Gary Keller is known for a lot of things: his all-black attire, his love of guitars and subsequent passion for music. Another well-known fact is Keller’s knack for turning industry insights into actual opportunity. Which is exactly what he did during his Mid-Year Market Update at this morning’s Mega Agent Camp.
“Think of this as your third quarter update. And then we’ll check up on ourselves at Family Reunion in February,” Keller said, referring to his annual Vision Speech at Keller Williams Realty’s annual convention.
Joined on stage by Jay Papasan, the two examined the real estate industry’s key indicators:
3. Mortgage Rates
Their findings revealed several things:
1. Prices are on the Upswing
The annual pace of home sales in July was 17.2 percent higher than it was last year, putting the industry on pace for the best year in home sales since 2006. “The last time we saw this number was 2003,” said Papasan.
The monthly median home price in July was $213,500 up 25.1 percent from January to July 2013. In order to understand that number in a relevant way, Keller turned to annual home prices, which he said “gives us total perspective.” For 2013, the average median price YTD for 2013 was $198K. Though home prices have been increasing year-over-year for 17 consecutive months, that number still sits below the long-term 4 percent trend line.
Translation? “There’s still room to recover,” explained Papasan.
Distressed properties are also impacting the uptick in home prices, namely the absence of them. “If we project that home prices increase over the next 24 months toward a market that is back to pre-recession days, then these people should be good.”
2. Rates are Interest-ing
Mortgage rates remain historically low, and only recently jumped to above 4 percent. In January, the 30-year mortgage went up by 1 percent. “That’s a 10 percent increase in the monthly cost of the home,” said Papasan. Or a 10 percent drop in affordability. “Don’t panic,” Keller warned. “Let’s get some perspective: I got into real estate during the highest interest rates ever. We were asking people to agree to 14 points on their mortgage and people still bought. Every market has their pros and cons, so don’t ever get locked into ‘is it a good time?’”
Several mortgage regulations are making an impact on borrowers’ ability to buy:
• Shorter waiting period for consumers who experienced an “economic event.”
• Borrowers who defaulted may be able to buy after one year. For more details see blog.kw.com/HUD.
Issue #2: Maximum loan values for conforming loans likely to decrease in 2014.
3. Inventory is Demanding
Outside of the luxury homes sector, which returned to a buyers market, demand for homes is up. The most pressure is on the entry level market, though the move-up market isn’t far behind. There are two influential factors, Keller said:
1. Household Formation
2. Institutional Investors
“Household formation is expected to recover. And more households means more demand for houses,” he added. Enough in fact, to fuel $50 million of new GCI in the top 100 metro areas. In other words, Papasan continued, “there’s enough GCI for everyone in this room to hit their goals.”
“There’s enough GCI for everyone in this room to hit their goals.”
They expect household formation numbers to hover around 1.2 billion for another six to seven years. “That’s a very, very healthy number in terms of predictable demand,” Keller said. And good for real estate business owners who seek a predictable (and hopefully increasing) income over the long term.
If there’s one statistic Keller’s can’t get enough of, it’s affordability. Year after year, he stresses just how important it is. Last year produced the highest affordability index ever in the history of man, says Keller. But as prices improve, affordability goes down - not a good argument for buyers trying to time the market. “Who cares,” he joked.
“This is the graphic you want to put in front every single buyer because they’re going to look at rising interest rates and prices and think that there will be a better time to buy. The truth is, if they could time the market, they would have already bought.”
The second half of Keller and Papasan’s presentation focused primarily on new home construction, builder confidence and a more in-depth look at the impact of distressed homes. They also looked at the Canadian market.
Overall, Canada continues to keep it’s balance. However, new insights point toward an increase in debt and a rise in home prices. Some key points Keller sighted:
Canadians have begun to reduce their debt levels in anticipation of rising interest rates after a decade of rapid increases in borrowing.
The slowdown in consumer spending as Canadians pay down their debts could slow the economy.
In closing the speech, Keller advised the audience to let the stats “serve as your compass. I encourage you to download the whole presentation, learn the language and put this in front of consumers!”
To download Gary Keller’s Mid-Year Market Update visit www.agentmountain.com.