The U.S. house price index has continued to rise over the last few years largely due to the continuous sequence of rate hikes dating back to December 2015. The eight rate hikes have pushed the Funds rate to 2.25% from 0.25% in December 2015 subsequently leading to a rise in lending rates and mortgage rates. As such, home prices have continued to increase, and this has triggered a couple of outcomes.
While the economy has been booming and thus leading to a rise in the base interest rates, new home starts appear to have slowed significantly. New home constructions fell below 1.2 million units in June and July 2018 before bouncing back in August to 1.28 million units. Nonetheless, the August house starts are still below the 1.3 million averaged between January and May 2018.
The overall direction seems to suggest that there could be more dips in housing starts in the coming months as the U.S. Federal Reserve maintains its stance to continue raising the Funds rate in coming quarters.
Furthermore, data also indicates that existing home sales numbers are also falling. Existing home sales dropped for the fourth month in a row in July as potential home buyers continue to be priced out. Another worrying factor that is forcing some potential homebuyers to be extra cautious in their decision to buy a new home is the increasing number of foreclosures. Since the start of the year, the number of mortgage foreclosures has continued to climb, which triggers some memories of the 2007-2009 financial crises.
In return, these factors (rising housing prices, a decline in new home starts, a slowdown in existing home sales and a rise in foreclosures) have made it very difficult for real estate agents. Selling a house has become more difficult and sellers may have to do a little more to persuade the potential homebuyer.
Here are a few things that can be done to persuade the potential homebuyer
With house prices skyrocketing despite a slowdown in demand, one of the few things that a home seller can do to justify the premium pricing of a house is to modify the floor plan. This can include among other things adding square footage, as well as, upgrading the flooring.
Hardwood floor refinishing
Traditionally, hardwood flooring has been one of the preferred choices of many residential homeowners. And while this varies when it comes to residential apartments where a variety of technologies are used, the vintage hardwood flooring still ranks quite highly among most homeowners.
In fact, one of the most interesting trends in the housing market now indicates that most homeowners are investing significantly in hardwood flooring according to top hardwood floor refinishing companies, which means that hardwood floors are not just a thing for the 20th-century houses. The floor plan can be very crucial when selling a house and investing in a hardwood floor can boost the value of a house, which could come in handy especially when house prices are going through the roof.
According to an article published on Realtor.com, the average return on investment for installing hardwood floor ranges in the region of 70% to 80%, which again justifies the need for it. Reports also indicate that having a hardwood floor in the living rooms and dining rooms are almost becoming a requirement among most home buyers and when done right, some real estate analysts claim that this could add up to 2.5% value to the sale price.
As such, most experts have pointed out that the initial per square foot cost of about $5.00 to $10.00 for buying popular hardwood like oak, maple, walnut, or cherry in addition to installation cost of about $4.00-$8.00 is well worth it when it. It can play a crucial role when trying to persuade a buyer to buy a house in a market that has already seen prices hit new all-time highs.
Update kitchen and bathrooms
Another thing that a homeowner can do to increase the value of a house is by updating the kitchen and bathroom faucets with new installations.
Kitchen and bathroom remodeling is becoming a major factor in the modern family settings with baby boomers catching up with the paradigm shift championed by the millennials, according to Brad Hunter, the Chief Economist at HomeAdvisor, now part of ANGI Homeservices Inc. (ANGI), notes an article on Forbes.
Work on the landscape
While this may not be applicable in apartment housing, landscaping has proven to be one of the best ways to improve the value of a house. The greener the grass the better, but more people are now seeking to buy homes that have more than just grass. As such, adding some trees and other wildlife vegetation in the landscape can be crucial in a time when justifying the valuation of a house is becoming more difficult.
In summary, the economy may be booming, which in retrospect is raising the cost of living. The mortgage is becoming more expensive and is expected to hit the 5% mark soon, from about 4.2% early this year.
This is not working out well for home buyers and real estate agents are also finding it hard to sell houses. Therefore, adding more value-boosting features to a house could be the key to making a quick sale.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.