Holloway Group Partners, Debbie Holloway, Troy Stavros, & Nancy Westerling

In a recent awards ceremony held at Fox Den Country Club, Gables & Gates, REALTORS handed out their top sales awards for 2012.  Fresh on the heels of being awarded her 6th straight Diamond Award of Excellence, the top honor awarded by the Knoxville Association of REALTORS, Debbie Holloway brought home the following awards from Fox Den:

• Associate of the Year (5th straight year)
• Most Transactions (7th straight year)
• Top Residential Associate (5th straight year)
• Gold Key Award for Sales Production (12th straight year)

Debbie stated, “My business philosophy has been simple, work hard, be available when your clients need you, and always put the best interest of your clients first!”  Debbie is proud to say that most of her business is generated from either past clients or referrals from past clients and friends.  She and the entire Holloway Group are committed to serving their clients with the utmost respect and personal service.

Debbie’s partners in the Holloway Group, Troy Stavros and Nancy Westerling also brought home Gold Key Awards for each selling multi-million dollars worth of Knoxville real estate.   Debbie Holloway sold approximately $22 million dollars in real estate in 2012, and with the Holloway Group sold over $39 million dollars in real estate.   The Holloway Group was again the top producing team at Gables & Gates, REALTORS and ranks as one of the top producing in all of Knoxville.

According to the National Association of REALTORS, the national median home price saw the strongest year-over-year increase in seven years as a growing number of metropolitan areas posted higher median values in the fourth quarter of 2012.

What are the factors causing the price increases of today’s real estate in Knoxville and beyond?

1) Attractive affordability conditions:

• Mortgage interest rates are hovering near record lows.
• Quoting NAR President Gary Thomas, “In reality, home prices overcorrected on the downside and homes in most of the country were selling for less than replacement construction costs, which means they were undervalued.”
• Lawrence Yun, Chief Ecomomist for NAR stated, “The housing affordability index shows that the national median income of families was almost double the income needed to buy a median-priced home in 2012, so most buyers are able to stay well within their means.”

2) Decreasing rent affordability (rising rent prices)

3) Demand for housing:

•  The population has been growing faster than overall inventory of Knoxville homes for sale.
•  Unsold inventory, nationally, is at the lowest level in 12 years.

4) Job creation:

•  Steady job creation leads to more buyers in the real estate market.

Troy Stavros, Broker and Partner with the Holloway Group at Gables & Gates, REALTORS says, “These factors have not only increased the value of Knoxville real estate but have turned what was a buyer’s market no so long ago, into a seller’s market.”

The most detailed survey on the attitudes of consumers of its kind, the Fannie Mae National Housing Survey polled 1,003 Americans via live telephone interview to assess their attitudes toward the housing market and overall consumer confidence.

Troy Stavros, Broker and Partner with the Holloway Group stated, “We see, on a daily basis, the increase in consumer confidence. The influx of buyers into the Knoxville real estate market, that is resulting in a dwindling inventory of Knoxville homes for sale, speaks volumes.” Echoing Stavros’ sentiments, the Senior Vice President and Chief Economist for Fannie Mae was quoted as saying, “”The housing market continues to firm, with consumer home price expectations for both rental and ownership properties near the strongest levels that we’ve seen in the survey’s two-and-a-half-year history. Concerns about job loss are waning as payrolls are growing – a trend that may give potential homebuyers more confidence that they can meet the financial obligation of homeownership. The upward trend over the past year and a half in the share of consumers who say it’s a good time to sell may reflect two related events. First, homeowners see that home prices are improving. Second, the number of homeowners who are underwater is declining, reducing a barrier for those owners who need to sell their home in order to buy a new one.”

The summary of the results of Fannie Mae’s January 2013 National Housing Survey are:

• More survey respondents believe now is a good time to sell a home (up 12% from last year’s results). Stavros says, now is a great time to be selling a home in Knoxville because the resulting low inventory levels has turned it into a seller’s market.
• Expectations around personal finances remain flat.
• Approximately 41% of respondents believe home prices will rise in the next 12 months. Stavros confirms that the Knoxville real estate prices have already risen and continue to do so.
• Respondents believing prices will continue to drop reached a low of 10%. Stavros stated, “There will always be that select few that refuse to believe that something positive is happening. Unfortunately those are the same folks that don’t take advantage of good market conditions, and watch as they pass them by.”
• 41% of respondents expect mortgage rates to rise in the coming year. Stavros believes Knoxville mortgage rates will rise slowly, but will stay below 4% for the rest of 2013.
• 50% or respondents believe rental prices will rise in the next 12 months. Stavros confirms that Knoxville rental prices are already on the rise, and the law of supply and demand will send them even higher.
• 65% of surveyed Americans said they would buy if moving in the near future.
• Approximately 43% of Americans see financial situations improving over the next year.
• 23% expect household incomes to rise significantly, an increase over a year ago.

Troy Stavros, Broker and Partner with the Holloway Group states, “The old adage of supply and demand is at it again. Home prices are on the rise because the number of Knoxville homes for sale continues to dwindle.” According to the latest research numbers from the National Association of Realtors, the inventory of homes for sale dropped 8.5% from November, 21.6% from one year earlier, and is at the lowest level since January of 2001.

So why are we seeing inventory of Knoxville homes for sale drop? Here are the reasons:

* Many homeowners still owe more on homes than the current market value and are not willing to bring money to the closing table.

* Many homeowners who might typically be looking to “trade up” have lost the equity necessary to do so (home equity in a primary residence, built over time, is usually the main source of down payment funds in a trade up situation).

* Sellers, feeling the market and prices are still close to bottom levels, are waiting in hopes of selling at a higher price in the future.

* Investors (individual and institutional) are buying homes in bulk and renting them, instead of putting them back on the market for sale.

* Banks are approving more short sales and loan modifications, leading to smaller numbers of foreclosed homes hitting the market for sale.

* Tight lending guidelines for builders have limited the number of new homes hitting the market for sale.

No doubt the majority of buyers searching Knoxville homes for sale will need to secure a mortgage.  While lending standards have been strict it hasn’t slowed the Knoxville real estate market. The following infographic from mortgage lending services provider, Ellie Mae, shows us what it took to get a mortgage in 2012.

What the latest steps to avert the fiscal cliff mean to the Knoxville real estate market.

In order to avoid the fiscal cliff, a budget package was passed by the U.S. Congress on New Years Day. Implications for homeowners and the Knoxville real estate market include: tax rates remaining the same for most households and the extension of mortgage cancellation relief.

The “American Taxpayer Relief Act of 2012’’ that was passed by Congress extends current tax rates for all households earning less than $450,000, and $400,000 for individual filers. Households earning above these limits will see tax rates revert to where they were in 2003, meaning taxpayers in the highest bracket would pay taxes on ordinary income at a rate of 39.6%, up from 35%. The tax rate on capital gains would also remain the same, at 15%, for most households, but for those earning above the $400,000-$450,000 threshold, the rate would rise to 20%.

Troy Stavros, Broker and Partner with the Holloway Group stated, “From a real estate standpoint, this could have gone in a bad direction and gladly did not. With the Congress keeping the provisions for the exclusion from taxes on the sale of a principal residence and important tax exemptions for homeowners, I feel housing can continue on it’s course of positive momentum.”

Good news from a homeowner’s perspective, the exclusion from taxes for gains on the sale of a principal residence of up to $500,000 ($250,000 for individuals) remains intact, so only home sellers whose income is $450,000 or above, AND the gain on the sale of their house is above $500,000 would pay taxes on the excess capital gains at the higher rate. Therefore there is no change for the majority of home sellers.

Extenders, which keep in place expiring tax provisions, are also included. Of most interest to the Knoxville real estate market, the “American Taxpayer Relief Act of 2012’’ would extend mortgage cancellation relief for home owners or sellers who have a portion of their mortgage debt forgiven by their lender. This is typically seen in a short sale or foreclosure sale for sellers or a modification for owners. Without this extension, the debt forgiven would be taxable, adding additional financial burden to already underwater homeowners. Also extended are deductions for state and local property taxes and mortgage insurance premiums, which, along with the mortgage interest deduction, are important tax considerations for home owners and buyers.

Troy Stavros, Broker and Partner with the Holloway Group stated, “As we look into our crystal ball at what we project 2013 to look like, it has positives and negatives for both buyers and sellers of Knoxville real estate. The good news for everyone is that, unless we fall of the fiscal cliff or the Mortgage Interest Deduction gets monkeyed with, the vision is one of a good year for housing.”

Vision #1: Home prices and rents on the rise.

We’ve already seen the lack of new construction raising the national and Knoxville real estate prices in 2012, and we can expect that trend to continue into 2013. Since the housing downturn, national new construction has been at 500,000 units or less for the last 6 years. Experts say construction of new homes and apartments need to be between 1.25 and 1.5 million a year to keep pace with population growth. This shortfall leads to a lack of supply which translates to demand, equaling higher home prices and rents.

Vision #2: Less foreclosure deals and more short sales.

Sales of foreclosed homes fell to approximately 11% of all sales in June 2012, down from about 28% in March 2011. The decrease is partly because the large government entities, along with banks, have been liquidating hundreds of distressed home loans in bulk to purchasers who agree to work out new terms with borrowers rather than foreclosing. Another factor for the drop looks back to our 1st Vision. Rising home prices have improved the equity position of thousands of buyers who were once upside-down.

Also reducing foreclosures is their alternative, the “short sale”. Short sales are deals in which a home sells for less than what the borrower owes on the mortgage, with the bank agreeing to accept the sale in lieu of going through an expensive and time-consuming foreclosure. Within the past few months, FHFA issued new rules on short sales for Fannie Mae and Freddie Mac reducing the documentation that borrowers have to show to demonstrate hardship. Also borrowers now aren’t necessarily required to pay the difference between what they owe on the mortgage and the final sales price. These changes will have national and Knoxville real estate seeing more short sales in 2013.

Vision #3: Higher home construction costs.

Even though levels of home construction are at record lows, costs of building materials like sheet rock, lumber, and copper are on the rise. The last few lean years in construction caused many construction workers to either migrate out of the country or into other occupations, leaving less qualified construction workers. Once again a low supply of workers means they can demand more for their services. Couple the higher material costs with the increased cost of construction labor and that equals higher home construction costs.

Vision #4: Higher mortgage interest rates but loosened lending standards.

The National Association of REALTORS predicts rates will gradually rise to 4% by the end of 2013. While this is still extremely low, economists believe that while we are currently witnessing historically low rates, there is only one way for them to go. Currently, the average credit score of a borrower looking to obtain a mortgage is 760. This is significantly higher than averages in the past, because of an overcorrection by banks coming out of the recession. Look for lending standards to loosen a bit as lenders try to compete for the business.

On December 10th, mortgage giant, Freddie Mac released it’s U.S. Economic and Housing Market Outlook for December. The report looks ahead to 2013 and gives us a prediction as to what can be expected in the housing market.

Coming off many consecutive months of positive news, the outlook is that the housing market will continue to advance into the new year. The two major points of the report were:

1. Long term mortgage rates should remain near their record low levels through the first half of 2013 and gradually rise during the second half of the year. Even with the second half rise, rates should remain below 4%.

2. Home values should continue to rise with most U.S. price indexes seeing a 2 to 3% increase in 2013.

Freddie Mac’s chief economist, Frank Nothaft stated, “The last few months have brought a spate of favorable news on the U.S. housing market with construction up, more home sales, and home-value growth turning positive. This has been a big change from a year ago, when some analysts worried that the looming ‘shadow inventory’ would keep the housing sector mired in an economic depression. Instead, the housing market is healing, is contributing positively to GDP and is returning to its traditional role of supporting the economic recovery.”

Troy Stavros, Broker and Partner with the Holloway Group added, “What we are seeing in the local Knoxville real estate market is in line with Mr. Northaft’s projections. With the low inventory levels we are witnessing, we could see Knoxville home values rise even faster than predicted. The affordability of housing right now is at historical levels. Buyers are seeing this and entering the market. Lack of Knoxville homes for sale is leading to competition. It doesn’t happen very often when it is a great time to be a buyer and it’s a market where there might be competition for your home if you are a seller. Unless you are currently underwater in your current home, there should be no more excuses, it’s time to get off the fence and into the market.”.