Housing Market Prices Increase With Mixed Results

The housing market has completely rebounded and nationally home prices have risen 49.9% according to CoreLogic. The next challenge that builders have been facing is a labor shortage in the construction market and an increase in materials, especially after this year’s hurricanes and wildfires.  To offset this cost, builders and developers alike have been looking at setting a new trend called densification.  This basically means that because of the scarcity of lots available to build, builders and developers must divide up the lots that they can purchase to put more houses on each lot, thus reducing the overhead cost and property taxes per house that they build.

Home prices have come completely back to the record high that they were in August, 2006, before the housing market crashed.  For this reason, it is lucrative to be in the home building and real estate

industries right now. However, depending upon what market you are in, home prices may have been on a continual increase, or some builders may have seen a volatile up and down trend in their local community’s home prices.

According to the Census Bureau’s Survey of Construction (SOC), the following statement was issued.

“The median lot size of a new single-family detached home sold in 2016 stands at 8,562 square feet, or just under one-fifth of an acre. This is a new record low and a small decline since 2015, when the median lot size fell under 8,600 square feet for the first time since Census Bureau’s Survey of Construction (SOC) started tracking the series for single-family detached homes.”

By reducing overhead costs, builders and developers will be able to make more profit. Thus, shrinking lot sizes is one answer to reducing these costs.  However, some communities have covenants which require a certain lot size, or pre-engineered plans have delineated the size and scope of the lot and house in new developments, so the trick is to be a crafty business professional and seek out opportunities to rezone lots to a smaller size.

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Fireworks Have Been Made Legal for New Year’s Eve

For those diehard celebrants of national holidays who love their fireworks, there is good news to celebrate in Covington, Louisiana, this year. Fireworks have been made legal in Covington for the major holidays of the 4th of July and New Year’s Eve. A unanimous vote by the city council of Covington, Louisiana lifted the fireworks ban and have allowed the sales of fireworks for the 4 days

surrounding the New Year’s Eve holiday as well as 3 days in July for the 4th of July.

For many people, this will come as welcome news as they had already been putting on small fireworks shows in their driveways or backyards, or even full-scale displays for rural areas where there was a lot of land to catch any fallout from falling debris, but the fact that the sale of fireworks is now official will help with the local economy during these times of year as well. This change did go into effect for our upcoming New Year’s Eve celebration, so neighbors should expect a bit more noise during this holiday than normal, now that they will have local access to more fun-filled firebrands.

Even though the municipal law had only prohibited the shooting off of fireworks within city limits of Covington, it was up the police department’s discretion at some places as to where the city limits ended and unicorporated Covington began. This will take a lot of the pressure off the police department during these holidays to pursue other calls not involving unhappy neighbors and fireworks. The city council held a public hearing before voting unanimously in favor of lifting the ban and received positive support.

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Appraisals a Big Challenge But Getting Easier

One of the biggest challenges facing builders and people selling their homes in St. Tammany Parish and Southeast Louisiana are the appraisals that are given for the homes for sale and built new homes.  Recently, in the last few years, laws were established requiring banks and mortgage companies to choose appraisers from a universal list, giving each appraiser an equal amount of work. However, because appraisers are not required to go through intensive training and maintain continuing education, some appraisals that were turned in to the banks and mortgage companies fell far below what the perceived value of the house was.

This causes a problem for the closing process in that the loan amount is often more than the house is worth, according the appraiser.  The appraisal process for a home for sale or new home for sale in a

new neighborhood or in a rural part of St. Tammany Parish, where there aren’t a lot of “comps” (comparisons of homes previously sold in the area) can be a stressful one for a home buyer looking to buy a new home or existing home for sale, unless it is a cash sale.  The appraisal dictates to the mortgage company or the bank how much the loan amount can be based upon the value of the house and / or the down payment of the buyer.

“An appraisal can vastly impact the mortgage process. This number alone can impact how much a buyer needs to bring to closing, or the current equity a homeowner has when refinancing,” said Bill Banfield, Quicken Loans Executive Vice President of Capital Markets. “If homeowners are aware of local home values and how they are changing, it will assist with a smoother mortgage process.”
However, there is good news for the real estate industry, the distance (difference) between the amount of the appraisal and new home and existing home prices has narrowed for 4 months in a row according to the National Quicken Loans home Price Perception Index (HPPI). Appraised values are still falling short of home prices, but the most recently logged margin during the month of September was 1.14%. This is good news for builders looking to sell their homes (and have them appraise) at market value.

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Interest Rate Increase Expected in December

Interest rates have been driving the housing recovery, as well as the economic recovery in the United States since the housing market dropped out in 2008.  The Fed has kept interest rates at zero for approximately 8 years which has been attractive for both home buyers, new home buyers, and people looking to refinance their mortgages.

As the U.S. economy has recovered at a very gradual, yet very steady pace, the Federal Reserve,

called The Fed, has, within the last year, started to gradually increase the interest rates, once in December, 2016, again in March and then in June, 2017.  During the last meeting of The Fed, October 31st and November 1st, during a two-day meeting in Washington, kept the interest rate the same.  This could be  because a new pick for The Fed chair was expected on Thursday. Rates have stayed within the 1% and 1.25% range, with a rate increase expected in December.

New picks for the chair for the Federal Reserve include the current chair, Janet Yellen, and Jerome Powell, a Fed governor and John Taylor, an economist at Stanford University.

The economy is said to be strong enough to handle another rate increase, especially with the job growth and recovery due to the hurricanes in both Texas and Florida and the wildfires, which have increase restoration construction in California.  In addition, the United States unemployment rate is the lowest it has been since 2001 at 4.2%, and the job growth has increased for the last 83 out of 84 months.

The December increase in the interest rate will not cause a huge disruption in the home building industry as, even with the rate hikes, mortgage rates are still at historic lows.  However, the refinance market has slowed down a great deal once rates rose above 4%.

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