REALTORS® Say Market Is in Recovery Phase of Pandemic as Buyers Return

After enduring months of setbacks brought on by the coronavirus pandemic, a new survey from the National Association of Realtors® shows that more than nine in 10 of its members believe they are in the process of recovering as many states start to reopen their economies.

NAR’s 2020 Market Recovery Survey polled agents about their respective residential and commercial real estate markets, finding that 92% of respondents stated that a portion of their buyers have either returned to or never left the market. Among those members, 18% reported that their buyers never left the market at all, and 9% said that all of their buyers have already returned to the market. Small towns and rural areas were more likely to report that there had been no pause in buyer activity and were also more likely to report a stronger return of buyers to the market.

“The residential market has seen a swift rebound of activity as numerous states have begun to ease mandatory stay-at-home orders,” said Lawrence Yun, NAR’s chief economist. “Many potential buyers and home sellers were kept at bay in the initial stages of the coronavirus outbreak, but Realtors® nationwide were able to quickly pivot, embracing technology and business practices to ensure the home buying process continued in a safe manner.”

In terms of seller activity, 89% of Realtors® said a share of their clients have either returned to the market or never delisted their property. Roughly one-quarter of respondents, or 24%, indicated that their sellers never left the market. Suburban and urban markets are more likely to have reported fewer sellers returning to the market compared to small and rural markets.

While the housing market as a whole was understandably caught off-guard by the pandemic, the NAR survey found that many members are now prepared should another surge of the coronavirus occur. Thirty-nine percent of those polled said they are at least somewhat prepared for a second wave of the disease, with 19% reporting they are “very prepared.” Moreover, of those who believe there might be a resurgence, 30% said they are more prepared now, as they know what to expect. Twenty-seven percent indicated that they are concerned enough that they have changed their business practices in some form in order to be prepared for another bout of the virus.

Of those who are currently working with buyers, 54% said that their buyers’ timelines to find and purchase a home has remained the same, while 27% report that their clients now express more urgency about buying a home.

Among NAR membership currently working with sellers, two-thirds said that their sellers’ timelines to sell have remained the same. Twenty-three percent reported sellers who feel more urgency to sell their property. Less urgency was cited more frequently in urban areas and in suburban areas or small towns and rural markets.

“A number of potential buyers noted stalled plans due to the pandemic and that has led to more urgency and a pent-up demand to buy,” said Yun. “After being home for months on end – in a home they already wanted to leave – buyers are reminded how much their current home may lack certain desired features or amenities.”

In some cases, respondents reported changes in their buyers’ preferences. Twenty-four percent of Realtors® indicated having buyers who shifted the location of where they intend to buy a house due to the coronavirus. Among those who noted having buyers change their intended location, 47% stated that their buyers prefer to purchase housing in the suburbs, 39% cited rural areas, and 25% cited smaller town markets.

Thirty-five percent of NAR members surveyed said buyers have modified at least one home feature that is important to them because of the coronavirus outbreak. The most common home features cited as increasingly important are home offices, spaces to accommodate family members new to the residence – older adult relatives, newborns or new pets – larger homes with more personal space and bigger yards that would allow for growing foods.

Also, in response to the pandemic, 13% said that homebuyers changed their home type of choice from multi-family to single-family. This shift is highest in urban markets at 16%. Thirty-three percent answered that buyers have adjusted commuting needs since the pandemic began, with 22% less concerned with their commute and 7% wanting to live close to bike trails that connect them to work. Just 5% responded that they now have a greater concern about parking and more concern for a location that affords the ability to drive to work.

On the commercial real estate front, some members indicated that they are contending with hardships, as only 19% of property managers said they have been receiving all rent payments on time, and only 36% of individual landlords have received timely payments.

Seventy-four percent have reported that leases have been terminated or said tenants have needed to delay rent payments, with the greatest shares (56%) happening in non-essential retail establishments, followed by the office sector at 38%. However, grocery stores are faring well, the least cited of the commercial properties at 4%.

“Consumers have been forced to move away from buying in stores and are now doing much more shopping from home,” said Yun. “Unfortunately, this has come at the detriment of commercial property owners, but these circumstances could be an opportunity for growth in the industrial warehouse market, as Americans have become more reliant on home delivery services.”

As economies reopen, 44% of NAR members say they expect the demand for industrial properties to increase, and 35% expect the demand for multi-family properties to increase. In comparison, 72% expect the demand for non-essential retail to decline and 66% said they expect office usage to decrease.

The biggest concern for small businesses, according to 83% of commercial members, is a lack of profitability due to a decrease in customers. A majority of Realtors® also expressed concern with the following: a resurgence of the outbreak forcing another shutdown (66%), protecting the health of employees, (61%) and challenges with implementing social-distancing measures (59%).

The National Association of Realtors® is America’s largest trade association, representing more than 1.4 million members involved in all aspects of the residential and commercial real estate industries.

If you are ready to list your house or need help finding the right home for you and your family, Talk To Tammy 636-931-9100!

Commercial Real Estate Investments In Recessionary Times

The longest bull market in history came to an end in March 2020. A pandemic-driven economic shutdown plunged us into a recession. And while we all know what a recession means for the stock market, one has to wonder what it means for commercial real estate.

To better understand the performance of commercial real estate, let’s look to the past. Over the last 40 years, there have been five distinct recessions. CBRE evaluated the performance of multifamily, industrial and office real estate during the last two of those recessions (2001 and 2008-09).

2001 Recession

During the 2001 recession, CBRE found that multifamily outperformed office and industrial real estate. Any negative growth trends seen during the recession were more prolonged in industrial and office while minimized in multifamily.

Additionally, the post-recession recovery was far more robust for multifamily than it was for those other two commercial real estate asset classes.

2008-2009 Recession

When CBRE looked at the Great Recession, it found the exact same picture: Not only did multifamily outperform industrial and office real estate; it also surpassed retail real estate.

Whether you look at negative growth trends, return to prior peak or growth past prior peak, it’s not even close. Commercial multifamily real estate far outperformed the other commercial real estate asset classes.

The superior performance of multifamily in the last two recessions is interesting, but let’s go back further and see how it performed in older recessions.

NCREIF Property Index

The National Council of Real Estate Investment Fiduciaries (NCREIF) has been tracking the performance of commercial real estate since the fourth quarter of 1977. The NCREIF Property Index (NPI) is a composite index that reflects quarterly property returns for apartment, hotel, industrial, office and retail real estate. It’s the most commonly quoted performance measure for institutionally held private real estate.

In 1998, a research paper entitled “Twenty Years Of The NCREIF Property Index” (download required) was published. That study looked at the performance history of NPI from 1978 to 1997. This time period encompasses the other three recessions that occurred over the last 40 years.

What it found was that during that 20-year period, multifamily real estate outperformed the other commercial real estate asset classes. In fact, it was the only commercial real estate asset class to average a double-digit annual return over that period.

Not only did the research show that multifamily had the best overall annual return; it also had the best risk-adjusted return (Sharpe ratio) with a low standard deviation.

Multifamily Real Estate

Certainly, there have been years in which other commercial real estate asset classes have outperformed multifamily. However, over the long haul, apartments have consistently been the top performer.

In February 2018, the National Multifamily Housing Council (NMHC) authored a study titled “Explaining The Puzzle of High Apartment Returns.” It compared the performance history of apartment, industrial, retail and office real estate from 1987 to 2016.

What it found, yet again, was that over all long-term holding periods (three, five, seven, 10 or 15 years), apartments had the highest returns, best Sharpe ratio and lowest standard deviation. In other words, apartments consistently outperformed the other commercial real estate asset classes.

Covid-19 And Commercial Real Estate

Multifamily’s superior performance history both in good times and in bad is well established. However, the global pandemic caused by Covid-19 is far from your average recession. And while the history books are yet to be written about its economic effects, we do have the first 90 days that we can evaluate.

Take, for example, rent collections for apartments. NMHC publishes a monthly rent tracker. While many expected a large number of renters to forgo their rental payment obligations, it simply hasn’t materialized. Data from over 11 million apartment units shows that 94.6% and 95.1% of renters made their monthly payments in April and May, respectively. That is only minimally down from the same time period in 2019 (97.7% in April and 96.6% in May).

In contrast, consider the year-over-year declines for hotels (paywall). Statista reports that the week ending May 30, 2020, saw an average occupancy rate of 36.6%, an average daily rate of $82.94, and revenue per available room (RevPAR) of $30.34. That’s a year-over-year decline of 43.2%, 33.3%, and 62.1%, respectively.

In fact, as of May 2020, more than a third of hotel CMBS loans and a quarter of retail CMBS loans are currently on servicer watchlists due to distress.

Conclusion

Time and time again, commercial multifamily real estate has proved its mettle as a top-performing asset class. A big part of its recession-resistant nature lies in the resilience of housing and the basic need for shelter.

This insulates apartments to a large degree from the ups and downs of the market cycles. With the low correlation to the market, strong performance history and recession-resistant nature of apartments, it’s not surprising that many people see commercial multifamily real estate as an essential component of their portfolios.  Be sure to use a Realtor with knowledge of the area and who can give you good advice based on knowledge and experience.

If you have any questions about the real estate market, investment opportunities and if you want to sell your house or need help finding the right home for you – Talk To Tammy, 636.931.9100 !

Key Housing Indicators Begin to Turn Around in May

  • National inventory declined by 19.9 percent year-over-year, and inventory in large markets decreased by 21.9 percent.
  • The inventory of newly listed properties declined by 29.4 percent over the past year, and 28.6 percent in large markets
  • The May national median listing price was $330,000, up 1.6 percent year-over-year.
  • Nationally, homes sold in 71 days in May, 15 days more slowly than last year

Realtor.com®’s May housing data release reveals that the U.S. housing market likely reached its low point during mid-April, with constrained new listings and minimal price growth. Signs of recovery emerged, as yearly declines in newly listed inventory slowed and listing prices recovered. However, despite many positive trends, COVID-related challenges linger, as homes were on the market more than two weeks longer than this time last year. 

For-Sale Homes Still in Short Supply, but New Listings Trend Improves

The total number of homes available for sale continued to be constrained in May. Nationally, inventory decreased 19.9 percent year-over-year, a faster rate of decline compared to the 15.3 percent year-over-year drop in April. This amounted to a loss of 255,000 listings compared to May of last year. The volume of newly listed properties in May decreased by 29.4 percent since last year. While still well below last year’s levels, the rate of decline in newly listed properties has improved from a decline of 44.1 percent year-over-year in April, signaling that sellers are starting to return to the marketplace, which is needed to restore inventory levels to healthy market conditions 

Housing inventory in the 50 largest U.S. metros declined by 21.9 percent year-over-year in May. This is an acceleration compared to the 16.0 percent year-over-year decline in April. The metros which saw the biggest declines in inventory were typically those hardest hit by COVID-19, such as Philadelphia-Camden-Wilmington, PA-NJ-DE-MD (-38.6 percent); Providence-Warwick, RI-MA (-35.8%); and Baltimore-Columbia-Towson, MD (-34.5%). This month, none of the largest 50 metros saw an inventory increase on a year-over-year basis and 43 out of 50 saw greater inventory declines than last month. However, 45 out of the 50 markets saw the yearly decline in newly listed properties improve somewhat since last month.

COVID-19 Extends Days on Market

Homes continue to sell more slowly than last year due to stay at home orders and modified behavior resulting from COVID-19. Nationally, the typical home sold in 71 days in May, 15 days more slowly than May of last year. In the 50 largest U.S. metros, the typical home spent 58 days on the market, and homes sold 13 days more slowly, on average, compared to last May. Last month, the increase in time spent on market was more apparent in the 50 largest metros. This month, it appears that the nation’s largest metros have improved relative to the national rate. Among the larger metropolitan areas, homes saw the greatest increase in time spent on the market in Buffalo-Cheektowaga-Niagara Falls, NY (+34 days); Pittsburgh, PA (+33 days); and Detroit-Warren-Dearborn-MI (+32 days); among other areas that have been particularly hard-hit by COVID-19.

Listing Prices Hit New Highs Despite COVID-19

The median national home listing price grew by 1.6 percent year-over-year, to a new high of $330,000 in May. This is a re-acceleration from the 0.6 percent year-over-year growth seen in April. Movements in the median listing price continue to be partly driven by a change in the mix of inventory. This month, the share of more expensive properties on the market recovered and increased compared to last month. Moreover, our weekly data shows the year-over-year change in the median listing price growing by as much as 3.1 percent year-over-year in the week ending May 30th. The nation’s median listing price per square foot grew by 5.4 percent year-over-year, an acceleration from the 4.0 percent growth seen last month.  

Within the nation’s largest metros, median listing price growth also accelerated compared to last month. Listing prices in the largest metros grew by an average of 3.3 percent last year, an acceleration from the 1.6 percent year-over-year gain seen last month. Of the largest 50 metros, now 35 saw year-over-year gains in median listing prices, up from 30 last month. Los Angeles-Long Beach-Anaheim, CA (+14.9%), Pittsburgh, PA (+14.0 percent); and Cincinnati, OH-KY-IN (+12.1%); posted the highest year-over-year median list price growth in May. The steepest price declines were seen in Detroit-Warren-Dearborn, MI (-3.4 percent); San Antonio-New Braunfels, TX (-3.2 percent); and Seattle-Tacoma-Bellevue, WA (-3.1 percent). 

We can help you list your house with the right price or find you your new home, Talk To Tammy! 636.931.9100

Mortgage Rates hit another all-time LOW

The average U.S. rate for a 30-year fixed mortgage dropped to 3.15% last week. It is the lowest ever recorded in a Freddie Mac data series that goes back almost five decades.

The rate fell from 3.24% last week, setting a new record low for the third time in three months, according to the report.

Mortgage rates have fallen after the Federal Reserve began buying mortgage-backed securities to stimulate demand, said Chris Low, chief economist of FHN Financial in New York. The Fed has purchased more than half a trillion dollars of MBS after restarting in March a bond-buying program it used during the financial crisis more than a decade ago.

When the initial plan of buying $200 billion of MBS didn’t lower financing costs, Fed Chairman Jerome Powell said on March 23 the central bank would buy whatever was needed to move rates. It worked.

“The Fed is by far the biggest player in the mortgage markets right now, the biggest buyer of mortgages, and because of that, they have almost complete control over the interest rate,” Low said.

That means the central bank has the ability to stimulate home sales by driving rates to lows that most people wouldn’t have thought possible a few years ago, said Low.

“Every economist had doubts about how housing would fare during COVID-19, but what we’ve seen has been absolutely remarkable,” Low said. “Home sales are holding up extraordinarily well, and that’s in large part because of the mortgage rates.”

Last week, applications for mortgages to purchase homes gained for the sixth consecutive week to a level that was 6.7% higher than a year ago, when the U.S. was having a normal “spring homebuying season”.

A seasonally adjusted index measuring purchase applications jumped 9%, the Mortgage Bankers Association said in a report on Wednesday. The so-called purchase apps were up 54% from early April when most U.S. states were under lockdown orders to keep people at home in an effort to stem the spread of COVID-19.

Is now the right time to purchase a new home or make investments in this real estate market?

Talk To Tammy, 636.931.9100 or via tammy@talktotammy.com

Will Coronavirus Create Multifamily Investment Opportunities?

The past several years have been marked by an increase in average rent prices in many major U.S. cities, a lack of affordable multifamily housing, and a tight rental market. The pandemic and potential recession that may result isn’t likely to lead to more affordable housing, but it could lead to opportunities for some investors ready to cash in on properties in secondary markets.

Here are 3 ways that the multifamily housing market might be impacted by the pandemic.

1. House Foreclosures Could Lead to More Rental Demand

For the immediate future, tenants may be stuck in place, unable to move either due to logistical or economic reasons. Some multifamily buildings are prohibiting new residents, while others only permit remote showings, which can make it harder for prospective tenants to make a decision.

A report from Attom Data Solutions showed nationwide foreclosure lows in February 2020. However, Chief Product Officer Todd Teta predicts a rise in foreclosures once courts lift the ban on foreclosures and evictions. This could lead to more people seeking apartments, which could create a market ripe for landlords.

Much depends on what happens once the country re-opens—and when that phased reopening occurs.

“We want states to open up at a safe pace, but obviously, as the economic situation gets worse, that will impact the opportunities available in the market,” says Brant Brown, COO and CFO of Westmount Realty Capital, a commercial real estate investment and development firm in Dallas. “We’re looking at what the unemployment story is going to be, what collections are going to be, and how quickly the states re-open.”

2. Tighter Lending Restrictions Will Force Investors Not to Over-Leverage

The NMHC report spotlights tighter lending restrictions, showing the Equity Financing Index dropping from 61 to 13, and the Debt Financing Index plummeting from 68 to 20.

According to the report’s statistics, 75% of respondents said that equity financing was less available than in the three months prior; 71% of respondents said debt financing conditions were less favorable.

Especially now, Brown advises investors to avoid over-leveraging property or not leaving enough cash in the bank for repairs and emergency expenses, which could include tenants not paying rent due to job loss.

“A lot of multifamily operators have been running their properties cash-poor. In times like this, it really catches up with them,” Brown says.

In spite of low interest rates, underwriters will be looking to make sure investors have sufficient capital to manage the property.

3. Investors could find opportunities in suburban markets.

The second month of the pandemic in the U.S. found many city-dwellers temporarily fleeing their apartments for more space and a change of scenery.

“The fundamental story of [urban] markets is attractive, so I wouldn’t place bets on what the long term [impact] will be,” Brown says. “In the short run, a lot of people are very concerned about [the spread of the virus], and they’re going to vote with their feet.”

Cities may become less desirable places to live as the risk of infection continues to weigh on communities and remote work has people spending more time at home. Residents may seek larger apartments with more amenities in less populated areas, says Brown. “Wherever they move, it probably won’t be those city centers.”

More Homeowners Sprucing up their Gardens and Curb Appeal in the Time of Coronavirus

One positive thing that appears be to happening in the time of coronavirus sheltering /staying in place orders is that people are engaging in more home hobbies and creative activities that they may have not had time for before due to social activities. One can see a lot of articles about staying creative or why the quarantine can make one more creative.  One activity that Americans apparently have spent more time and money on is gardening, based on retail sales and employment data.  This is a good time for homeowners because gardening, yard improvements, and minor home renovation or simple do-it-yourself projects (deck) improve curbside appeal and reflect the kind of care and maintenance that homeowners put into their homes, both external and internal. Attractive gardens, a clean yard, freshly coated fences, mended pathways will make a home attractive to buyers, in the time of and after the coronavirus social distancing period.

Building materials/gardening store sales and employment are up compared to retail trade

Retail sales data from the U.S. Census Bureau showed that retail sales of building materials, garden equipment, and supply dealer stores (NAICS 444) increased 1% in March from February and was up 7% on a year-over-year basis. In comparison, retail sales and food services fell 9% on a month-over-month basis and 6% on a year-over-year basis.  Other industries that had higher sales in March were grocery stores (+27% m/m and +29% y/y); health and personal care stores (+4% m/m, +4% y/y), and general merchandise stores that includes department stores and other general merchandise stores (6% m/m, 7% y/y).

In 2019, Americans spent nearly $380 billion (retail sales) on building materials, garden equipment, and supplies. Building materials and supply stores (paint and wallpaper stores and hardware stores) sold $334 billion (so $41 billion is garden supplies).

While brick-and-mortar retail stores have shed about 300,000 jobs since January 2017, the employment in brick and mortar stores has remained relatively flat at 1.3 million. In March 2020, it is one of the few sectors that posted year-over-year employment gains, of 11,500 jobs. However, employment did fall by nearly 4,000 from February to March.

Impact of landscaping on home values

What’s the impact of projects that improve a home’s curb appeal on the likelihood of selling a home and home values? According to NAR’s 2018 Remodeling Impact Report: Outdoor Features,  “74% of REALTORS® suggested sellers complete a landscape maintenance program before attempting to sell, and 17 percent said the project most recently sealed a deal for them, resulting in a closed transaction.” The cost in 2018 was $3,000 and 100% was recovered when the home was sold.

Single-family detached homes with green spaces: part of the American dream

Since 2009, the prices of single-family homes have also picked up faster than condominiums, as low mortgage rates have made a home purchase more affordable, as well as due to difficulty obtaining individual-unit mortgage financing in condominium projects that are not FHA-approved.1 As of March 2020, the median sales price of single-detached as $282,500, or nearly $20,000 more than the median sales price of condominiums/coops of $263,400.  Since January 2012, the median sales price of single-family detached homes has increased by 83% compared to 70% for condominiums/coops. The higher price of single-family homes reflects the preference of buyers for these homes, perhaps because the house with the picket fence and green yard embodies the attainment of the American dream of homeownership.

We can help you sell your house or support you finding a new home,

Talk To Tammy: 636-931-9100 or contact us via tammy@talktotammy.com

Will COVID-19 Shift Conditions to a Buyer’s Market or Seller’s Market?

The current market stall in response to COVID-19 presents a unique challenge for market tracking moving forward, and likewise for buyers and sellers trying to understand the housing market that they are walking into. Months’ supply represents the dynamic between listings and sales. As each side of the homebuying transaction responds distinctly to the COVID-19 situation, this dynamic shifts, and “buyer’s market” and “seller’s market” labels along with it.

So, will COVID-19 shift conditions to a buyer’s market, or a seller’s market?

On the one hand, the rate of new listings entering the market has gone down dramatically, adding very little new inventory to the national pool of listings. Likewise, there are fewer closed sales due to social distancing measures. The lack of new listings bottlenecks the potential of sales. If the downturn is roughly equal in listings and sales, then months’ supply as a metric would continue its current trend.

However, as the market resets and picks back up later in the year, listings and sales will likely ramp up at different times, which will have distinct effects on this buyer/seller relationship. As listings reach a critical mass to entice prospective buyers, this accumulation of listings will drive up months’ supply figures, temporarily shifting us to a buyer’s market. Then, as the rate of buyers catches up to listings, this sales and listings dynamic will continue to balance out. Where it ends up at the end of the year, however, remains to be seen.

FAQs during these hard times…

I’m worried about my credit score. What should I do if a miss a few payments due to the crisis?

The CARES Act implemented provisions to protect credit scores from January 30, 2020 through 120 days after enactment of the national emergency. If customers are making payments, or made arrangement to not make payments, customers must be reported as being current. If a customer was delinquent, but was able to make an arrangement with the servicer and is now current, then their account must be reported as current. The important thing is to reach out to your servicer, bank or credit card company if you are having trouble making your payments.

I have heard that the FHA, Fannie Mae, and Freddie Mac have raised rates and fees on borrowers with lower credit scores or smaller down payments?

Fannie Mae and Freddie Mac have not made any changes to credit scoring or down payment requirements. The only change they have made for borrowers is to allow MORE flexibility in how a lender can verify employment. Many individual lenders are adding their own, higher standards on these products. The rational is that the cost of servicing these loans has surged due to the widespread forbearance that is taxing servicers’ resources. Under forbearance, the servicer must continue to pay PITI to the investor, but the sheer volume of forbearance to deal with the COVID-19 response is unprecedented. Since lower-credit borrowers are more likely to take forbearance and servicing is harder to get, lenders are less willing to extend this credit regardless of the FHA or GSEs’ standards.

I’m not sure I will be able to pay or file my taxes on time for 2019; What do I do?

The IRS has delayed the due date to file and pay any taxes that are due to July 15, 2020, without penalties or interest. For more IRS information, check here.

We’re still here for all of your real estate needs, call: 636-931-9100!

Your #TalkToTammyTeam

THE IMPORTANCE OF PAYING PROPERTY TAXES

Property taxes are a very important part of homeownership. Homeowners can either have the taxes added to their mortgage statements that the lender deposits in an escrow account or they can pay them separately but it’s important to pay them. Governments assess property taxes based on location and value. Property taxes paid by homeowners are used by counties and states to provide critical services and infrastructure such as police services, fire services, schools, roads and highway construction, and other uses that vary by jurisdiction. 

As home prices continue to rise which means higher property taxes, it is important that homeowners pay property taxes because failure to pay tax results in the local government imposing a tax lien on your property that has to be paid within a certain period or else the property gets foreclosed.

How Property Tax Liens Work

When a homeowner fails to pay their taxes, the local government imposes a tax lien on your property. A tax lien is a claim on the owner’s property. When a homeowner fails to pay their taxes after 12 months the county will then create a certificate for the amount of the unpaid taxes. The certificates are then sold to individuals or investors so that the unpaid property taxes are monetized. Therefore, investing in tax lien certificates help to support states maintain police, fire departments, hospitals, and other necessities. There are three major parties involved in these transactions, the homeowner, investor, and the courthouse. These certificates are bid on, either by bid down auction where the interest rate is lowered per bid or a premium bid or bid up where the winner is the highest bidder. Individuals who want to invest their money have paid for the certificate because the interest imposed on the unpaid tax is now received by the investor rather than the local government.  Moreover, after the redemption period, they are able to begin the foreclosure process and possibly possess the property. If this process is done with sound research and proper paperwork, the owner of the lien can then control the ownership rights to the property. While foreclosure is an option, it is in the interest of the owner and the mortgage originator to work together to so that the owner is able to pay the taxes before the redemption period because a tax lien takes precedence over the lien of the mortgage lender. The tax foreclosure window is typically a 60-day period to get letters out to all parties invested in the property. Those who wish to foreclose will need to also produce a deed application that carries a fee as low as $39 but can be up to $875 in some states but differs per state. If the foreclosure process is complete then the investor would be able to get a property free and clear just for the fees paid in taxes which would be a great investment.

Chron.com reports(link is external) that tax lien states are Alabama, Arizona, Colorado, Florida, Illinois, Indiana, Iowa, Kentucky, Maryland, Mississippi, Missouri, Montana, Nebraska, New Jersey, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Vermont, West Virginia, and Wyoming. The District of Columbia is also a tax lien jurisdiction.

Illinois has the highest interest on tax liens of 36% followed by Iowa at 24%. Indiana, Missouri, Montana, and South Dakota have the lowest interest rate of 10% which is added to unpaid taxes. The redemption periods are also typically less than three years.

The #1 Misconception in the Homebuying Process

After over a year of moderating home prices, it appears home value appreciation is about to reaccelerate. Skylar Olsen, Director of Economic Research at Zillow, explained in a recent article:

 “A year ago, a combination of a government shutdown, stock market slump and mortgage rate spike caused a long-anticipated inventory rise. That supposed boom turned out to be a short-lived mirage as buyers came back into the market and more than erased the inventory gains. As a natural reaction, the recent slowdown in home values looks like it’s set to reverse back.”

CoreLogic, in their January 2020 Market Pulse Report, agrees with Olsen, projecting home value appreciation in all fifty states this year. Here’s the breakdown:

  • 21 states appreciating 5% or more
  • 26 states appreciating between 3-5%
  • Only 3 states appreciating less than 3%

The Misconception

Many believe when real estate values are increasing, owning a home becomes less affordable. That misconception is not necessarily true.

In most cases, homes are purchased with a mortgage. The current mortgage rate is a major component of the affordability equation. Mortgage rates have fallen by almost a full percentage point since this time last year.

Another major piece of the equation is a buyer’s income. The median family income has risen by 5% over the last year, contributing to the affordability factor.

Black Knight, in their latest Mortgage Monitor, addressed this exact issue:

 “Despite the average home price increasing by nearly $13,000 from just over a year ago, the monthly mortgage payment required to buy that same home has actually dropped by 10% over that same span due to falling interest rates…

Put another way, prospective homebuyers can now purchase a $48K more expensive home than a year ago while still paying the same in principal and interest, a 16% increase in buying power.”

Bottom Line

If you’re thinking about purchasing a home, realize that homes are still affordable even though prices are increasing. As the Black Knight report concluded:

“Even with home price growth accelerating, today’s low-interest-rate environment has made home affordability the best it’s been since early 2018.”