Each year, millions of homes are bought and sold in the United States, and investors review data released for the housing market value. If you are curious about the housing market or considering investment, here are phrases that you should understand about housing market value.
Median Sale Price
When you look at the median sale price for homes in the country, the data will show a dollar amount and a percentage of increase or decrease. The median price can be viewed as the average. In June 2021, the median sale price was just under $390,000, demonstrating an almost 24% increase compared to last year. Use the median sale price of homes to determine if the housing market is affordable for buyers and profitable for sellers.
Average 30-Year Fixed Mortgage Rates
Fixed mortgage rates reflect the cost of buying a home, typically shown as an interest rate. Higher fixed mortgage rates coincide with a downturn in purchases because people cannot afford the higher monthly payments. When the mortgage rates decline, you will see more people buying homes. In June of this year, the average rate for a 30-year fixed mortgage was 3%, compared to almost 5% in 2018 and 2019.
Median Days on Market
Median days on the market show you how fast properties sell once they are listed. This means that buyers have to act quickly to get the home they want and can afford, and sellers can expect to get out of their properties sooner or later. The average time that it took to sell a home in June 2021 was 14 days, indicating that it is a highly competitive market.
Months of Supply
Months of supply is based on the number of homes that are listed for sale compared to how many people are looking to purchase a home. As of June, there is a little more than one month of supply of homes on the market. This is significantly lower than past years. In 2019, there was a supply of homes for sale that would satisfy buyers for four to five months.
Sale-to-list price indicates how much the actual sales price was above or below the original listing price. In highly competitive markets, buyers may offer a price that is more than the list price to ensure that they get the home they want. The sale-to-list price is lower when there is little competition or the home’s actual value is below the asking price. In June of 2021, the average sales price was slightly more than the asking price.
Although some websites promise an easy way to buy or sell a home, there is no substitute for a real estate agent. The experience that agents have can help clients navigate the tricky real estate realm while finding their dream home. These are three of the top reasons that make real estate agents irreplaceable.
For people moving to a new neighborhood, real estate agents can provide home buyers with knowledge of the area. This includes information on the location of schools, utility bills, taxes, local attractions, hiking trails, and lots more physical information. Although real estate agents cannot discuss people or answer other questions that might violate the Fair Housing Law, they are still a wealth of information about whether the physical attributes of a neighborhood fit a client’s needs.
A major part of buying or selling a home is negotiation. Real estate agents can provide expertise for the negotiation process. Real estate agents understand their listings and can point out issues with the property that can drastically impact negotiations. While some real estate agents have formal training in the negotiation process, all real estate agents have experience in performing these specific negotiations. Agents also know the legal particulars of home buying and selling that people must adhere to that impact the negotiation process. Using special techniques and a vast understanding of the housing market, real estate agents can negotiate for the best deal possible.
Not all sellers list their homes online for individual sale by the owner. Real estate agents have exclusive access to many listings. Going without a real estate agent could severely limit the available properties. Real estate agents also do the hard work of arranging a viewing for their clients. Agents call other agents or brokers to set up a viewing. They can also discuss the home more with the other agent to find out if it meets a prospective buyer’s needs, which saves a wasted trip.
The guidance and experience of a real estate agent are integral to a smooth and successful home buying or selling process. There are too many risks for going through the process alone. Real estate agents know their properties and the process well, ensuring a good deal for their clients.
If you want to be a better real estate investor, you have to overcome common challenges. The two biggest problems that real estate investors face is finding the property and then actually getting the funding to acquire it. However, it doesn’t have to be as hard as it used to be. Here is how technology is changing the way people solve these issues:
Finding properties is one of the biggest challenges that investors face. After all, the market value of an area is not set it stone. In order to understand if something will pay you back, you need to know the area.
You can now know about an area and what kind of demographics it has easier than before. First of all, with online maps, you can scout it on your laptop. Secondly, people on the ground can be hired to walk around and film with a drone to capture video so you can really get the feel for the location.
You can look into the local economies of locations that you are considering. See how their local businesses have been doing in recent months with sales. In addition, find out the employment rates to make sure there is an economy that is healthy enough to support the investment you are looking to make before just jumping in without the information.
The Need for Capital
You might have the best information in the world, but you still need funding to get that property. Therefore, raising capital has always been a burden to investors. Thanks to technology, there are new options, however.
Using public sites you can raise funds from investors, large and small, all around the world. This lets you act quickly on properties without breaking the bank. In addition, you might find properties that you didn’t otherwise think you could afford.
When it comes to real estate investing, it can be one of the most lucrative opportunities in the world. However, to make money with real estate, you need to find the property first. Then, you need to get the funding to purchase it. Technology has made these two things much easier than they ever were in the past. Therefore, you should look to utilize this technology in your own career to leverage the benefits contained.
While many people are rightly skeptical of going into debt, experienced real estate investors know that the judicious use of leverage
can dramatically boost their bottom line. Leverage is used by real estate investors to boost what is known as their internal rate of return. This is simply a reflection of the fact that the less capital one has invested, the higher their potential return on invested capital is.
How does leverage increase returns?
If a new real estate investor had $50,000 to put towards the purchase of a property, they would have a number of options on how to best invest that money, starting with whether or not they wanted to use mortgage financing or pay cash. Some people may opt for the latter option, deciding that the risk of taking on mortgage payments is beyond their tolerance levels.
However, for the astute investor, using mortgage financing can provide a much higher rate of return. In the case of buying a property for $50,000 in cash, if that property nets $5,000 per year of income, then the total rate of return on capital for the property will be 10 percent. However, if that same $50,000 is used on a down payment to buy a $200,000 property with the same 10 percent return on the purchase price, the return on capital for the second deal will be 40 percent! This is because the investor is earning $20,000 per year of income but has only invested $50,000 of their own capital.
It is important to understand that leverage works best, by far, when rents and property values are rising. Using leverage can still work in other markets, but investors need to have sufficient liquidity to cover downturns, such as high vacancy rates or declining overall property values. Generally speaking, investors should stay away from using leverage in markets with a negative macroeconomic outlook for the short to medium term. While these investments can still prove to be highly profitable over the long term, the short-term capital requirements can bankrupt smaller investors.
The best way to mitigate the risks of using leverage is to perform in-depth due diligence on the local macroeconomic trends. Study trends in property values, employment quality, and quantity and net migration trends. Try to avoid entering into leveraged real estate deals near market peaks.