Are we reaching the top of the bubble?

Will our listing appointments in 4 or 5 years be reminiscent of conversations we had with potential sellers from 2005/2006?  The answer is most likely yes.  If you study the cycles of past decades, it would seems we are nearing or at the top of the bubble.

If you are selling a home or buying a home in Massachusetts, or just hear the stories from buyers and sellers alike, you know the real estate market is insane.  People are paying over asking of the list price to get a home. The prices of 2005 and ’06 are being exceeded. There are 60 buyers for one home!  People are back to using their homes as a bank and refinancing to take cash out or adding a home equity.  It appears that we have already forgotten the 2008 market crash and haven’t learned a lesson.  This cycle in real estate occurs every 10-12 years without fail.

Homeowners are adding on to their home because they think this is the way to go instead of selling and buying a bigger home.  Lenders that I work with say they are doing many home equity loans because people are realizing they now have equity in their homes again.

Mortgage interest rates have increased dramatically and will continue to do so throughout the year of 2018. Although comparatively still low, but when being compared to the rates a year ago, they seem high.  When you couple the high home prices and rising interest rates, buyers are finding their buying power is decreasing.

When mortgage rates increase, home prices decrease.  It’s been this way for decades as people’s buying power are lowered because of the higher interest rates.

New construction is on the rise which means that people waiting to upgrade now have a home to buy so this opens up the starter home market and the middle-market in a domino-effect cycle.  Because new construction is up and virtually all towns are seeing the subdivisions going in, we will have an influx of inventory towards the end of the year.  More people will list their home which will increase inventory.  When inventory increases, homes start to sit on the market.

WILL THESE PRICES LAST?

No, these price increases just aren’t sustainable.  As in years past and because real estate is reliably cyclical, after a seller market it will become a flat market.  Meaning we will have plenty of inventory, more inventory than there are buyers, buyers will now have more to choose from and take longer to decide.  Then it will turn into a buyers market because there will be TOO MUCH inventory.  It’s the same story each decade or so.

THINK BEFORE DOING ADDITION TO YOUR EXISTING HOME

This isn’t real estate agent talk to get a listing.  This is honest advice.  The reason being is that you now have equity and you think you learned a lesson from the last housing crash and you decide to just add onto your small house.  Before you do this, have a couple of real estate agents out to give you the value of your home.   If we are nearing or at the height of the prices, we will only decline is home value so putting any money into a home now will not realize you added value for several years to come.  Say you have an average ranch style home of 1100 sq. ft. and your neighborhood is all similar style homes. You decide add a big garage with living area over it, or you do an addition to the back of your home to increase square footage.  In this market, you will pay a premium for your addition (because contractors are now busy as hell and are just naming their price).  In a few years, when the market crashes, you’ll decide to sell for one reason or another.  The addition cost you $60,000.00.  Well in 4 or 5 years, after the crash, your home will no longer be worth $300,000 it would have been today.  Then add $60K for an addition, you’re into the house for too much.  Your home will NOT fetch the prices of when you did the addition.  This is a very important fact to consider before doing an addition or big remodel.

THINK BEFORE REFINANCING AND TAKING CASH OUT OR REMODELING OR DOING AN ADDITION

For the reason stated above.  This is a slippery slope for homeowners.  Weigh out the option of purchasing a new home before remodeling/adding to existing home.  Waiting 6 months for when the market turns and inventory becomes more plentiful is a wise idea.

IF YOU ARE A BUYER IN THIS MARKET

Consider looking at the older inventory that have been on the market for a while, these sellers are most likely ready to negotiate vs focusing on the new listings where you will be involved in a bidding war and end up paying over the list price.  Or consider a Rehab Loan for a home that has been sitting on the market because of the work needed to be done.

Call the Key To The Dream Realty Group/Coldwell Banker at 781 269 2195 for an honest evaluation and consultation.    Or email us at info@keytothedream.com

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