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Happy August! Every month when I sit down to write a new article, I review what I wrote one year ago and contemplate what has changed in one-year’s time. It’s always thought-provoking and enlightening. It’s interesting to revisit the August 2022 article and see how far we’ve come:
https://theyaoteam.com/housing-market-continues-to-transition/
One year later, August 2023, what did NOT happen: Recession. Housing market crash. Interest rate decrease.
No recession (maybe): After one year of looming recession warnings, the American economy appears resilient. Some economists are calling it a “rolling recession”, where some industries are shrinking but the overall economy manages to stay above water. The government estimated that the economy expanded at a solid 2.4% annual rate in the April-June quarter, an increase from the 2% rate in the first quarter. A range of recent economic data has come in better than expected. Many threats did not materialize or escalate as feared. Remember the fight in Congress over the debt ceiling? How about the banking collapse that started with Silicon Valley Bank? Even though we are not fully out of the woods yet, there are certainly more reasons to be optimistic than one year ago.
No housing market crash: We have certainly heard a lot of opinions over the past year. Many were of the variety that the prices are going back to pre-pandemic levels. We always say we have to see it in the comps. Pricing trends have to be established in data. Different properties and neighborhoods definitely fared differently over the last 12 months. Some held value better than others. We told some of our hopeful buyers “we just don’t see it” when they looked for price decline in areas where they wanted to buy. The pricing correction seems to have happened during the 4th quarter of 2022 and 1st quarter of 2023. Some ask “where is the housing crash?” as national sentiment begin to suggest that it might already be over. Over the 25 years that I’ve been in the real estate business, I’ve found supply-and-demand to be the most reliable indicator of pricing tends. Since I’ve been seeing strong demand and tight supply in the Orlando market, I do not see how a housing crash could occur here. Correction? Yes. Crash? No.
I do see a lot of pricing confusion in the market, sometimes it looks like prices are rocketing. Other times it looks like prices are tanking. I attribute it to the proliferation of online valuation sites and their often inaccurate estimates. Fewer agents now know how to properly price a home based on market data. Many just list homes at whatever Zillow, or other auto-valuation websites say. The most common reason a home stays on the market is that it’s priced wrong, not that the market is stalled.
Current Challenges: Not everything is rosy. This market is certainly challenging. Most now accept that interest rates are going to remain high for the foreseeable future. With a 7% interest rate, it costs much more to buy a home now and that is a market reality. The property insurance crisis in Florida has changed the way a home is sold. Getting home insurance is now more difficult and costly than ever, surpassing financing and appraisal as a deal-breaker. It’s more and more common to see transactions close with Citizens Insurance, the government-run “insurer of last resort”. Many homes do not even meet the Citizens requirements. Nowadays, we discuss a home’s insurability when talking to potential home sellers about listing their home. When showing homes to buyers, we check the roof and air conditioner’s age before anything else. We had several transactions this year that were contingent on getting a new roof, new A/C, new water heater, or other plumbing and electrical upgrades being completed before the homes could be insured, and sold.
We, as real estate professionals, also do not like crazy markets. We look forward to a more normal market ahead, where logic prevails. And we look forward to helping many of you accomplish your goals. As always, we love to hear from you!
Until next month, take care!
~Yien and Alysa Yao
Copyright © 2023 Yien Yao, LLC, All rights reserved.
Happy July! We are officially in the second half of 2023, and we hope the first half treated you well. As for the real estate market, we find ourselves in a situation of treading water. With the high interest rate, the buyers pulled back. Yet with the low inventory of available homes, the prices are not necessarily declining.
There are several reasons for this low inventory. One major factor is that potential home sellers are reluctant to give up their current low-rate mortgage to trade up to one with double the interest rates. Our current listing clients are mostly downsizing to cash out their equity, moving away, or reducing their investment portfolio. We have very few clients who are moving locally or looking to upsize their homes.
Among active buyers, we continue to see a lot of cash buyers and those with significant down payments. But we are also seeing an increase in FHA buyers, who are often first-time homeowners. It’s interesting to see the breakdown of buyers using all-cash, FHA, VA, conventional, and jumbo loans, which you can find in the article below.
Please don’t hesitate to ask any questions you may have. Enjoy your summer, and take care until we reconnect again next month!
~Yien and Alysa Yao
Copyright © 2023 Yien Yao, LLC, All rights reserved.
By Kerry Smith
The percentage of U.S. cash sales in April hit its highest level since 2014. In Fla., it ranges from 35.1% in Orlando up to 53.6% in West Palm Beach.
SEATTLE – One-third (33.4%) of U.S. home purchases were made in cash in April, up from 30.7% a year earlier, for the highest share in nine years, according to a report from Redfin.
All-cash purchases make up a bigger portion of the homebuying pie for one major reason: Elevated mortgage rates are deterring homebuyers who take out mortgages more than they’re deterring all-cash buyers. In April, overall home sales were down 41% year-to-year, though cash sales only fell 35%.
In Florida, cash sales make up an even bigger piece of the real estate pie. Even in the Florida metro with the fewest cash sales, Orlando, the percentage still slightly beat the national average (35.1%) year-to-year. In two Florida metros, more than half of all sales were for cash.
Fort Lauderdale: 42.3%, down 3 percentage points
Jacksonville: 52.2%, down 3.3. ppts
Miami: 40.9%, up 0.9 ppts
Orlando: 35.1%, down 4.4 ppts
Tampa: 37.7%, down 5.8 ppts
West Palm Beach: 53.6%, down 5.5 ppts
A homebuyer who can afford to pay in all cash is weighing two potential paths,” says Redfin Senior Economist Sheharyar Bokhari. “They can use cash to pay for the home and avoid high monthly interest payments, or (they can) take out a loan and pay a high mortgage rate. In that case, they could use the money that would have gone toward an all-cash purchase to invest in other assets that offer bigger returns, which could partly cancel out their high mortgage rate.”
Buyers who can’t pay in cash also have two choices, though the first is not a good one: They drop out of the market altogether. “Or they can take on a high rate,” says Bokhari. “That discrepancy is the reason the all-cash share is near a decade high, even though all-cash purchases have dropped: Affluent buyers have the choice to pay cash instead of dropping out of the market.”
On the other hand, the share of homebuyers using FHA loans hit its highest share since before the pandemic in April. Roughly one in six (16.4%) U.S. mortgaged home sales used an FHA loan, the highest share since February 2020, just before the pandemic began. That’s up from 10.4% a year earlier; representing the largest year-over-year gain on record.
Fort Lauderdale: 17.2%, up 5.9 percentage points
Jacksonville: 18.1%, up 7.8 ppts
Miami: 17.8%, up 7.9 ppts
Orlando: 21%, up 10.2 ppts
Tampa: 20.7%, up 10.3 ppts
West Palm Beach:14.5%, up 6.2 ppts
Nationally, just under 7% of mortgaged home sales used a VA loan, down from an eight-year high of 8% in February but up from 5.9% a year earlier.
Fort Lauderdale: 4.3%, up 0.8 percentage points
Jacksonville: 14.3%, up 0.1 ppts
Miami: 2.2%, up 0.9 ppts
Orlando: 6.3%, up 0.5 ppts
Tampa: 10.3%, up 2.9 ppts
West Palm Beach: 3.4%, up 1.1 ppts
Conventional loans are the most common type, making up more than three-quarters (76.8%) of mortgaged home sales. But the share of buyers using a conventional loan dropped from 83.7% from a year earlier.
Redfin agents in pandemic homebuying boomtowns, including Orlando, report that they saw an uptick in FHA loans in early spring. But Orlando Redfin agent Nicole Dege said she’s noticed a decline in buyers using FHA loans since then as inventory has fallen and competition has ticked up.
High mortgage rates may also make buyers more likely to choose an FHA loan instead of a conventional loan since FHA rates tend to be slightly lower. On June 6, the average daily FHA rate was 6.54% versus 6.89% for a conventional loan.
Jumbo loans, however, have become less popular as rates stay elevated. Just 6.1% of mortgaged home sales used a jumbo loan in April, down from 10.6% a year earlier but up from the decade-low of 4.3% hit in January. That trend varied in Florida metros but was still down in all metros listed.
Fort Lauderdale: 5.8%, down 2.7 percentage points
Jacksonville: 4.4%, down 0.3 ppts
Miami: 10.9%, down 3 ppts
Orlando: 2.8%, down 2 ppts
Tampa: 2.8%, down 1.4 ppts
West Palm Beach: 8.8%, down 3.8 ppts
© 2023 Florida Realtors®
June 2023: We are officially in the Atlantic Hurricane season. Please remember to check your home insurance policies to make sure you have appropriate and adequate coverage. Additionally, take time to check the condition of your roof, exterior paint, and landscaping. Have a roofer or handyman inspect your roof. It is something that we often overlook. I’ve seen significant water intrusion damage on the ceilings of houses that resulted from just a single popped nail on the roof! Address any areas of concern and ensure they are properly repaired and sealed.
Remember that the exterior paint of your home serves a functional purpose beyond aesthetics. It helps keep your house watertight, preventing water from seeping through the walls during heavy rains, especially when driven by strong winds. Regularly sealing cracks and caulking around windows are essential maintenance tasks to protect your investment.
Trimming back tree branches and managing overgrown landscaping is also advisable, as they can pose a risk during strong winds and potentially cause damage. While we hope to avoid hurricanes in Orlando this year, it’s always best to be prepared.
Throughout May, I had insightful discussions about various real estate topics with friends and clients. Some matters have been resolved, while others are still unfolding. One positive development is the resolution of the debt-ceiling crisis, which has averted a government default. Such a default would have immediately plunged our country into a recession. From a real estate perspective, it would have had serious implications for future borrowing costs and further depressed the housing market.
The U.S. government’s debt is widely regarded as the safest investment, resulting in the lowest interest rates that investors expect to earn. From this “bottom rate”, all other types of loans have higher interest rates based on their risk profiles. If the U.S. government were to default on its loans, investors would require higher future interest rates to account for the increased risk. This would elevate the baseline interest rate, affecting all other loan types. Therefore, the U.S. government meeting its debt obligations and paying its bills is the fundamental stabilizer of our economy.
Our current housing market relies on buyers’ adaptation to mortgage interest rates of around 6-7%. If rates decrease, we anticipate a corresponding and proportional housing boom. Conversely, if rates rise, we expect further stagnation and a buyer pull-back. Many people ask us what the housing market will look like going forward. We answer, “Just watch the interest rates.”
Switching gears, Senate Bill 264, which imposes limitations on real estate investment from certain foreign nationals, has raised questions among our Chinese clientele. Our professional real estate organization is diligently analyzing the potential implications of this bill. Once we have clarity and guidance, we will provide the necessary updates.
I’ll stop here. Keep your questions coming. We enjoy discussing them with you.
~Yien and Alysa Yao
Copyright © 2023 Yien Yao, LLC, All rights reserved.
May 2023: As we enter the final month of Spring and gear up for the hot Summer real estate season, we want to address some common questions from those who are planning to buy or sell a home soon.
Q: How should I prepare as a seller?
A: It is crucial to act quickly in this hot Spring market and prepare your home for sale. We will guide you through the steps of home preparation, which includes both cosmetic and technical aspects.
The cosmetic preparation involves enhancing your home’s curb appeal and emotional impact to attract buyers. We will go through your home with you to make suggestions based on your time, budget, and ability to work on this.
The technical preparation involves planning ahead to ensure a smooth transaction. Some condition and repair issues will delay a closing. Other conditions might make a home unsellable in the current challenging insurance market. For instance, for a buyer to find insurance coverage to buy your home, the insurance company will require a 4-point inspection report. These 4 points include roofing, electrical, plumbing, and HVAC (A/C) systems, which have different impacts on the insurability of a home. The most important one right now is the age and condition of the roof. If your roof is older than 15 years, it will be difficult to find insurance. If other than the age, the roof is in flawless condition and the inspector notates the roof has at least 3 more years left, the buyer may be able to get insurance through Citizens (nicknamed “insurance of last resort”). If the roof has problems such as missing or damaged shingles or general granular loss, even Citizens will decline. Without insurance, there is no sale. We will help you identify potential deal-breakers and brainstorm solutions.
In summary, we will help you understand what will make your home as attractive as it can be in the current market, where buyers are very picky. We will help you achieve the best outcome and maximum return on your investment.
Q: How should I prepare as a buyer?
A: If you are planning on getting a loan to buy a home, the most important thing is to work closely with a reputable loan officer to prepare for your loan application. Get all your financial records (such as tax returns) ready. Clean up your credit report, and correct any weaknesses or mistakes discovered. Do not make large purchases that would increase your debt. This way, you can be in the best position when you are ready to buy a house. Prepared buyers who already submitted financial documents to the loan officers can be conditionally approved before even finding the right home! This makes their offers very attractive to sellers.
We will help you define what you are looking for. We will work together to establish the location, type of property, features, and amenities within your price range. It’s always fun to look at many listings online, but you should work towards narrowing down your search to become more and more focused. If you have a few months before you will buy, we can set up a type of MLS search where you can see the status changes of listings, the price changes, when they go pending, or back on the market. You will see when they close, and at what final sale price relative to the asking price. After watching this for a while. You will develop a sense of the market temperature of your target area. This will help you make the right decision when it’s time to buy.
Finally, plan ahead regarding your current housing situation. If you are renting, find out if there is flexibility between the end of your lease and the closing of your new home. You may want to buy before your lease ends. You can try to secure a month-to-month arrangement after your lease ends. Or you can secure temporary housing arrangements during any gap.
Let us know your plans. We will walk you through what you need to do.
I’ll stop here. Enjoy your month of May, and take care!
~Yien and Alysa Yao
Copyright © 2023 Yien Yao, LLC, All rights reserved.
Happy April! Finally, Spring is upon us, and with it comes the peak real estate season in Central Florida. We see the same trends continuing:
~ Average mortgage rates remain in the 6%s.
~ Lower-priced homes are moving fast, while the higher-priced market is sluggish.
~ More transactions are all-cash.
~ Younger buyers find the current housing market challenging. Older buyers tend to have more equity and are able to navigate and participate in the current housing market.
Q: I’ve heard so much about the rising interest rates slowing down the economy. How does it actually affect our real estate market?
A: This is a great question. Let me share an example from one of our clients to illustrate. A rental property is valued at $425,000, rented out for $2,450 a month. It is perfect for first-time homebuyers. Let’s see what happens if the renter wants to become a homeowner! Let’s say the renter saved a 5% downpayment for a 30-year conventional loan, borrowing $400,000. In 2021, the interest rate was 3%. According to the loan calculator below, the monthly loan payment is $1,686. There are also annual property taxes of $3,850, home insurance of $1,500, and monthly HOA dues of $112. So the total monthly payment is $2,243. Between the rent payment of $2,450 or a mortgage payment of $2,243, you can see why a renter may choose homeownership!
However, since mid-2022, the interest rates have averaged about 6.5%. The same home above, with a 6.5% interest rate, now has a loan payment of $2,528 per month. Adding the same taxes, insurance, and monthly HOA dues, the total monthly mortgage payment is now $3,085. Compared to the rent of $2,450, it is now much cheaper to rent than to own. You can see why a renter might sit this one out!
The comparison of renting vs. owning is a time-tested old way to check market fundamentals.
The result of many would-be homebuyers not seeing the value of owning, plus being priced out of the market for homes they do want, is a significant drop in buyer demand. This is how higher mortgage rates slow down the general market.
There is also a cascading effect when lower-tiered homes slow down. The owners of those homes who wish to move up are also caught up in the same situation. If they don’t sell their current home, they can’t move up. And when they do sell, their previously lower payments will be replaced with much higher ones. This also gives some would-be home sellers pause. The positive side is that home sellers tend to have significant equity in their current homes to help them cushion the impact of the current market.
This may explain why Alysa and my clients are of higher average age now than in many previous years. According to a study by the National Association of Realtors, baby boomers have surpassed millennials in shares of homebuyers.
If you are thinking about buying or selling a home in 2023, talk to us now. We are planning our schedules for the rest of the year. Would love to have you on our schedule! 🙂
Enjoy your April. Until next month, take care!
~Yien and Alysa Yao
Copyright © 2023 Yien Yao, LLC, All rights reserved.
Happy March! Spring is just around the corner, and so is the peak real estate season in Central Florida. If you have questions about the market, simply reply to this email. It comes directly to me. I’ll do my best to answer your questions.
I’ve been writing about the rebalancing of the market in the last few months. The “tale of two markets,” where some listings don’t sell while others receive multiple offers, is still happening. All market perimeters are way down, except the year-over-year price! This is likely due to the still low inventory. Remember, only homes that have sold contribute to the average and median price data. There are definitely a lot of homes that are not selling and will inevitably go off the market or sell at a lower price. It is still very much about the interest rates. The dilemma is if the economy is going strong, the rates will remain high. If the rates come down, we may be in a recession.
The market is in transition, and we are busy! In February, I strategized an investment 1031 exchange with a past client, explored real estate on the Space Coast, previewed a luxurious home with two full kitchens, and looked for a new home for two Kiko goats displaced from a transaction!
If you are thinking about buying or selling a home in 2023, please let us know as soon as you can. We often get a sense of what’s happening in the market earlier than what we see in the news. Remember, the news is always LAGGING. If you see something in the news and try to act, you are likely already too late. Let us know what you are planning, even if it’s very early and preliminary. This way, we can have “placeholders” in our calendar if you are selling and keep an eye out for what you are looking for if you are buying.
Alysa and I are enjoying returning to our old practice of serving only past clients and personal referrals. Without a large team to support, we no longer need a high volume of business. We enjoy spending time and focusing on select clientele. If you are reading this email, you are our select clientele. After teaching and mentoring at my brokerage for so many years, it feels wonderful to practice my tradecraft again personally.
Our schedules do get filled very quickly. Please do let us know, and we will plan our year out around you, including our vacation time.
Enjoy your March. Until next month, take care!
~Yien and Alysa Yao
Copyright © 2023 Yien Yao, LLC, All rights reserved.
Happy month of February! I hope your 2023 is off to a good start. Is buying or selling a home one of your goals this year? If you have questions about the market, simply reply to this email. It comes directly to me. I’ll do my best to answer your questions. If a question applies to others, I may share it here in future monthly newsletters.
Q: Is the real estate market still declining?
A: While we are not out of the woods yet, our anecdotal experience is that the worst may already be behind us. I know it is too early to call. I’m only reporting what we see in the market at the end of 2022 and the first month of 2023. Buyers are acclimating to the higher interest rates and uncertain economic data. Housing needs are real and immediate. Buyers who need and want to buy are returning to the market, now with less competition from other buyers. They feel less pressure and are becoming more picky. They are no longer willing to overpay for a house. They have to see the value that justifies the price.
Listings in desirable areas that are priced and presented well are still selling, sometimes quite fast! It’s the under-prepared, overpriced homes that are lingering on the market. A lot of price decrease in the market is the result of price adjustment of listings that were overpriced to start out with.
An investor-client asked an excellent question yesterday. He asked me why two listings that were similar and equally priced had such different outcomes. One had been on the market for almost two months, while the other went pending in 3 days. Among other factors, I pointed out that the one pending has a brand new roof, updated plumbing, electrical, and renovations throughout. The one that is still on the market needs to be updated, and since I cannot find any permit records for the last 19 years, it presumably has an old roof and A/C. So, just on the roof and AC alone, there is a perceived $20,000 value differential to a potential buyer. Therefore, the updated one sold in 3 days, while the other is still lingering on the market.
This is a great example of the market dynamic right now. It’s not a Seller’s Market because sellers cannot dictate their price and terms as they did in 2021 and the first half of 2022. They likely have to make concessions to make a deal work. It’s also not a Buyer’s Market because the inventory is still not high enough. We have several searches for our clients and our own interests. We are still waiting for suitable homes. One beautiful listing came on the market. It received a full-price, all-cash offer before our buyer even had a chance to see it. We called this “a tale of two markets” in the past. Some listings don’t sell, while others receive multiple offers. We see this when a market is in transition. And we’ve seen it quite a few times in the last 25 years.
In summary, we see a stable real estate market in central Florida because the demand is still strong. It is becoming an increasingly balanced market, which is a good thing. Again, buyers and sellers are on a more equal footing. In times like this, whom you choose to represent you can make a big difference. We recently got a buyer client under contract for a home at $100,000 below asking. Even though this result is unique, we always apply our concise analysis of each situation and skillful negotiation to maximize the advantage for our clients.
If you plan to buy or sell a home this year, feel free to contact us. We have transitioned our business to focus only on past clients and referrals. This way, we can spend more time focusing on each VIP client. This is what we enjoy. We hope to have the pleasure of working with you.
~Yien and Alysa Yao
Copyright © 2023 Yien Yao, LLC, All rights reserved.
Happy New Year! With 2022 behind us, we wish you the full optimism, energy, and momentum that comes with the arrival of a brand-new year! Throughout 2022 we talked with many of you about our housing market. What a crazy year! The first half of the year was a frenzy. By mid-year, the market momentum stalled with the rising interest rate, and the rest of the year was in retrenchment. We will start the new year by providing a market summary. Hopefully, it will also shed some light on what’s ahead.
~We had record-low interest rates in the last three years. This low interest rate has helped make mortgage payments within reach for many buyers. Even as we heard how challenging it was to find a house to buy, many buyers could still get into a home. It was a very robust period where many buyers and sellers accomplished their real estate goals of homeownership, upsizing, or downsizing.
~The COVID-19 pandemic led to a population migration within our country, driven by the people’s desire to have more living space and the ability to work remotely. Florida became one of the top destinations for this post-pandemic migration. The population inflow to Central Florida drastically increased the demand for housing.
~Like anything else, the price escalated when the demand far exceeded the supply. From late 2020 on, sellers had multiple offers on their homes. Buyers struggled to win the bid to secure a home. The low interest rates continued to fuel the bidding wars.
~Inflation appeared in mid-2021 and grew troublesomely. The central bank is determined to bring it under control. It does this by aggressively increasing the Federal Reserve’s interest rate. This increases borrowing costs for all to slow things down. Mortgage interest rates also increased as a result.
~The mortgage interest rate increase poured cold water on a red-hot housing market in mid-June 2022. With each subsequent rate increase, the buyers’ purchasing power dropped drastically. A rough rule of thumb is with each 1% increase in rate, the loan amount decreases by 10%. When the rates went from 3% to 6.5-7%, buyers could no longer afford the level of homes they were expecting.
~After seven consecutive rate increases, the buyers’ purchasing power dropped drastically, and demand naturally leveled off. The housing supply is still tight in Central Florida. As buyers struggle with the shock of the new interest rates, sellers struggle with the new normal of their houses sitting on the market without getting multiple offers. With homes sitting on the market longer, prices eased. So far, we see price correction from the level of early 2022, but year-over-year, the prices are still up.
~Buyer and seller have been at a stalemate in the last quarter of 2022. The buyers’ purchasing power decreased. They also fear the prices may drop and don’t want to enter the market prematurely. The sellers, many with significant equity in their homes, are reluctant to drop the price. Also, when they sell a home with a low mortgage, they have to buy their new home at a much higher rate. As a result, many people are sitting on the sideline, or deciding to stay where they are.
~Going forward, we will be watching the push and pull of buyer and seller motivations in 2023. Some factors we know: The desire for homeownership is still high. The affordability is lower now. The Federal Reserve stated that it would continue to increase rates in 2023, albeit in smaller increments. Many believe that the mortgage rates will stay between 6-7%. Once the shock of the new interest rates wears off, and with some help from creative financing options such as short-term or permanent rate buy-downs, buyers will return to the market. We expect more activities in the lower price range because more people can afford them. The higher price range homes will be sold to out-of-towners, cash-buyers unaffected by the interest rates, and move-uppers who can sell their lower-priced homes. The rental market will continue to be tight because would-be buyers that currently cannot buy will continue to rent.
If you are thinking about buying or selling, reach out to us. We will brainstorm with you and provide consultation specific to your situation so you can make the best decision.
January will be an interesting month to watch, as many home sellers list their homes after the holiday season. This increases the supply as buyers tiptoe back into the market. We will continue to report to you market updates throughout 2023. Until then, take care!
~Yien and Alysa Yao
Copyright © 2022-2023 Yien Yao, LLC, All rights reserved.
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