While homes in our area and around the country continue to appreciate, Boca Raton house prices are not in a bubble.
Why mention this? Because of these two statistics: nationwide median single family house prices moved up to almost $229,000 as of May 2015. In 2006, when the bubble finally burst, that number was $230,400.
Today, however, market fundamentals are very different.
And that is why, According to Lawrence Yun, chief economist of the National Association of Realtors (NAR), home prices are not in a bubble. Here are the 3 reasons why:
ONE: Housing demand is 25% lower than it was during the bubble years.
It seems paradoxical that while demand is forcing up the prices of Boca Raton houses for sale – because there are not enough to go around – overall demand for houses is 25% lower than it was during the bubble years.
In 2006, we watched sales rise to unsustainable levels. It appeared that everyone we knew was purchasing a home and then selling it at a higher price to someone else.
Today, there are far fewer people purchasing. The percentage of families who own homes has fallen to 63.7%, a rate that has not been seen for a quarter of a century. Younger people are putting off home purchases until they have accumulated sufficient funds for larger down payments. These are positive economic factors.
And while home ownership percentages may be lower, the dream of home ownership remains sufficiently strong enough among young families. Last month, almost 32% of homes sold were purchased by first time buyers. This is a 5% increase from a year ago.
TWO: Housing starts (new homes being built) are down by almost 50% from the years of the housing bust.
We are no longer staring at abandoned housing tracts, nor are builders constructing at a feverish pace. While Commerce Department figures show that single family home sales increased to a seasonally adjusted annual number of just over 550,000, this number is just about half of what it was during the bubble years.
In addition, today’s homes can be sold only to buyers who have paid cash or have been approved, under today’s tougher standards, for mortgages.
It may be because of those heightened financial regulations that a survey from the National Association of Home Builders indicated the highest level of optimism that industry has seen in 10 years. KB Home indicated a 19% quarterly gain over last year’s figures, and Lennar Corp. showed an increase of 10% for the quarter.
Despite those gains, the nationwide median price of a new home showed only a 0.3% rise from last year at this time. Such modest price appreciation was never evident during the bubble years.
As for overall home sales, the S & P /Case Shiller Index said the median price in South Florida increased only 7.3% from July of last year. In Dallas it was up by 8.7%, by 6.3% in Las Vegas, and by 5.8% in Atlanta. Only San Francisco and Denver showed double digit increases of 10.4% and 10.3%, respectively.
Has price resistance finally arrived?
It may be that we are seeing the first signs of buyer resistance. In Boca Raton, despite very low inventory, the median list price of a home barely budged – from $349,900 in February to $350,000 in March (latest MLS figures available).
Between January and February the increase was 3%. However, if the current wave of moderation continues, we could see far less than a 5% increase in home prices for the year (way below the bubble level).
THREE: Mortgage debt is down by almost 10% from the bubble years.
That means fewer people owe less money than they did in 2006. In addition, it’s not easy to obtain a mortgage today. Bank requirements are far more stringent. Buyers must meet the mortgage mandates, or they will not receive financing. Because of the penalties now imposed on banks for flouting the rules, no exceptions are made.
Therefore, unlike the bubble years, the reasons for the continuing Boca Raton house price increase are not at all related to the ease of obtaining mortgages. Instead, price increases are related to supply and demand. There are simply not enough affordable homes to go around.
However, since mortgage rates are still hovering around 4% – despite the FED’s threatened rate rise – Boca sellers are not afraid to hold fast to their asking prices. Continuing low mortgage rates will allow sellers – up to a certain point – to continue with modest price increases.
If mortgage rates finally rise, it is possible that price increases may slow down or even grind to a halt.
Act quickly. Get pre-approved.
However, at this moment, if you’re a qualified buyer looking for a home that’s priced under $400,000, be prepared to act quickly. Because by the time you’ve finished your house tour, three other first time buyers may have already come through the front door.
If you’re not already pre-approved for a mortgage (not just pre-qualified), you may lose the house, even if you’re the high bidder. It’s still a seller’s market here in South Florida as well as in most of the nation, especially in the lower price ranges.
According to NAR statistics, existing home sales moved down by 4.8% to an adjusted annual rate of 5.51 million. The drop is not due to lack of demand, but rather to lack of inventory. Boca Raton houses for sale are not coming into the market fast enough.
That means we still have more demand than supply, and that is what keeps prices up. However, as more sellers enter the market and we move toward equilibrium – typically a 6 month supply of homes – supply and demand will meet. That may help to keep price increases in check.
Why right now is a very good time to sell your home .
Home prices in most parts of the nation have been moving up at a steady pace. But once mortgage rates increase, so will price resistance. After all with higher rates, borrowers have less buying power.
So if you’re thinking about selling, then right now – while demand is greater than supply and while mortgage rates are still low – is the best time to put your home up for sale.
By the way, I am never too busy for your referrals
Marc Jablon, the Jablon Team
Re/Max Complete Solutions