Real Estate Information Archive


Displaying blog entries 1-10 of 139

All Cash Home Sales Trending Down

by Tim Hart

All Cash transactions on existing home sales accounted for 24% of sales in March. That number fell by 33% in comparison to March 2014 numbers. In general, smaller amounts of all cash deals suggest that investors are not as active and that the slack has been picked up by long-term homeowners.

The drop in all cash sales relates to the drop in investor activity. As distressed properties for sale have decreased and home prices have gone up, investors have been seeing thinner profit margins of late. Distressed sales took a 10% share of home sales in March, which was down from 14% in 2014. As an investor, it’s harder to get a screaming home deal when sellers are not backed into a financial corner and forced to sell.

Seventy percent of investor purchases in March were made in all cash.

Having lower all cash sales suggests that distressed property sales may also be going down. Sellers have seen improvement in their financial standing since 2008, but particularly of late. Most sellers’ finances now afford them the ability to sell their home when they want to, not when they have to—creating a more balanced housing market with less crazy deals.

Even as cash deals have gone down, the housing market continues to improve, suggesting that the market’s recovery is due in large part to increased activity among long term homebuyers. More people have been willing to get financing on a home, particularly with current low mortgage rates. Cash sales may be decreasing but their smaller market share may also be from traditional financed sales grabbing a larger share of the market in 2015.




New Construction Too Expensive?

by Tim Hart

According to a new analysis by economist Tom Lawler, new construction homes are far more expensive than they should be. Lawler compared prices for new construction in 2015 compared to new construction costs in 1970. Right now, new construction costs double what they sold for in 1970 and here’s the bad news—inflation is included.

Right now, new construction sells for an average of $343,000. Lawler believes home price growth should have only risen by 23 percent since 1970 to now. According to his line of thinking, current new homes on the market should be selling for around $199,000.

What is causing the rise in new construction costs? Homes themselves are getting bigger. Half of homes built last year had more than 2,415 square feet of space. In 1970 that median point fell at 1,560 square feet. The difference? About 55 percent. As homes have gotten bigger, their prices have gone up (duh!) but size may not fully explain the rising prices.

Over this same stretch of time, builders have trended downwards in the number of homes they are building. For most builders, building fewer, bigger homes can lead to higher profit margins and assuming there are people with the money to buy such a home, there would be no reason not to build bigger. Of course, when they build less homes, there will be less inventory on the market, raising prices on the new construction that is available.





Renters across the United States have been struggling to deal with rising rental prices and now 1 in 4 uses at least half their income towards their rent and utility bills. Sometimes, this kind of statistic may be warped due to the high percentage of Americans living in sought after cities like New York and San Francisco. But it’s not just a few states that are pulling down the nation. Minus Alaska, South Dakota and Wyoming, every state had at least 20% of its residents using more than half their income to rent.

In census data taken by Enterprise Community Partners, the number of renters who felt some form of strain from growing home expenses has grown 26 percent since 2007. That’s 11.25 million additional home renters.

Income rates have not grown at the same pace as rental rates, making it one of the key factors driving rental affordability. Income for renters only grew at 11% in the last 5 years whereas rent has risen by 15% on average over the same time period.

Another factor has been that vacancy rates have been falling for rentals since 2013. At the start of 2015, rental vacancy was at 6.93%--far lower than the 10.9% vacancy rate seen in the third quarter of 2013. In Bozeman specifically, rental rates were effectively zero at the start of Fall semester for Montana State University in 2014.

Renting continues to be an issue for the United States, Montana and the Gallatin Valley alike. Hopefully, more than a few of these renters will be able to transition to homeownership, helping free up rentals for others while lowering the demand.




Vacation Home Sales Way Up in 2014

by Tim Hart

Vacation homes sales in 2014 were almost as hot as the beachfronts they sat on. Vacation home purchases rose 57% from 2013 to 2014—an astounding number and one that suggests buyer confidence continues to improve. For a place like the Gallatin Valley, with Big Sky and Yellowstone National Park so near, the vacation market can affect nearby home prices as well.

The 1.13 million home sales last year made up 21% of all home sales in the United States housing market. Vacation homes took their largest share of the market since 2003—but what has changed recently to make such a difference?

A lot of the improvement in sales can be attributed to the generally positive economic outlook that 2014 gave us—at least towards its end. Stock market performance and an improving labor market helped open up some spending money for a lot of homebuyers. Wages grew in both the US and Montana and both also have added new jobs over that year as well.

A typical second homebuyer in 2014 had a median income of $94,380. 58 percent of those buyers had their partner bringing similar income streams into the same family. 48% of vacation home buyers financed less than 70% of the total purchase price and 54% of the vacation homes bought were single-family homes.

Of course, many vacation homebuyers are better off than perhaps the standard American, but the relatively good value on these homes may have also contributed to high sales numbers. Last year, the median price for a secondary residence came in at $150,000—that’s an 11% decrease from 2013. Many homebuyers seem to have been waiting to buy low, to have it for vacation and investment purposes.

Baby boomers have also been attributed to improving vacation home sales. Many boomers have bought these homes as vacation homes to start, but plan on shifting it into a primary residence upon retirement.

In general, beach and mountain (yes, mountain) vacation homes tend to recover their value slower than other homes, so there may still be time to scoop up that ski lodge at a great price.



Is the Real Estate Market Normalizing?

by Tim Hart

The percentage growth rate of home values has been steadily dropping for the last year, suggesting the possibility that the United States housing market is beginning to normalize.

Standard and Poor’s (S&P) and Case-Shiller released their House Price Index – 20 City Composite in early March. In the index, seasonally adjusted home prices rose by 4.5 percent. Home prices continue to increase and most indications (home inventory, rental prices, and job growth among others) suggest that prices will continue to go up.

Although home values are still growing, the rate at which they have grown is slowing, hopefully leading us away from the volatility we have experienced in the past. In late 2010, home values were falling around 5% year-over-year, but only 3 years later, the price growth rate had peaked at 13.8 percent value increase a year—now that’s volatile.

Since November 2013, however, the growth rate has been steadily declining back to 0 percent, suggesting the volatility that home prices have experienced since the recession may finally be finding (or at least looking for) a steady balance.

Between December 2011 and November 2013, minus June of 2013, every subsequent month saw a smaller growth percentage than the month preceding it.

Big upward and downward swings have lead to many of the negatives that have come since 2008. As the graph from S&P suggests, those swings have gotten smaller and should hopefully come to a rest in the low, positive percentages.

The S&P/Case-Shiller House Price Index also analyzes the differences in growth rates between high middle and low tier homes. In a healthy market, their growth rates should be very similar. Since 2013, these numbers have had very wide gaps. In 2014, the gap between growth rates of high-tier and low-tier shrunk across all the cities in the index, but most so in cities which had previously had the widest gaps.

Like a swinging bell, the housing market has been shifting back and forth between positive and negative growth. Yes, some may win and win big, but ultimately the market in general will lose out when things sour. To continue my very loose analogy, a bell gonging away at full speed may be interesting to look at for a few minutes, but it gets annoying pretty quickly. A steady back and forth of the bells, like wind chimes in the background, can be melodic and almost musical. Lets hope the market can be a bit more musical going forward!




Homeownership Rate Falls but More Households Forming

by Tim Hart

The homeownership rate across the United States fell to 63.7% in the first quarter of 2015. Interestingly, household formation saw a large pick up over the same time period.

Homeownership rates peaked in 2004 at 69.4 percent. Although lower than 2004 numbers, current figures are not too far off the average rate through the 1990’s—64.9 percent.

Homeownership rate for individuals under 35 years old declined by 1.6% and 4.4% since the first quarter of 2014. Those aged 35-44 saw their homeownership rate drop by 2.3 percent.

However, the count of new household formations jumped 1.34 million for the final quarter of 2014 and the annual gain for 2015 is expected to be around 1.5 million. Both are extremely good news for buyer demand for homes.

Quarter 1 of 2015 gave back some of these gains in household formation. So far, its estimated that 407,000 households were lost but compared with Quarter 4 gains from 2014, it has only given back a piece of what had been gained. Most of the rise can be attributed to renters, who continue to struggle with high prices and low vacancies. They have provided a major boost to the multi-family segment of the housing market over the last year.

Many experts hope to see the homeownership rate stabilize based on an improving labor market and low mortgage requirements for first-time homebuyers. Whether that will occur, is yet to be seen.





Housing Start-Ups Up, Permits Down in March

by Tim Hart

March gave some mixed results regarding the health of newly constructed homes in 2015. New permits shrank by 5.7% from February to March, yet housing start-ups rose by 2.9 percent.  Both directly affect the number of homes available on the market. How home inventory will be affected is yet to be seen.

Building permits and housing start ups are the leading indicator for the health of the new construction industry. On the positive side, single-family start-ups increased by 4.4% in March. Another positive note, the lack of building permits in March may be just a small dip because housing permits have increased by 8% since last year and increased by 10% in the Western Region.

However, costs for lots, materials and labor for builders is still a bit high, preventing builders from building more houses to raise home inventory. According to, to return to normal markets, builders would need to construct around 1.5 million homes. Currently they are on track for around 1.2 million.

How these numbers will relate to home inventory and therefore the housing market overall are yet to be seen. Ideally, home inventory will achieve a good balance to prevent price volatility that we have seen in the past.



Bozeman Exploring Solar Alternatives

by Tim Hart

City leaders want to lower utility costs and make Bozeman a little greener by offering some form of solar program to its residents. The city wants to provide clean energy to all its residents-whether they rent or own a home.

Currently, a new community solar model has gained traction as the front-runner for how Bozeman may address solar needs moving forward. The community solar model allows customers to tap into a community-based solar system. For ‘opting in” to the solar program, customers will receive a credit on their utility bill without having to pay for expensive solar panels. Buying and installing a full solar system into a private home can cost up to $23,500.

Currently 22 other states use a similar model.

With that being said, it should be noted there are a couple other viable models that have worked very well in different places across the United States.

The first model involves putting solar panels on individual homes for no cost. The utility company then deducts energy that home produces from their overall utility bill. The company, in a sense, buys the power from the home and deducts that cost from the bill.

Another model follows a similar idea. In this model the utility company still places solar panels on the home. However, they set up a loan agreement, much like a home, for 30 years at a fixed rate. The homeowner will still receive a deduction on their bill but in this model they are also provided an opportunity to be a full owner of the solar panels (which would really cut down on costs!). The energy they produce can also be reinvested back into their loan payments.

I have written an in depth article about the last two models. If you would like to read more about them, click here.

All of the models have their own advantages and drawbacks. Whether its time, money or freedom of action, all the plans give in some areas and take in others.

Bozemanites should be appreciative of their elected officials' attempts to stay up to date with technology. With this solar story, along with city leader's recent attempts to establish a fiber optic network, its clear that one of Bozeman's goals is to keep itself technologically up to date. No matter what, having some form of solar program in place will help make Bozeman more sustainable, cheaper and keep it a wonderful place to live.




Builders across the nation were surveyed by the National Association of Homebuilders regarding obstacles that may cause problems to their personal business and the overall housing market recovery. Here is a list of their top 5 concerns.

  1. Cost/Availability of Labor – 68%
  2. Cost of Building Materials – 66%
  3. Bank/Financial Institution regulation – 61%
  4. Cost/Availability of Developed Lots – 57%
  5. Federal environmental regulations and policies – 57%

Although all of these seem like common sense issues when building a home, its always good for buyers to better understand the perspective of the person selling their home. If a buyer can understand the stresses, obligations and duties a builder/seller has to the home and all involved in its build, the buyer can be better prepared to write an offer that would be accepted. Buying and selling homes can be stressful—but remember it’s stressful for both the buyer and seller—even if he is a builder!



Housing Inventory, Sales, Values, All Up in March

by Tim Hart

Existing home sales hit their highest annual rate since September 2013, good news for the overall housing market. Existing home sales rose to 6.1% in March to an annual rate of 5.19 million. That figure is 10.4% higher than a year ago. Low mortgage rates and a strengthening job outlook locally and nationally have fueled the increased sale activity. As home buying and selling activity increases, the overall market will deepen and be more immune to shifting conditions—again, positive news.

Home values are still rising—generally good news for sellers. Across the nation, a median priced existing home sold for $212,000, up 7.8% from March last year.

Interestingly, home inventories also increased 5.3% in March, suggesting many sellers are happier with where the value of where their home may sell at. In general, rising home inventories benefit the buyer because sellers have more homes to compete against in their local markets. Inventory currently sits at a 4.6 month supply of homes, meaning current inventory should last the market 4.6 months. That value was 2% above levels seen last year. An ideal balance would be 6 months.

Assuming home values still rise, more and more sellers can be expected to list their homes. However, there may be a tipping point where either values peak and scare off buyers, or where a few too many sellers list their home, lowering the values across the board.




Displaying blog entries 1-10 of 139