Are We in a Housing Recession?

This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.


 


Hello there, I’m Windermere’s Chief Economist Matthew Gardner and welcome to this month’s episode of Monday with Matthew. A little while ago, a housing analyst was being interviewed about the current state of the residential market and they suggested that the country is in a “housing recession.” Well, needless to say, this got a lot of attention from the media and the public at large—for obvious reasons.

Any time the word “recession” is mentioned we almost subliminally cast our minds back to 2007. And when the word “recession” is combined with the word “housing,” then panic starts to set in with flashbacks of headlines about burgeoning housing supply, plummeting home prices, and surging foreclosures.

As this is a topic being discussed by many across the country right now, I wanted to share with you my opinion as to whether the phrase “housing recession” is an appropriate one when describing today’s market.

So, what is a recession? To answer this, I will turn to my trusted Oxford English Dictionary, and this is how they describe that word.

Definition of a Recession

Image Source: Matthew Gardner

 

Recession:

  • a difficult time for the economy of a country, when there is less trade and industrial activity than usual, and more people are unemployed
  • the movement backward of something from a previous position

Well, how do we use these definitions when it comes to the ownership housing market?

I guess that “less trade” could mean lower sales and we have certainly seen sales pull back. “Movement backward” could be how someone might describe the fact that sale prices have been pulling back in many markets across the country.

But although some may say that we really are in a housing recession given the definition of the word, is it really accurate? Are we are inextricably headed down a road that leads to the bursting of some sort of bubble as we all remember from 2007? I don’t believe we are. To explain my thinking let’s start out by looking at housing supply.

Inventory of Homes for Sale

A line graph titled "Inventory of Homes for Sale," showing the months January 2021 through July 2022 on the x-axis and numbers in millions on the y-axis ranging from 0.8 to 1.3. The graph shows that listing activity has risen from an all-time low of 900,000 during February 2022 to over 1.2 million units in July 2022—a 35.6% increase. Between January 2021 and October 2021, inventory ranged between 1.1 and 1.2 million before plummeting steadily toward the all-time low of 900,000 in February. Since then, inventory has rebounded to over 1.2 million again almost as quickly as it dropped.

Image Source: Matthew Gardner

 

Yes, listing activity is up—can’t argue with that—with the number of resale homes for sale jumping by more than a third from the start of this year. But there’s more to it than that. You see, we have to look a little further back to better understand what’s really going on.

And to do this, let’s check out the number of homes for sale during the first seven months of this year and compare those numbers to the same periods in 2018 through 2021.

Active Listings By Month

A multi-line graph titled "Active Listings by Month" showing the number of active listings for the years 2018, 2019, 2020, 2021, and 2022. The x-axis contains the months January through July, and the y-axis shows the number of listings ranging from 600,000 to two million. Overall, the graph indicates that listings remain well below the long-term average, and that the number of homes for sale in July 2022 exactly matches that of July 2021. 2022's January value is the lowest of the selected years, followed in order by 2021, 2020, 2018, and 2019. 2019 began the year with around 1.6 million active listings. In short, the July numbers show that there were hundreds of thousands more active listings in 2018 and 2019 than 2020 through 2022.

Image Source: Matthew Gardner

 

I don’t know about you, but this doesn’t look like a chart showing a massively oversupplied market! The number of homes for sale in July of this year was almost exactly the same as we saw last July and is still well below the levels seen in 2018, 2019, or 2020.

Sure, listings are up. But are we at levels that will cause prices to tumble? Remember that it was a massive increase in the number of homes for sale that led to the housing bubble bursting back in 2007. Listings peaked at almost 3.9 million units in 2006; but today there are 2.6 million fewer units on the market than we saw back then. Now that we’ve seen that supply isn’t at concerning levels, let’s look at demand.

Existing Home Sales

A line graph titled "Existing Home Sales." The x-axis shows every other month from January 2020 to July 2022, and the y-axis shows numbers in millions ranging from 0 to 7.0. Overall, the graph shows that, although they remain higher than the levels we saw at the beginning of the COVID-19 pandemic, home sales have been falling since January 2022. Home sales dipped sharply in March 2020 due to the onset of the pandemic, going from above 5 million to 4 million. By September 2020, existing home sales rose above 6 million, and hovered around that mark until January 2022. In July 2022, existing home sales dipped below 5 million again.

Image Source: Matthew Gardner

 

This chart doesn’t look too good. On an annualized basis, sales have been pulling back since the start of the year but that’s not the full story. Let’s look at this in a slightly different way.

Year-to-Date Sales

A multi-bar chart titled "Year-to-Date Sales" showing non-seasonally adjusted and seasonally adjusted sales for the past five years. The years 2018 through 2022 are represented on the x-axis, while the y-axis shows numbers in millions ranging from 0 to 4.0. 2022 year-to-date sales are lower than they were last year, but unadjusted for seasonality, year-to-date sales are higher than 2019 or 2020. And when adjusted for seasonal shifts, 2022's year-to-date sales are higher than 2018, 2019, and 2020. 2021 has the highest year-to-date sales totals, with both non- and seasonally adjusted sales figures right around 3.5 million.

Image Source: Matthew Gardner

 

The bars here show year-to-date sales through July—both adjusted and unadjusted for seasonality—and although unadjusted sales so far this year are lower than we saw during the first seven months of 2021, they are at about the same level as we saw in 2018 and are higher than in 2019 or 2020.

But when we adjust the monthly sales data for seasonality, year-to-date sales in 2022 were higher than all years shown here other than 2021.

So, although sales have fallen, it appears to me that we are heading back to a more realistic market rather than one that is hemorrhaging. Yet another indicator we need to consider when examining the market for evidence of some sort of recession are months of inventory , which shows how long it would take to sell every home for sale using the current monthly sales pace.

Months of Inventory

A line graph titled "Months of Inventory," which reflects how long it would take every home on the market to sell given the current housing market conditions. The x-axis displays the months January 2021 through July 2022, and the y-axis shows the number of months ranging from 0 to 3.5. The chart shows a figure of 3.3 months of inventory for July, indicating a seller's market. A balanced market is 4 to 6 months of inventory. From January 2021 to August 2021, months of inventory rose from below 2.0 to above 2.5, then dipped to just above 1.5 in January 2022. Since then, months of inventory has steadily risen to the 3.3-month figure in July 2022.

Image Source: Matthew Gardner

 

This graph shows that it would take three months to sell every home on the market given the sales we saw in July. That is quite a jump from the January pace but, again, perspective is everything.

Months of Inventory: Seller’s Market

A line graph titled "Months of Inventory," which presents an expanded view of inventory dating back to the year 2000. The x-axis shows the years 2000 through 2022, and the y-axis shows the months of inventory ranging from 0 to 13. The graph shows that as of 2022, we are still in a seller's market, even though listings have risen and sales have slowed. A balanced market—marked by 4-6 months inventory—is still not present. From 2000 to early 2006, the housing market stayed below 6, then leapt up to roughly 10 months by 2008. The highest months of inventory displayed is 13 between 2010 and 2011. Since then, the overall direction of the chart has trended downwards, with the lowest figure—below 2 months of inventory—appearing in late 2021/early 2022.

Image Source: Matthew Gardner

 

At three months, it is still a seller’s market. It’s generally accepted that the definition of a seller’s market is any number below four months; a balanced market is four to six months of inventory, and a buyer’s market is when the month of inventory is above six.

And a simple bit of math shows us that, for the market to shift from favoring sellers to favoring buyers, the number of homes for sale must break above two million—which we haven’t seen since 2015—and monthly sales would have to drop to below 300,000. We’ve only seen that happen three times in history: November 2008, and again in July and August of 2010.

Yes, listings are up, and sales are down. There’s no denying it. But, again, does the data justify the term recession? My answer would be no. But, if you’re still not convinced, let’s turn our attention to sale prices. I think that might help make things even clearer.

Median U.S. Existing Home Price

A line graph titled "Median U.S. Existing Home Price." It shows home sale price figures (displayed on the y-axis from $100,000 to $450,000) for the months January and July from 2012 through 2022 (displayed on the x-axis). a solid line tracks the median home price, showing a gradual increase over time from roughly $150,000 in January 2012 to over $400,000 in July 2022. A dotted line runs through the middle of the undulations in the solid line, following the same upward trend from 2012 through the end of 2020. But during early 2021, the solid line breaks away from the trend line, which reflects the historically low levels of mortgage rates at that time. Sale prices are starting to pull back, given the affordability constraints and high financing costs in the housing market status quo. Windermere Chief Economist Matthew Gardner expects this pull-back of prices to continue.

Image Source: Matthew Gardner

 

The solid line represents the median sale prices of homes over time and the dotted line shows the trend. You can clearly see that we started breaking away from the trend line in early 2021 and that’s not at all surprising as it started the month after mortgage rates hit their historic all-time low.

But today’s financing costs are significantly higher, and prices have started to slide. Although I certainly expect that we will see sale prices fall further, it appears to me as if they are simply moving back to the long-term trend, and not collapsing.

Mortgage Rate Forecasts

A multi-bar chart titled "Mortgage Rate Forecasts" showing how several institutions foresee mortgage rates in 2023. The chart shows Fannie Mae's 2023 prediction of 4.5%, followed by Freddie Mac's 5.1%, Mortgage Bankers Association's (MBA) 4.9%, 6.0% for the National Association of REALTORS® (NAR), 5.3% for Wells Fargo, and Matthew's forecast of 5.3%. Overall, rates remain higher than buyers are used to, but will not get close to the long-term average of 7.5%. It is generally accepted that mortgage rates are likely to start pulling back modestly in 2023.

Image Source: Matthew Gardner

 

With mortgage rates doubling from their 2021 lows, downward pressure on sale price was to be expected. But will they—as some think—rise to a level that will cause home prices to plummet? To answer that, here are the forecasts of several associations. You’ll see that all, bar the National Association of Realtors and Freddie Mac, see rates pulling back—albeit modestly—in 2023.

Of course, all these are annual averages and today’s rates are higher with the latest Freddie Mac data showing the average 30-year fixed rate above 6%—a level we haven’t seen since 2008.

However, economists including myself find it unlikely that rates will continue rising significantly from where they are today. The mortgage market is certainly in a bit of disarray right now with the yield curve inverting, but that should correct itself by early next year and that’s why we generally expect rates to start pulling back from their current levels by the start of 2023.

But if rising rates are triggering memories of 2008, you wouldn’t be alone. There are some expecting that the spike in rates will trigger a surge in foreclosures and that will doom the market. But as you see here, although foreclosure filings have certainly risen, they are still remarkably low compared to historic standards.

U.S. Foreclosure Filings

A bar graph titled "U.S. Foreclosure Filings" showing the number of home foreclosures (displayed on the y-axis from 0 to 250,000) in the U.S. from Q1 2017 to Q2 2022 (displayed on the y-axis). From Q1 2017 to Q2 2019, U.S. foreclosures remained above 150,000. Between Q1 and Q2 2020, foreclosures dropped from just below 150,000 to well below 50,000. This figure dropped further in Q3 2020 but has increased every quarter since. Windermere Chief Economist Matthew Gardner opines that this increasing trend of foreclosures is not concerning, since it does not yet represent a level of foreclosures sufficient to create an oversupply in the market.

Image Source: Matthew Gardner

 

In the second quarter, newly delinquent mortgages represented just 1.9% of all mortgages outstanding1 and that’s the lowest share the market has seen since 2006. Although I do expect the number of homes being foreclosed on will rise as we move into 2023, I just don’t see it getting to the levels necessary to materially impact the market. And a big part of the reasoning behind my thinking is this:

Equity Rich Households (Q2 2022)

A slide titled "Equity Rich Households (Q2 2022)" showing a map of the United States where each state's equity rich household percentage is displayed. "Equity rich" in this context signifies people with a mortgage that are sitting on more than 50% equity. The highest equity-rich state in the country is Vermont at 71.4%, followed by Idaho at 69.5%, and Arizona at 64.8%. The least equity rich state in the country is Louisiana at 23.4%, followed by Illinois at 25.4%, and Alaska at 26.7%.

Image Source: Matthew Gardner

 

In the second quarter of 2022, over 48% of homeowners with a mortgage were sitting on more than 50% equity.

Simply put, for enough homeowners to be put in a negative equity situation that would lead them to enter foreclosure and materially damage the market, home prices across the country would have to fall by a percentage greater than we saw during the market crash. And I just don’t see this happening.

The word “recession” has many connotations, and when it’s used to describe the housing market, it can engender a significant level of panic. So, I will ask you all. Given the data I have showed you today, do you think that we are in a housing recession?

Yes, supply levels have risen. But they are still relatively low when compared to historic averages and with builders slowing construction activity to a crawl, it’s unlikely that housing supply will grow much organically. Over the longer term, I believe that the supply of resale homes for sale will remain below historic averages. I say this for one simple reason: mortgage rates.

In 2020, a record number of households refinanced their homes to take advantage of the mortgage rates that had been plummeting. And in 2021, over six million home buyers got mortgages with rates averaging below 3%.

I would suggest to you that we will not see the number of homes for sale even get back to normalized levels in the mid-term, as many potential sellers will decide not to sell, because if they did, they would lose the never seen before and likely never to be seen again mortgage rate that they currently have.

Of course, there will be sellers who have to move because of factors such as job relocation, death, or divorce, but I would contend that listing activity may well be tight for a long time. And if supply remains below the level of demand, the market is further protected.

And as far as demand goes, let’s not forget that the age makeup of the country suggests that we will see a lot more potential buyers as Millennials and Generation Z mature, with current numbers suggesting significant buyer demand for the next two decades.

As for sale prices, I still believe (as do almost all economists) that the median home price next year will be higher than we will see this year, but a very significant drop in the pace of sales growth is likely as we trend down to historic averages.

Of course, all real estate is local and there are markets across the country that will see prices drop in absolute terms. But even in the most highly susceptible markets, it will be a temporary phenomenon. By 2024, homeowners in these markets will see the value of their homes start to rise again.

I’m going to leave you with my quote to describe today’s market today and it’s that we are in a “housing reversion,” NOT a housing recession.

As always, I’d love to hear your comments on my thoughts so feel free to reach out. In the meantime, stay safe out there and I’ll see you all again next month.

 

1: New York Fed Quarterly Report on Household Debt and Credit


About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

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How to Handle Asbestos in Your Home

Throughout the mid twentieth century, asbestos was commonly used throughout the homebuilding process. It was typically used as insulation, but would also pop up in vinyl flooring, cement siding, walls, pipes—you name it. After it was discovered that inhaling asbestos fibers has serious health effects, its domestic production slowed, and legislation was put forth to ban it altogether.

However, just like lead paint, homes that were built in the asbestos era still carry a dormant risk. If your home contains asbestos, you should be aware of its dangers, how to handle it, and how to go about removing it safely.

How to Handle Asbestos in Your Home

Having asbestos material in your home is not inherently hazardous if the material is left undisturbed. So, if your asbestos material is intact and in good condition, the best thing to do is to leave it be. However, the moment asbestos material becomes damaged—either from degrading over time or because of a sudden accident—it becomes dangerous. Once asbestos fibers are released, it can spell trouble for you and your household. 

Testing for Asbestos

If you find damaged asbestos material, you should cordon off the area to the best of your ability to limit exposure. If restricting the area means you could disturb the asbestos, then it’s best to refrain from interacting with it and let a professional handle it.

DIY asbestos testing is possible, but it can be highly toxic if you don’t take the proper precautions. An asbestos inspector will conduct a thorough examination of your home to determine the extent of its presence and provide their recommended course of action. It is advised to test for asbestos before making an addition or a large-scale remodel to your home.

 

Image Source: Getty Images – Image Credit: ricochet64

 

Removing Asbestos

You can either repair existing asbestos exposure or have it removed. Repairs can be cheaper in the short term but may simply be prolonging the inevitable. Making repairs on your own is generally not recommended, since the slightest mishandling of the exposed asbestos can create a much bigger problem.

When it comes to removing asbestos, you’ll want to enlist the help of a professional. As with any contractor, ask for quotes and make comparisons before deciding who you’ll hire. Before the job is finalized, have your home tested to ensure that all asbestos has been safely removed from the premises.

For more tips on home safety, home maintenance, and avoiding dangers caused by the systems in your home, read our blog post on How to Prevent and Deal with Mold.  

 


­­­­­­Featured Image Source: Getty Images – Image Credit: BanksPhotos

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7 Tips for Staging Your Home Yourself

Nowadays, home staging is an integral part of the home selling process. The impact of home staging is crystal clear, but how you go about it deserves some consideration. Many homeowners will hire a home staging professional, trusting their expertise to make their home as appealing as possible to buyers. However, if hiring a professional isn’t in your budget, taking a DIY approach to home staging can deliver its own benefits.

7 Tips for Staging Your Home Yourself

1. Declutter

The first rule of home staging: make it tidy! A well-staged home should make potential buyers feel comfortable and at ease. To make that happen, it’s important that the spaces in your home are free of clutter. Consider investing in storage bins or a separate storage space temporarily to pare down the items in your home as much as possible.

2. Deep Clean

To really make your home sparkle, it will need more than a cursory cleaning. On top of your usual cleaning routine, get those hard-to-reach and uncommon spots throughout your home that will make it feel spotless. Putting some elbow grease into your bathroom surfaces, underneath and behind furniture, baseboards, and all switches and handles will make a difference when guests enter your home.

3. Fresh Paint

Not only does adding a coat of fresh paint do wonders for the look of your home, it’s a low-cost, high-ROI investment for a DIY project as important as home staging. Going for neutral colors will help to create balance in your interior while appealing to a wide spectrum of buyers’ tastes. It’s the splashes of color on top of a neutral foundation that will help guide visitors’ eyes from room to room.

 

Image Source: Getty Images – Image Credit: irina88w

 

4. Curb Appeal

You only get once chance to make a first impression on potential buyers visiting your home and upping your curb appeal will give you the best chance of wowing them. Take a trip to your local hardware store and prepare to spend some time working in the front yard. Projects that improve the look and quality of your lawn, flower beds, walkways, outdoor lighting, windows, and trim will impress buyers and can increase the value of your home.

5. De-Personalize

Once a buyer pulls up to your property, you want to give them every opportunity to imagine themselves in the home. That’s why it’s important to de-personalize your interior and let them fill it with their own imagination. Remove all family photos, notes, personal gifts, and the like from your home. Aim for a décor style that’s not too ornate and not too bland—think calm, simple, and clean.

6. Focus on Accents

Once you’ve applied fresh paint, boosted your curb appeal, and de-personalized your home, you’re ready to add décor accents. Again, the most important thing is that buyers feel comfortable in your home, so your accents should reflect that notion. Add area rugs that are inviting but not too loud, keep freshly folded towels in the bathroom, and consider adding house plants throughout your spaces to make them feel natural.

7. Design Hacks

A few key design hacks will help you round out your DIY home staging project. If you’re struggling with making the smaller spaces in your home feel comfortable, try adding a mirror. Mirrors help to reflect light and can help narrow or cramped spaces feel bigger. Arrange your living room furniture in a way that emphasizes the room’s dimensions. Since you’re designing your home with open houses in mind, the TV no longer needs to be the focal point of the living room.

For more information on preparing to sell your home, helpful tips on working with an agent, moving checklists, and more, visit our Seller Essentials Home Selling Guide.

 

 


­­­­­­Featured Image Source: Getty Images – Image Credit: PC Photography

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What is Row House Architecture?

Of all the alternatives to single-family detached homes that remain popular today, row houses may have the longest history. Some of the oldest and largest cities on the East Coast such as New York City, Boston, and Philadelphia still have row houses in great numbers. These iconic structures have served as the backdrop for some of America’s most beloved TV shows, including Full House and Cheers. Given their storied history and prime location, row houses represent the best of the past and the present in home design.

History of Row Houses

Since their beginning in the early 1600s, row houses have presented an economical solution to housing for home builders. They allowed builders to divide a plot of land into different living units that increased the number of tenants on the property. In the 19th and 20th century, the easy-to-build and inexpensive nature of the housing style fit the building demands of the era, and they proliferated throughout what are now some of the country’s most popular metropolitan areas.

Difference Between Townhouses and Row Houses

There are slight differences between townhouses and row houses. Row houses share a common façade along a street, whereas townhouses may be grouped throughout a development. Row houses have a consistent roofline and share a common wall, whereas townhouses may not adhere to the same uniformity of height and width.

Both types of housing may be governed by a Homeowners Association (HOA), which lays out guidelines for property upkeep and maintenance, enforces restrictions on making addition/remodels, and charges monthly fees that go toward the community’s shared spaces, property maintenance, and amenities.

One well known variety of row houses is the “brownstone.” As the name suggests, brownstones’ signature exterior is a mixture of sandstone that produces a dark brown color. Brownstones are commonly found in historic districts throughout New York City, such as Brooklyn, Manhattan, and Harlem.

 

Image Source: Getty Images – Image Credit: Terraxplorer

 

Row Houses and the “Missing Middle”

Row houses, along with duplexes, courtyard apartments, and other similar housing types, were constructed in great numbers prior to World War II but are now far less commonly built. The term “Missing Middle” was first coined by Opticos, a team of urban designers and strategists who realized that this type of housing was largely missing in today’s market. In an episode of Monday with Matthew, Windermere Chief Economist Matthew Gardner explained how these “missing middle” housing types can improve housing affordability:

“And the key function of this type of housing is to meet the rising demand for walkable neighborhoods, respond to changing demographics, and provide housing at different price points. You see, rather than focusing on the number of units in a structure—think high rise apartments or condominiums—this type of housing emphasizes scale and heights that are appropriate for and sympathetic to single-family or transitional neighborhoods.”

For more information on the various architectural housing styles, visit our Architectural Styles page.

 


­­­­­­Featured Image Source: Getty Images – Image Credit: benedek

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Making a Down Payment on a Home

Imagine the process of financing a home purchase as a relay race. From start to finish, the baton must be passed several times between interconnected transactions. The down payment plays an important role in the relay race and will help you cross the finish line, but how much money do you put down? And when do you make the down payment? Understanding its characteristics will help you see where it fits in the home buying process.

What is a down payment?

The down payment is a large payment made upfront to help fund a home purchase. Unlike the financing obtained through a mortgage loan, the down payment comes out of the buyer’s pocket, not from a lender.

For example, let’s say the house you want to buy is priced at $500,000. If you put $25,000 down, or five percent of the purchase price, that would leave $475,000 you’d need to pay for with a mortgage. If you put down $100,000, or 20 percent, that would leave a $400,000 mortgage principal. In general, a higher down payment equates to a lower interest rate since that financial structure is viewed as less risky by lenders. It also means your monthly payments will be lower since your loan balance is smaller.

However, making a large down payment isn’t feasible for everyone. In fact, according to the National Association of REALTORS® Profile of Home Buyers and Sellers1, the typical down payment was seven percent for first-time home buyers and 17 percent for repeat buyers in 2021. If you’re not able to put down 20 percent of the home’s purchase price, your lender will typically require that you obtain Private Mortgage Insurance (PMI), which protects them against the possibility of a mortgage default. The benefit of PMI is that it creates a pathway to homeownership by allowing you to move in and start building equity right away.

Different loan products have different down payment requirements. Conventional loans have a minimum down payment requirement of three percent, while government-backed loan products like VA loans or USDA loans may allow you to purchase a home with no money down if you qualify.

Down Payment: Home Monthly Payment Calculator

As you prepare to buy a house, it’s helpful to see what you can afford. Your down payment will have a direct impact on your loan terms and your monthly mortgage payment. Use our Home Monthly Payment Calculator to experiment with different down payments, principal amounts, interest rates, taxes, and more for any listing price.

 

A man and a woman shake hands with their real estate agent at their kitchen table

Image Source: Getty Images – Image Credit: Paperkites

 

How to Save for a Down Payment

Though your lender will need to verify that you have the funds available to make your down payment early on in the mortgage approval process, the down payment is officially due at closing. Saving up for such a payment may seem like a daunting task, but with the right planning, you’ll make steady progress. Having a strategy in place for compiling your down payment is a telltale sign that you’re ready to buy a home. Here are some methods of generating savings to consider:

  • Consider downsizing to reduce your living expenses and increase your savings over time.
  • Reduce your debt before applying for a mortgage to give yourself a better shot at favorable mortgage terms—i.e., a lower down payment requirement and reduced interest rates.
  • Explore down payment assistant programs to see if you qualify.
  • Ask family members for support.

If you’re in the process of selling your current home while looking for a new one, know that you can use the proceeds of the home sale to help finance your new home purchase.

For more information on financing a home purchase, helpful tips on the buying process from start to finish, and more, visit our Home Buying Guide.

 


1. ­­­­­­National Association of REALTORS® (2021) Profile of Home Buyers and Sellers

Featured Image Source: Getty Images – Image Credit: ridvan_celik

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Windermere Partners with Seattle Seahawks for 7th Season of #TackleHomelessness

With the dawn of a new football season comes the opportunity to give back to our community. As the “Official Real Estate Company of the Seattle Seahawks,” all of us at Windermere look forward to partnering with the team for the seventh season of #TackleHomelessness. For every defensive tackle made in a home game this season, we’ll donate $100 to Mary’s Place, a Seattle-based non-profit dedicated to helping local children and families on their journey out of homelessness.

The Windermere Foundation and Mary’s Place share a common mission to end homelessness, and it’s partnerships like #TackleHomelessness that help to further that mission in our communities. Last year, the Seahawks’ defensive efforts raised $35,800 for Mary’s Place, pushing the #TackleHomelessness six-season total to $196,100.

Since 1989, the Windermere Foundation has raised over $47 million for homeless children and families in our communities. We’ve set our sights on reaching $50 million in total donations this year in honor of our company’s 50th anniversary, and we look forward to cheering on the Seahawks this year as we work toward our goal. Keep up with our progress this season by following us on Facebook, Twitter, LinkedIn, and Instagram.

 

Image Source: Windermere Services Company

 

To learn more about the Windermere Foundation or to make a donation, please visit windermerefoundation.com.

 


­­­­­­Featured Image Source: Windermere Services Company

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Making a Contingent Offer: Common Real Estate Contingencies

Imagine a home-buying scenario where you make an offer, the seller immediately accepts, and the two of you move through closing without any hiccups until you have keys in hand. It’s possible, but a more likely home buying experience is marked by negotiation, counteroffers, and a back-and-forth dialogue between both parties to reach a deal. And in some cases, the deal can fall through.

Contingencies protect buyers and sellers against these natural characteristics of the home buying process and any problems that may arise before a home sale is finalized. They help to shape a buyer’s offer and can be used strategically to make it more appealing. Whether you’re a first-time home buyer or you’ve bought before, you should be aware of common real estate contingencies and the role they play in making an offer on a home.

Making a Contingent Offer on a Home

After you and the seller agree on the price of a home, both parties have certain duties to finalize the transaction. Buyers are responsible for securing financing, having the home inspected, and getting the property appraised. Sellers are responsible for prioritizing the offer on the table and opening their doors to the home inspector when the time comes. The agreed-upon contingencies included in the contract protect the buyer and seller against any issues that may arise during this time.

Contingencies present a spectrum of options to home buyers, allowing them to walk away from a real estate transaction with their earnest money intact or renegotiate the contract. While their inclusion offers protection and negotiating leverage, sometimes their exclusion can be just as effective.

In a seller’s market, competition amongst buyers is high. Escalation clauses, bidding wars, and all-cash offers become commonplace as potential home buyers compete for a limited number of listings. To sweeten their offers in such market conditions, buyers will typically waive their contingencies. This presents added risk due to a lack of protection, but with so much competition around them, buyers are left with no choice but to maximize their offer’s appeal.

 

Image Source: Getty Images – Image Credit: andresr

 

Common Real Estate Contingencies

Home Inspection Contingency

After you’ve made an offer, you’ll have a home inspector thoroughly examine the home before the deal is final. If they discover issues with the property, this contingency allows you and your agent to present the seller with a new offer that accounts for the home’s lessened condition, or to cancel the contract entirely.

Financing Contingency

Also known as a “mortgage contingency,” a financing contingency gives the buyer a specified period of time to secure adequate financing to purchase the home. Even if you are pre-approved for your mortgage, you may not be able to obtain the right loan for the home. If you are unable to finance the purchase, this contingency allows you to back out of the contract and recover your earnest money, and the seller can re-list the home.

Appraisal Contingency

An appraisal contingency states that the home must appraise for, at minimum, the sales price. It allows you to walk away from the deal if the property’s appraised value is lower than the sales price, and typically guarantees that your earnest money will be returned.

Home Sale Contingency

If you’re buying a new home while selling your current one, you may want to include a home sale contingency in your offer. This contingency specifies the date by which you’ll need to sell your current home in order to move forward with your offer. If you don’t sell your home by the specified date, the contract is terminated. Home sale contingencies are financially appealing in that they allow buyers to use the proceeds from their home sale to fund their new home purchase. However, these contingencies force sellers to wait until the buyer’s current home sells, which means they likely won’t accept such offers in competitive markets. 

Title Contingency

Before the sale of a home goes final, a search will be performed to ensure that any liens or judgements made against the property have been resolved. A title contingency allows you to raise any issues you may have with the title status of the property and stipulates that the seller must clear these issues up before the transfer of title can be complete. If an unpaid lien or unpaid taxes turn up in the home’s title search, this contingency also allows you to back out of the deal and look for another home.

To learn more about preparing a winning offer, connect with a local, experienced Windermere Real Estate agent.

 


­­­­­­Featured Image Source: Getty Images – Image Credit: SolisImages

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The Continued Decline of the Housing Market Index

This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.


 

 


Hello there, I’m Windermere’s Chief Economist Matthew Gardner and welcome to this month’s episode of Monday with Matthew. Today we are going to take a look at the new home market where headwinds are certainly growing. And the reason this particular subject piqued my interest was that the National Association of Home Builders just released their Housing Market Index for August, and the numbers were certainly eye-opening.

Now, for those of you who may not be particularly familiar with this index, it is based on a survey of home builders which asks them to give their opinions on the single-family home market and asks them to rate current market conditions for the sale of homes today as well as in six months’ time. It also asks their opinion regarding foot traffic of prospective buyers to their new home communities.

NAHB Housing Market Index

 

And as you can see, the headline index level fell six points to 49The drop in August marked the eighth consecutive monthly decline for the Housing Market Index. It was also notable because it was the first time since May of 2020 that the index has dropped below the key 50 breakeven level. This is significant, as it tells us that today more home builders currently rate sales conditions as poor than good.

Now, while the August number was certainly lower than some economists had forecast, I was actually not too surprised as builders have been reporting a spike in cancelled contracts recently. In fact, a report I just read that was put out by John Burns Consulting suggested that the cancellations have more than doubled since April with 17.6% of buyers pulling out of their purchases in July. That compares to 8% in April and 7 ½% a year ago.

Housing Market Index Components

A multi-line graph titled "HMI Components." This chart shows the components behind home builder's falling confidence in the current market, displayed in the Housing Market Index. The three components displayed here are present single-family home sales, expectations (future sales), and traffic. All three are at their lowest levels since May 2020. Of the chart, Matthew Gardner says, "the present sales index fell seven points to 57 but is still above the breakeven point. The future sales series fell two points to 47, while prospective buyer traffic fell five points to 32 which, if we exclude the pandemic, represents the lowest index level since April of 2014."

 

This chart shows a breakdown of three components of the Housing Market Index which are all at their lowest levels since May of 2020, which was just before housing activity rebounded following the lockdown due to COVID-19.

  • The present sales index fell seven points to 57 but is still above the breakeven point
  • The future sales series fell two points to 47
  • Prospective buyer traffic fell five points to 32 which, if we exclude the pandemic, represents the lowest index level since April of 2014

I find this index has a very strong correlation with new home sales, but I also use it as a pretty reliable leading indicator when it comes to single-family housing starts. I’ll get to that shortly. The survey also stated that one in five builders had reduced prices in August. That might help to explain the 10-point spread between builders’ perception of current versus future sales. But there are limits on home builders’ ability to keep cutting prices in order to support sales. This has become a significant issue because many of them are currently holding a large stock of inventory.

New Homes for Sale

A bar graph titled "New Homes for Sale." It shows inventory levels for the period January 2020 through June 2022. Listings have risen 32.1% year over year, and are up 16% since the start of the year. Of the homes currently for sale, 67% are under construction, 24% have yet to break ground, and 95 are ready to occupy. The y-axis displays the number of new homes for sale in the thousands. June 2022 has the highest value on the chart, with an inventory level just above 450,000.

 

Here is what current inventory levels look like. Although you might think that it’s not that bad given that only 9% of available homes are finished are ready to move into, I would tell you that builders incur costs every day that a home is not sold, even if that home has yet to be built. And with inventory at a level not seen since 2008, I’m sure there are a lot of builders not sleeping too well right now.

I would add that by the time the above video is released, the July new home sales report will have been published. I can almost guarantee that the number of homes for sale will have grown further.

New Home Sales

A bar graph titled "New Home Sales." When taken in context of the "New Homes for Sale" chart mentioned earlier in this month's episode, Matthew Gardner is showing a decline in the pace of sales activity. Sales fell by over 8% month over month in June 2022, and are 17.4% lower than a year ago. On an adjusted basis, monthly sales were the lowest seen since before the pandemic.

 

Higher inventory levels are due to slower sales activity, which is continuing to decline. Sales are 17% lower than a year ago. With more homes for sale and lower transactions, it would now take more than nine months to absorb all available homes using the current sales pace. I would also tell you that the last time months of supply broke above nine was all the way back in 2010.

  • It’s my forecast that sales in July will have dropped from the annualized rate of 590,000 shown in the chart above to somewhere between 570,000 and 580,000.

U.S. Single-Family Housing Starts

A chart titled "U.S. Single Family Housing Starts." It shows the number of new home starts from January 2019 to July 2022. The most recent figures show starts have fallen 18.5% year over year. As Matthew Gardner explains, "With fewer buyers and rising inventory levels, builders have pulled back significantly. The number of building permits issues is 11.7% lower than a year ago."

 

With high supply levels and lower sales, it’s not at all surprising to see builders hitting the brakes, with new home starts falling by 10.1% between June and July of this year. Starts are down by 18 ½% from a year ago. Starts have dropped on a sequential basis for five consecutive months now, and I am afraid that they will drop further before finding a bottom.

So, what’s the bottom line here? Well, there are several issues I see, the first of which is affordability. Home prices have been spiraling upward since the start of the pandemic not only because mortgage rates dropped, but construction costs started jumping and builders had to charge more for a home.

Builders saw prices rise by almost 18% last year. This had already taken a significant toll on affordability even before the mortgage rates spike we saw earlier this year. The upshot, as I see it, is that tighter monetary policy from the Fed, in concert with construction costs that remain well above normal levels, has hit builders and hit them hard. Of course, they are doing their best to address the situation by slowing construction activity significantly, but I think that they are going to have a pretty rough time for the next several months.

Ultimately, I see little option for home builders other than lowering prices further, especially now that they are competing with rising inventories in the resale market. I also believe that there are buyers out there waiting patiently on the sidelines for prices to drop in the coming months as they know that builders at some point have to solve the current supply demand imbalance and lowering prices is the easiest way of doing this. Last month the average price drop was 5%, but this is very likely to increase as we move toward the fall.

Will builders get through the situation they find themselves in? I believe that they will. And there are some glimmers of light out there with inflation appearing to be peaking, interest rates are, if not dropping, then certainly stabilizing, and this will help.

Builders also understand that the country has a significant housing shortage. In fact, a recent report published by “Up For Growth” suggested that we have a housing shortage today of around 3.8 million homes. Although this includes rental and ownership housing, some basic math tells me that there is a need today for around 2.5 million new owner-occupied homes. So, light is definitely at the end of the tunnel, but there is a way to go before they get out of it.

And there you have it. I hope that you’ve found my thoughts on this topic of interest. As always, if you have any questions or comments about the current new home environment, please do reach out to me. In the meantime, stay safe out there and I look forward to visiting with you all again next month.

Bye now.


About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

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Contemporary Interior Design

Although there are certain fundamental principles to contemporary design, it is constantly evolving. While other interior design styles are often rooted in a specific period, contemporary design is set in the present. What’s popular now is what’s popular in contemporary design. Its ability to remain timeless is what gives contemporary design its greatest quality—it never goes out of style. Learn a bit more about contemporary design to find ways to incorporate it into your home.

What is contemporary interior design?

Contemporary style is characterized by clean lines, state-of-the-art materials, and a preference for openness over ornamentation. These tenets go hand in hand with the philosophies of modernism and minimalism, but contemporary design simply dips its toes in these other design styles without relying on them too heavily.

The aesthetic of modern construction lends itself well to contemporary design. Industrial spaces and open rooms with high ceilings and large windows help to deliver a magazine-quality contemporary look. But even if your home isn’t tailor-made for contemporary design, you can still curate it.

 

Image Source: Getty Images – Image Credit: vicnt

 

Contemporary Design in Your Home

The simplest way to incorporate contemporary design philosophy into your home is to let the natural architectural elements show. Let your exposed wooden beams and brick walls shine, decluttering the spaces around them to make them the focal point. This can make your spaces feel empty at first but remember; contemporary design is all about opening things up to effectively apply decorative details.

Choose modern furniture with clean lines and solid-colored fabrics. In the kitchen and bathroom, chrome and metallic surfaces will reinforce a contemporary aesthetic. When decorating, start with a neutral foundation (white, grey, and black) and add bold accent colors on top. The timeless appeal of a hardwood floor makes it a fitting choice for achieving contemporary style, while textured textiles in natural fabrics will help to liven up your spaces.

Stone, metal, and glass mix well in contemporary design, often combined in the selection of living room sets, decorative centerpieces, and kitchen/bathroom design. Large pieces of art, accent walls, and bold decorations help to broaden the color palette of contemporary spaces. You are free to choose bold, impactful hues from across the color spectrum in your decoration.

 

A living room area characterized by a neutral-colored contemporary interior design style. White walls host large neutral art in black frames. An off-white sectional couch with pewter heathered pillows and a grey blanket sit in the corner, with 2 wood and white marble round coffee tables. On the left is an angular seat with matching wood frame and cream-colored cushions. Above is a metal and dark glass light fixture. Open concept is implied with a black metal table in the back on the left against the wall, with metal lamps, glass reed infuser, and metal candle holders.

Image Source: Getty Images – Image Credit: AleksandraZlatkovic

 

The Differences Between Contemporary and Modern Design

Whereas contemporary design is centered on what is popular during the present, modern design is rooted in a specific time period. Modern design dates back to at least the early twentieth century, which evolved into mid-century modern during the 1950s.

Modern design typically has earthier colors and a general preference for wood, whereas saturated colors and metals/glass are more at home in contemporary design. Choosing modern design means you’re choosing to make decorative variations on a theme, whereas the theme of contemporary design is always changing, so you never know where it might lead.

Visit our Design Styles page to learn more about common interior design styles and how you can incorporate them into your home:

Windermere – Interior Design Styles

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Windermere Living: Closet Curation

This article originally appeared in the Summer/Fall 2022 issue of Windermere Living

By Amanda Zurita | Photography by Victoria Kovios


Closet Curation

Turn your wardrobe into your personal boutique with these professional “editing” tips.

Iris Miyasaki was born an organizer. Growing up in Hawaii in a Japanese American family, minimalism was part of her life. “In school, my binders were always very organized and color coded,” she says. “People found it amusing, but it was just how I functioned.” Today, she puts that passion for order and organization to use as a professional wardrobe curator and stylist under her Seattle-based brand Wardrobe by Saki (wardrobebysaki.com). Here are her tips for curating a captivating closet and finding ease through editing.

How does editing your closet differ from other decluttering trends?

Decluttering is the first step of purging, more of a first run-through to get rid of things you truly don’t need. Editing and curating, however, is where I bring in a styling aspect to organization and understand how my clients are using the pieces in their closets.

For example, perhaps a client has a sweatsuit that they wear all the time. In the decluttering phase, they’re not going to get rid of it. But, when it comes to editing, I ask questions like, “Does this outfit make you happy? Do you want to put this on every day?” If no, then we’ll work to find something better. Oftentimes, once you’ve relived the story of a piece, you’ll realize that the memory is in your heart and not solely attached to an item—so it’s easier to let go of.

What goes into making an “Instagram worthy” closet?

When you can see all your clothes, shoes, and accessories, you’ll want to use them more. I focus on creating a visual palette for my clients, whether that means organizing by color, silhouette, or types of items. The idea is to create a closet they’ll want to “shop” in.

Your closet is your personal store. If you don’t love it, if you wouldn’t shop in that store, you aren’t going to pull things from it. From a technical standpoint, it’s important to be consistent with your storage colors and textures. And you don’t have to fill every single space. In fact, negative space opens up breathing room for your things.

Aside from the visual aspect, what kind of emotional impact can editing a wardrobe have?

You interact with your closet every day, so when you’re able to utilize that space in the most efficient way, it just takes a weight off your shoulders. Rather than combing through clutter, you can have peace of mind knowing, “OK, all my things are right here and I love each one of them.” That kind of foundation helps you to feel at ease going through the rest of the world. A curated closet offers a sense of calm and contentment.

What’s your advice for parting with meaningful items that you may not be using frequently?

I like to ask my clients: Have you used this within the past year or year and a half? Fashion trends change, and what you like changes. Your body changes. So, if you haven’t worn something in the past year, maybe it’s time to part. When it comes to sentimental pieces, I find it helps to talk about the memories associated with them.

 

Read the full issue here: Windermere Living Summer/Fall 2022


­­­­­Windermere Living is one of the top real estate magazines on the West Coast, offering carefully curated editorial that reflects our passion for community, connection, and inspired living alongside exceptional homes on the market. Windermere Living is the exclusive listings magazine published by Windermere Real Estate in partnership with SagaCity Media.

Featured Image Credit: Victoria Kovios

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