2016—The Residential Real Estate Year of Records
The 2016 Des Moines residential real estate market can best be described as the year of records. Virtually every single category of market statistics experienced some type of record over a previous time in history. Many of these are highlighted in my 2016 SimplyDesMoines Residential Real Estate Report.
While 2017 is starting out at a similar pace to 2016, I don’t expect to see many new records this year. I do believe we will experience a very similar spring market and future home buyers with a home to sell would be well advised to get their home on the market now to beat the rush.
A few projections for 2017
In the last couple of years, it was common to hear the term “the new normal”. This was applied to virtually every category of the residential real estate market including homes for sale inventory (resale and new construction), pending sale counts, number of homes sold, days on market and the all-important average sale price trend.
As we move into 2017, the Des Moines market is just “normal”. We will continue to see home inventory levels hovering between 3,000 and 3,500 homes for sale. I predict that home selection will continue to be the driving force of the market and thus, our months of inventory will remain solidly in a Seller’s Market.
Expect the months of April, May, and June to be the most active. This will be the time of year when multiple buyers will be competing for the same listing causing prices to spike. That’s not to say that there won’t be any good deals to be found. A home buyer will just have to be in the right place at the right time and ready to make their decision quickly, if not on the spot.
New construction will remain popular and do a good job of filling the listing void in the $250,000 and higher price ranges. 2016 saw new construction inventory making up roughly 1/3 of all homes for sale and they accounted for 15% of all total sales. I expect 2017 to be very similar.
Foreclosure and bank owned properties have settled back to their market normal and there is no expectation of these types of homes increasing in our market place. There is a solid demand from investors to buy homes for rentals or flips, particularly in the price range under $150,000.
In 2017, the hot areas of the market will continue to be the suburb corridor from Norwalk in the south, the western suburbs of Waukee, West Des Moines, Urbandale and Grimes and across the north of the metro including Johnston, Ankeny and Altoona. Within the metro, the northwest and northeast areas should continue to be more active, however as the economy continues to grow, the east and south sides of the city should see momentum building this year.
The announcement of a new development called Gray’s Station just north of Grays’ Lake by Hubbell Realty that will fall under the real estate area defined as “Downtown” will bolster sales activity in this area. However, it will most likely not see any effect on residential sales until sometime beginning in 2018 as time in 2017 will be spent on infrastructure improvements including streets, sewer and storm water systems.
Lastly, mortgage interest rates are now on the rise. It’s been long predicted that the cost of borrowing money was going to increase, but it wasn’t until last fall when the upward trend finally began. With the changes coming from the recent presidential election, it’s a certainty that rates will systematically begin to climb. If economic improvement occurs at the same time, home affordability should keep up with higher mortgage interest rates at least for the first half of 2017.
In early January, there was an announcement by HUD proclaiming that due to excesses in the FHA mortgage insurance premium fund, the cost of monthly mortgage insurance would drop by 1/4% effective January 26th. Immediately after President Trump was sworn in, this reduction was suspended indefinitely. Since that time, many in the real estate and mortgage industry began to cry foul. While it would be a benefit for FHA borrowers for this reduction to go into place, it is being widely reported by many that this reversal will cause home buyers to face higher costs as they purchase a new home and that 30,000 to 40,000 new home buyers nationally will be left on the sidelines.
I am not taking sides on this issue but I think it’s important to look beyond the politics of this and understand that the current mortgage insurance premium of .85% is not going up. It is just not going down, at least right now. Reports that not reducing the mortgage insurance premium will cost a home buyer MORE is simply not correct. It will cost them exactly the same as if the reduction hadn’t been announced.
A reduction of 1/4 of a percent on the mortgage insurance premium only reduces a home buyer’s monthly payment by $22 on a $100,000 mortgage. Or from the perspective of buying power, approximately $3,700 on a $100,000 purchase.
If HUD really wanted to make a difference in mortgage insurance for borrowers, they should rescind the policy that changed the mortgage insurance rule that it be paid for the entire life of the loan. In the past, once a borrower’s equity was 78% or more, mortgage insurance would be dropped from their monthly payment. The system as it currently is, requires mortgage insurance premium to be paid over the entire life of the mortgage. As a result, some borrowers that can qualify for either an FHA or Conventional mortgage, opt for the conventional mortgage knowing that the required insurance premium will be dropped at a certain “equity point” of the loan.
In 2016, Conventional financing made up 58% of all financing in our market. Coming in second place at 17% were Cash sales, where no financing was used. FHA loans made up 13% of sales last year. The median sale price of an FHA purchased home was $149,000 compared to the overall median price of all homes sold in 2016 of $178,500.
For details of specific areas of the Des Moines metro, as well as the breakdown by property types and new construction versus resale, download the 2016 Des Moines Residential Real Estate Annual Report.