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Statistics Do Not Buy Houses -- People Do

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BMO Harris Bank has released the results of a survey indicating that 59 percent of homeowners expect their home value to rise over the next year.

Results of this survey could be telling us that there is pent-up demand for homes. Other survey points and some possible conclusions:

59 percent say their home values have risen over the last year.

This is good news if it holds up. Over the last year inventories have dropped, and continuing buying by investors is reported to be the major influencer of prices in the under $300k range. Most studies show nationwide that investors have purchased 30 percent or more of homes. In higher price ranges there has also been price appreciation with competition for shrinking inventory. As rising values bring more homeowners out of underwater territory, will there be an increase in listing inventory, and will demand keep pace? If not, we could be in for a period of seesaw price movement.

29 percent indicated they had to delay or end their home buying plans due to market activity.

The reasons for ending their plans isn't stated, but it's logical to conclude that they have been priced out of the market by recent price movement, low inventory, and competitive buying pressure. This group may be back if the economy and their financial positions strengthen, but if prices continue to rise, they may not gain enough ground to re-enter the market.

29 percent say they have sped up their timeline for buying due to current market activity.

This goes along with another survey response: 59 percent expect interest rates to go up, with 42 percent expecting a small increase and the other 17 percent expecting a large increase. Most of these are people able to afford a home and qualify for a mortgage. However, you can't buy something not for sale. Inventories need to approach more normal levels, or this group may become frustrated non-buyers, or they may add to the bidding competition for available homes.

41 percent aren't being influenced by current market activity.

This group says that current market activity hasn't affected their home buying timeline. I see this group made up largely of "wait and see" buyers. They would like to buy a home, but the housing and mortgage crash makes them cautious, and with interest rates still low, they feel that there is time to be cautious. They're also waiting to see if the economy improves and if they may see increased income to afford a better home.

Last year 21 percent experienced a loss in home value, but only 9 percent believe this will be repeated in the next year.

Optimism seems to be surfacing that the housing market has turned the corner, as the majority of homeowners who moved further into underwater territory last year do not expect that trend to continue in the coming year. For some balance though, 7 percent of those surveyed have given up on buying a home anytime soon due to current market activity. The good news is that 7 percent is very much a minority group.

So, what's coming in the near term future?

Overall these survey responses seem to indicate a growing optimism about the housing market and home prices. From the BMO release: "Housing affordability remains historically very attractive, despite rising home prices and borrowing costs coming off their lows. As a result, there continues to be decent demand for homes, assisted from firming household formation."

That last phrase is really important. Is household formation improving significantly? Even if it is, are these new households near term buyers, or will they add to the increasing demand for rental homes and higher rents? We investors are watching the market closely. Rental investors win either way. If rental demand stays strong, rental return on investment will as well. If the tide turns and buyers flood the market, it could be time to take profits and sell rental homes. Using the 1031 Exchange to defer capital gains and roll into higher priced rental properties could work well.

Survey results cited in this report are from a Pollara survey commissioned by BMO Harris Bank using interviews with an online sample of 2,500 Americans conducted between April 1st and 7th, 2014. The margin of error for a probability sample of 2,500 is ± 1.96%, and 250 is ± 6.2% 19 times out of 20.

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