lucky with your financing decisions, no one wants to be in a position where they feel frozen in place. You never know what curve life will throw at you, so being frozen isn’t good for anyone.

Castles in the Sand

Navigating the real estate market

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

I recently read a very extensive and well-researched piece in The Wall Street Journal regarding how foreign buyers are back in the United States to buy real estate and relocate their families. As expected, the majority of these buyers are wealthy individuals who are ready to make a move they may have been thinking about and weren’t able to do during COVID-19 lockdowns in their own countries. Well, they’re here now and buying in Florida and other sunbelt states and, naturally, New York City.

Obviously, if you come across a buyer from another country with a pocket full of cash considering your home, it could be your lucky day. That doesn’t mean you still don’t need to adhere to common sense. No one wants to overpay just because they can.

Everyone knows that cleaning, decluttering and making obvious repairs or paint touch-ups is essential in selling your home, however, that isn’t the most important thing to take care of. The most important decision a seller makes is pricing their property correctly and, in a fluctuating market, it’s not as easy as it sounds.

The old real estate adage that all real estate is local should not be ignored. Since anyone reading this will likely be selling a property on the Island or coastline of Manatee County, what you’re really selling is the Gulf of Mexico. Our region has an abundance of waterfront, water view, water peek, canal front, sailboat water, direct access to the Gulf and I’m sure other descriptive wording I haven’t thought of. Every single one of these “water” possibilities changes the value of your home. Reviewing recently closed properties as close to yours and as recent as possible is a good start. Manatee County’s property website provides access to the public and has every closing available and can be sorted in a variety of ways.

You may have the best waterfront on Anna Maria Island, but if you overprice the property with the assumption that you’ll have plenty of leeway to negotiate, it could be a mistake. You may be missing an entire block of buyers who won’t even look above a certain price point. Pricing a home correctly when it first lists is a much better strategy. Remember there are buyers out there who have been actively looking for just the right thing and have educated themselves in the value of the area. They or their agents are aware of anything new on the market and will know instantly if this property is priced right and worth looking at.

Likewise, pricing a property high because of improvements you have made and perceive to be valuable could be another mistake. What you value is not always what buyers are looking for, especially if the improvements are dark or not neutral or specific to your tastes.

During the pandemic frenzy you could sell just about anything that had four walls and a door. No one cared if your 10-year-old daughter glued almost impossible to get off stars on her bedroom walls or if your husband insisted on a black guest bath, but now they do. According to Zillow, in December 2021, about 44% of homes sold above list price; in December 2022, only 25% sold above list price. Today’s buyers now have a more critical eye and are calculating how much those stars are going to cost to remove.

Whatever market adjustment we’re going through in the country, remember there are always foreign buyers who want to move here. It’s a confidence in our country and our markets we may take for granted, but others don’t. If they have the confidence, certainly we should also.

Castles in the Sand

Mortgage interest rates rising again

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Here’s a little perspective on the continuing increase of the 30-year, fixed-rate mortgage. Several months ago, I did an analysis of the average fixed-rate mortgage rates starting in 1971 recorded on Freddie Mac’s website. At the time, something told me that I should hang onto this research, however, I had no idea how much I would be referring to it during the past couple of months.

Since the Federal Reserve decided to increase interest rates in an effort to control inflation, the housing market has been substantially disrupted. Currently, the U.S. mortgage rates have reached their highest level in more than 13 years. The average interest rate for 2008 was 6.3% and we are already seeing rates at or near 6%. In June, the Federal Reserve increased rates by 0.75% points and Fed Chairman Jerome Powell indicates things are not likely to change soon. He hints that at the July meeting there will be another 0.75% increase. Mortgage rates don’t automatically increase when the Fed raises rates, but they are heavily influenced by it.

What we’re seeing happening around the country and in Florida is a decline in the number of sales, not a decline in sale price. Even though there is some increase in the number of new properties hitting the market, it is so marginal it doesn’t even come close to providing enough inventory to satisfy hungry buyers. In Manatee County in May, the supply of single-family homes finally exceeded one month, which is anemic when you consider that a six-month supply of available properties has traditionally been the benchmark for a healthy real estate market.

Complicating the availability versus demand ratio even further is the fact that so many homeowners refinanced their mortgages when rates were under and just over 3%. These homeowners have no incentive to sell any time soon and move on or up to another home. Even potential retirees are rethinking the benefit of selling, helping to freeze the market, not to mention the pandemic providing a new way to do business remotely, allowing employees to work from areas of the country with lower housing prices shifting the market.

Because the interest rates were so low for so long, buyers were able to purchase larger and more expensive homes. However, now with less purchasing power, young buyers are facing the reality of settling for a smaller home with fewer amenities in an area they may not really want to be. Housing costs in the country have jumped from 24% of the average household budget in the early 1970s to 27% in the late 1980s to 35% in 2019 with higher housing costs likely to come based on the increase in sale prices.

Most real estate professionals and economists don’t see prices going down. Goldman Sachs estimates housing prices will grow around 10% this year nationally and Bank of America forecasts 15%. So, it doesn’t look like the Federal Reserve’s plan to lower the heat on the housing market by increasing mortgage rates has worked; there is still a huge demand for properties. It has, however, brought a lot of pain to first time and marginal buyers.

Tony Veldkamp, the president of the Realtor Association of Sarasota and Manatee wisely says, “If the time is right for someone to purchase a home, they should not let interest rates deter them if they can afford the increase in payments. Homes can be permanent, whereas interest rates are temporary.”

I agree. The big picture is that interest rates are still low relative to other times in our history, and that’s my perspective.

Castles in the Sand

National real estate markets better than ever

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

The first big holiday of the holiday season is behind us. We’ll find out soon if it results in more COVID-19 infections and will be thankful if we all came through it healthy. What we also need to be thankful for is the health of the nation’s real estate market, which is shockingly better than anyone would have thought in March.

National home sales rose to a 14-year high in October, representing the fifth straight monthly increase. Economists credit this phenomenon to both the super low cost of mortgage borrowing and the shift in lifestyle preferences resulting from the pandemic. This is one of the best stretches for the housing market in several years, accelerating what was an already good market before the pandemic.

Mark Zandi, chief economist at Moody’s, commented that “In the pandemic, nothing has been more positively surprising than single-family housing.” He goes on to say, “This is a fundamental shift in housing preferences.” Families and singles are leaving large cities and purchasing single-family homes despite soaring home prices.

According to the National Association of Realtors, existing home sales rose 4.3% in October from September, and 26.6% from October this year compared to October last year. As a comparison, Manatee County single-family home sales increased by 48.4% from last October to this October as reported in last week’s column, almost double the national average.

In addition to a shift in lifestyles because of the pandemic, buyers are aided by mortgage rates now at their lowest level since Freddie Mac began tracking them in 1971. However, low interest rates are being somewhat offset by an increase in home prices and shortage of inventory making it very challenging for first-time buyers to get into the market. This shortage of inventory could worsen in the coming months as COVID-19 cases increase, since some sellers will not place their homes on the market for fear of infection. This is especially true for older homeowners who may be ready to downsize but will not allow buyers or realtors in their homes.

New home construction is also benefiting from the busy real estate market. The S&P Homebuilders Select Industry index is up 24.2% this year. In addition, single-family home rentals are also increasing quickly, with families wanting a way out of crowded areas quickly. Overall, a good real estate market always increases consumer spending in general. Appliances, furniture, landscaping and a variety of decorative and other home goods benefit from people moving from one location to another and purchasing or renting new properties.

Like all new events in our collective lives, the pandemic has produced unique contingencies to real estate contracts and buyers desperate for homes are going for it. Some of the more unusual contingencies I’ve read about include people who want to leave their pets with the house when they either can’t take them to their new location or they just feel it’s better for their pet to remain in familiar surroundings. Surprisingly, some buyers will agree to this especially if they’re pet lovers to begin with. Also, there’s crazy stuff like outdoor decorations and loved one’s ashes that can’t be removed, and home visits to pet graves in the yard the sellers are leaving. Most of these requests can be worked through without becoming part of the actual sales contract but it is just another oddity of what may well become the year none of us will ever forget.

As we look forward to Christmas and try to find a way to navigate through a reduction of festivities, we can at least be encouraged by the flourishing real estate market. But be prepared if the seller you’re negotiating with wants Santa on the front porch as a permanent contingency. Stay safe.

Castles in the Sand

No Christmas gifts for foreign buyers

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Almost a year ago, I wrote a column about the proliferation of buyers from other countries coming into the state of Florida. Florida at that time was the national leader for international buyers at 22 percent of all international buyers in the United States. But there are many foreign countries that either prohibit foreign buyers or levy additional taxes to discourage them. These are a few:

New Zealand, in particular, has taken a hard stance on foreign buyers in an effort to make homes more affordable for its citizens. It recently passed legislation to limit foreign buyers to buying only newly built homes, and only 60 percent of units in new apartment buildings can be owned by foreign buyers.

New Zealand’s neighbor Australia has also increased the tax burden on new homes, introducing a buying tax and raising its stamp tax to 8 percent. This is in addition to annual fees for foreign owners.

Property values in the United Kingdom have been very hot, especially in London in recent years. To help cool off the market, the U.K. has added a 3 percent surcharge on the stamp tax paid by second home buyers and a 15 percent buying tax on all homes bought through a shell company. This was a previous technique frequently used by foreign buyers, which has resulted in prices falling substantially in London.

Hong Kong also has a tax stamp fee of 15 percent for foreign buyers and has extended that to include all second-home buyers as well. And Switzerland, which always has discouraged foreign ownership of property, now requires a permit to purchase property with a limit of 1,500 permits a year. There is an exception for EU buyers who have permanent homes in Switzerland. Even Mexico will technically not allow foreign buyers to purchase property within 31 miles of the coast or 62 miles of the U.S. border. There are, however, ways to get around this by having local banks hold title to the property. But there is still hope for foreign buyers who want to purchase exotic properties. The Maldives in the Indian Ocean and Thailand will be glad to take your money.

To my knowledge, I don’t believe the United States government has placed any restrictions on foreign buyers entering our real estate market. Aside from a tax ID number, foreign buyers do not have to be U.S. citizens, do not need a green card and do not require a special visa. As long as they have the cash or can obtain satisfactory financing, they are pretty much free to buy whatever and where ever they want.

The onus is on the lenders to qualify the buyer’s finances, visas and legal right to be in the country to protect their investment from buyers who suddenly leave the country with the bank becoming responsible for the property. However, almost half of property purchases by foreign nationals are made in cash, 44 percent at last count.

Foreign buyers may be boxed out of purchasing real estate in some countries in an effort to keep their real estate prices from becoming overinflated, harming their own citizens. Fortunately, the United States is a big wealthy country and will not be seriously impacted by an influx of foreign buyers. That said, there are areas of Florida, particularly on the east coast, where foreign buyers have some responsibility in running up property values.

We love real estate buyers no matter where they’re from. Tell Mexico and Australia and Switzerland and all the others to send them to us. We’ll make sure they have a merry Christmas.

More Castles in the Sand:

Tax overhaul saved one thing

Anticipating condo special assessments

So, you want to be a real estate investor