Experienced real estate agents and brokers know that some challenges remain the same from year to year, like agreeing to a listing price with sellers. But some challenges were unique to 2016.
A survey commissioned by Freddie Mac in September 2016 found the top five challenges for real estate professionals to be fairly standard:
- attracting potential buyers and sellers;
- selling within the planned timeframe;
- setting the listing price; and
- helping homebuyers navigate the buying process.
When narrowed down to specific challenges faced by homebuyers, the top responses were more specific to 2016:
- a lack of homes available in their buyers’ price ranges;
- buyers’ unrealistic expectations of what home price they qualify to purchase;
- insufficient down payment funds;
- poor credit history; and
- a lack of understanding about the homebuying process.
Further, only 78% of respondents said they felt knowledgeable enough to educate their clients about the homebuying process and just 50% said they felt confident in helping their clients understand the mortgage process.
Editor’s note — Questions on steps of the mortgage process? Check out the Consumer Financial Protection Bureau’s (CFPB’s) straightforward guide to the mortgage process, tailored specifically for real estate professionals.
2016’s unique housing market
In 2016, California’s housing market saw the market-dampening combination of:
- under-funded homebuyers; and
- high prices.
According to the survey, the biggest challenge facing homebuyers appears to be an inventory issue. While plenty of homes are on the market, they are distributed unevenly among price tiers. For instance, low-tier home prices continue to climb each month in California and are 9% above a year earlier as of September 2016. On the other hand, high-tier prices have been level to down since this past summer and are just 5% higher than a year earlier. This indicates there are more buyers than sellers in the low-tier, and fewer buyers in the high-tier.
The situation for many homebuyers desperate for inventory stems from slow income growth, relative to home prices. As each year goes by, their incomes increase, but home prices increase much faster, so homes they would have qualified for last year are now out of reach. This leads to both the lack of homes for sale in their price range and the unrealistic expectations cited by survey respondents.
Slowly increasing incomes are also partly to blame for the insufficient down payments agents are encountering. It’s tough to save up for a down payment when individuals are spending half their income on rent, as is common in California’s urban, coastal cities.
The good news for future first-time homebuyers is the rent rise is subsiding. In the pricey Bay Area, rents are just 2.5%-3.0% higher than a year earlier, according to Zillow. A year ago, the annual rise was a much steeper 11%-12%.
Also good news for both homebuyers and sellers going forward — after years of stagnating incomes which were barely able to keep up with inflation, incomes are finally back on track. The average California income increased 5.4% in 2015, according to the Bureau of Economic Analysis — almost enough to keep up with the average annual home price increase.
Expect 2017’s homebuyer situation to see some improvement over 2016. Rising mortgage interest rates are an additional obstacle they will have to contend with, but the continuing trend in the reduction of home price and rent increases will lessen the shock of rising rates on buyer purchasing power.
As to the other challenge agents face from inexperienced homebuyer clients who lack understanding of the homebuying process, we are here to help.
Check out first tuesday’s Client Q&A section and download free one-page flyers to give to your buyer and seller clients. These practical flyers answer common questions about the buying, selling and mortgage process.