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Looking back at the month of March makes me realize how happy I am that April arrives with some of the best weather and spring on full display. March Madness is an accurate description of the real estate market this year. Especially if you are an active homebuyer searching for that perfect home to buy.
2021 Is Heading Toward New Records Despite Covid-19 AND Because of It
The first three months of a new year are typically filled with hope and optimism as a new year equates to a new start. Home buyers in 2021 were out the door in early January ready to find that perfect new home only to discover that there was a noticeable shortage of homes for sale.
As of the end of March the number of homes for sale continues to drop below previous record lows. The total number of homes on the market at any given time is half of what it was just a year ago. When you start to split out the market by categories, the hardest hit segment is Single Family Resale inventory. During the month of March alone the average for sale count in the Des Moines MLS was around 550 homes. The same time last year we had over 1,800 homes to choose from in that category which translates to 70% fewer homes for buyers to buy.
With so few homes in the most popular segment of the market, one would think that the number of homes going under contract would also be low. Near the end of March however, the number of Single Family Resale homes in sale pending was at the 1,800 level, up 9% over a year ago.
Let that soak in a minute. Over 3 times the number of homes for sale are in the sale pending process. How is that even possible?
The Des Moines Real Estate Market Is At The Flash Point
Virtually every listing that is added to the for-sale market is selling, many with multiple offers and frequently above the listed price. The Days on Market is on a downhill slide as Closed Sales in March alone show Single Family Resale home spending less than 7 days from list to acceptance.
More Extended Showing Periods and Escalation Clauses
This number would be even lower if it wasn’t for an increasing practice of listing agents beginning to list homes with notice that the new property for sale will be allowing showings for 2–3 days before reviewing and responding to any offers. This sometimes debatable approach does give hungry home buyers a more equitable chance of getting inside the home and time to make a rational offer on it—albeit along with other buyers making competing offers.
When these multiple offers do come in, it’s becoming more likely that home buyers are willing to show their hand in the offer process by utilizing an escalation clause as part of their offer. How that basically works is a home buyer makes an offer to purchase at a specific price and includes verbiage similar to this; “In the case of multiple offers, the buyer will pay $500 over the next highest offer, net proceeds, not to exceed $200,000” (Dollar amounts mentioned are for example only).
In this example let’s say the home was listed for $190,000. This buyer may write their offer at $190,000 along with the escalation clause stating that they will beat any other competing offer by $500, not to exceed paying more than $200,000. If a competing offer was $195,000 and all other terms in the offer were equal, the buyer with the escalation clause would win out and pay $195,500—even though they showed that they would be willing to pay up to $200,000.
Other ways of Sweetening the Offer
Besides enticing a home seller with higher offer prices, it is also becoming fairly common for a homebuyer to offer a closing date window (or even let the seller choose the closing date), therefore giving a seller the time cushion to find their next home—a frequent reason that sellers are giving for not listing in this extremely active market.
Additionally, some homebuyers are willing to look past some home inspection items discovered during an inspection period and focus on the most major items such as structural and safety. In some cases (not recommended) some homebuyers are rolling the dice and foregoing a home inspection all together.
What About the Rest of the Real Estate Market? New Construction? Condo/Townhome?
I’ve said this before, but it bears repeating—if we didn’t have new construction inventory as an option to buyers, our market would be close to grinding to a halt.
While the number of Single Family Resale homes for sale are down by 70% over last year, home builders have been able to adjust their for-sale inventory levels and pricing to bridge the gap of those buyers that would normally move up to a pre-owned home.
Even with supply shortages and rising costs, Single Family New home listings are only down around 16% from last year. As of the end of March there were around 750 New Construction or Proposed Construction homes for sale with a Median List Price of $326,000.
Next Month—The Bottle Neck of Pending Sales
The challenge to homebuyers that do get their offers accepted is waiting for home inspectors, appraisers, mortgage underwriters, title companies—even moving companies to handle the over 35% INCREASE in sales over last year.
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Over the past several weeks, many of us have been working from home in response to the “social distancing” necessitated by the coronavirus. Nonetheless, we still have opportunities to get outside and enjoy Mother Nature. And now, with the 50th anniversary of Earth Day being celebrated on April 22, it’s important to appreciate the need to protect our environment. Of course, you can do so in many ways—including the way you invest.
Some investors are supporting the environment through “sustainable” investing, which is often called ESG (environmental, social and corporate governance) investing. In general, it refers to investments in businesses whose products and services are considered favorable to the physical environment (such as companies that produce renewable energy or that act to reduce their own carbon footprints) or the social environment (such as firms that follow ethical business practices or pursue important societal goals, such as inclusion and pay equity). ESG investing may also screen out investments in companies that produce products some people find objectionable.
ESG investing has become popular in recent years, and not just with individuals; major institutional investors now pursue sustainability because they think it’s profitable—and plenty of facts bear that out. A growing body of academic research has found a positive relationship between corporate financial performance—that is, a company’s profitability—and ESG criteria.
So, although you might initially be attracted to sustainable investments because they align with your personal values, or because you want to hold companies to higher standards of corporate citizenship, it turns out that you can do well by doing good. Keep in mind, though, that sustainability, like any other criteria, can’t guarantee success or prevent losses.
In any case, be aware that sustainable investing approaches can vary significantly, so you need to determine how a particular sustainable investment, or class of investments, can align with your values and fit into your overall portfolio. Specifically, how will a sustainable investment meet your needs for diversification?
For example, if you desire total control over how your money is invested, you might want to invest in a basket of individual stocks from the companies you wish to support. But if you want to achieve greater diversification, plus receive the benefits of professional management, you might want to invest in sustainable mutual funds. Be aware, though, that even though they may not market themselves as “sustainable,” many more mutual funds do incorporate sustainability criteria into their investment processes. You also might consider exchange-traded funds (ETFs), which own a variety of investments, similar to regular mutual funds, but trade like stocks. ETFs often track particular indexes, so an ETF with a sustainable focus might track an index including companies that have been screened for social responsibility.
Make sure you understand the fundamentals of any sustainable investment you’re considering, as well as whether it can help you work toward your long-term goals.
But by “going green” with some of your investments, you can help keep the spirit of Earth Day alive every day of the year.
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Construction Websites and more specifically, website design, isn’t a set it and forget it proposition. Especially not in today’s fast-moving world of algorithm changes and SEO updates. And since the competition is fierce to gain new customers, it’s essential for contractors to develop an online presence through social media and other forms of contractor marketing to develop a solid campaign and website design that brings in plenty of marketing opportunities. The most vital part of your company’s online presence is your website, so it must have the essential elements required to draw people in and keep them there.
Your brand image must be consistent throughout your company’s communications. A shared color scheme, logo, and tagline should be an essential part of any printed material and signage you use. This applies to your website as well. For those who know you, your website should be immediately identified based on these familiar elements. For new or prospective clients, your website is often your initial contact. This first impression should set the stage for your relationship with them and express your brand image.
Navigation and The Construction Website’s Design Element
More related to the nuts and bolts of your website than the attractiveness of its appearance, the ease and responsiveness of navigation is vital. There is no better secret tip or secret sauce to construction marketing than this one point; your website navigation is THE key. With millions of pages to visit, blogs to read and social platforms to interact on, people are not going to feel around in the dark to find what they are looking for. Navigation must be intuitive and quick, with menus and links making all important information easily located with no more than one or two clicks.
Mobility and Construction Websites
No longer are your customers seated in front of a large PC monitor when they view your webpage. In fact, chances are they are doing the opposite and trying to find something on your website while using a two-inch-wide smartphone screen. As more and more people turn to phones, tablets, and other mobile devices for web browsing, you must ensure that your website is designed to adjust to these channels. If your website cannot be easily viewed or is functionality limited on mobile devices, you could be losing sales.
Content and Construction Websites
It’s an old adage but no less true, “Content is King.” If your website is not giving potential customers the information that they need, they are going to find a competitor’s website that will. Feature well-written content that serves your client’s needs, not just what you want them to hear. Include an impressive gallery so they can see past work. Offer to answer questions with a contact form that is not simply a request for a quote. Also, consider writing a blog for constant communication and a way of offering helpful tips and specials to your clients.
Each of the images on your webpage must be professional quality, but keep them to the minimum size required for optimal viewing without slowing down the performance of your website. You can insert watermarks on your images so when images are shared across social media, you gain additional impressions for your brand.
The goal is to create an interactive conversation on construction websites. Invite comments on your blog posts and respond when you receive them. Encourage website visitors to sign up for your email newsletter or contact you for more information on a construction project they are considering. Have clear, easy to use social media share buttons and plenty of calls to action that invite your clients to do something. The more interaction they have with you, the more loyal they will become.
Understand, the items listed above are the ante, they are the minimum needed for a high-performing website.
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If I were to describe the Des Moines real estate market as a running engine, the gas pedal would be all the way to the floor and the needle on the fuel gauge would be just above empty.
It All About Supply & Demand
Realtor.com recently reported that nationally, the number of homes for sale in January dropped below 600,000 which translated to inventory being 42.6% lower than this time last year. Inventory supply is not just a local issue, it’s the same across much of the country. At the time of this writing, the Des Moines Area Association of Realtors MLS sits at just over 1,800 homes for sale, which calculates to 46% lower than last year.
Of these 1,800 homes for sale, 80% are located within the Des Moines metro, comprised of the city of Des Moines and immediate surrounding suburbs. Along with this shortage of listing stock, we also have an abundance of buyers ready and willing to buy. Unfortunately, there is not a one price/one size fits all solution when it comes to home buying. The buyer pool is so deep in every price range. Take a look at the availability of homes to buy broken down by price range just here in the metro.
With homebuyers already out in full force, the number of homes in sale pending status is already at levels we would expect to see in April and May. Currently the Central Iowa market has 3,000 homes under contract. A year ago, we had 1,000 fewer homes under contract on this date.
The record high pending count in our market occurred last June when there were 3,609 pending sales. It’s only the end of February and we are about 600 sales away from reaching that all time high.
Homes For Sale—Tale of Two Markets
There are two different markets within the metro. New construction and resale of existing homes. For those that can afford to buy in the $250,000 to $350,000 price range, new construction is likely to be where you will find the most options with around 700 homes currently for sale. The challenge for most buyers in that category is making the jump to new home pricing. The median price for a single-family new home is currently $300,000.
The resale market is more affordable, but has a much lower selection of homes for buyers to choose from with less than 400 homes under $250,000. Traditionally, resale homes make up for over 50% of all homes sold in the metro and the average sale price of resale single-family home in 2020 was $236,000. Even with low mortgage interest rates, it’s difficult for most homebuyers to spend an additional $60,000 to buy a new home. So they wait for a resale home to hit the market and hopefully be the first to get to it and make an offer that will entice the seller to accept their bid.
As a result, the supply of resale homes making it to the active market is reduced to days, if not hours before they go under contract to purchase. This keeps the for-sale inventory levels flat or decreasing as not enough homes are listed to meet the daily number of buyers wanting to buy.
Why Aren’t Homeowners Selling
If the market is so active, why aren’t more homeowners putting their homes on the market?
The simple answer is because once a seller goes under contract, they then become a homebuyer. Faced with the realization their home can and will likely sell at lightning speed, they will then be competing with the mass of other homebuyers. The sellers are in a catch-22 situation. Sell, but not have a place to move, or stay put and wait for the listing market to open up.
New construction is trying to break up the log jam but this strategy has challenges. If a homeowner decides to build, they will likely still not put their home on the for-sale market until the new build is within 30 to 60 days of completion. And with new home builds taking between 4 and 6 months, that doesn’t do much to help the “Now” market.
Another solution is if a home seller has the financial ability to buy first, then sell their home after closing and move into the new property. The subject to sale offer is common, but with so many buyers out there that do not have something to sell, this is a tough option for a current seller to accept.
The Ultimate Solution
Time, patience and persistence with more homeowners willing to put their homes on the market! It won’t be a fast change because the shortage of listings didn’t happen overnight.
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As a business owner, you’re always thinking of what you need to do now. But you can’t forget about the future—yours and that of your business. So it may be a good idea to consider your personal retirement plan and business succession strategy as soon as possible.
Let’s start by looking at a few retirement plan possibilities you may consider:
- Solo 401(k)—This plan, which is also known as an Owner-only 401(k), is available to self-employed individuals and business owners with no full-time employees other than themselves or a spouse. A Solo 401(k) offers many of the same advantages of a traditional 401(k): a range of investment options, tax-deductible contributions and the opportunity for tax-deferred earnings growth. You may even be able to choose a Roth option, which allows you to make after-tax contributions that can grow tax-free. Your Solo 401(k) contributions consist of two parts: salary deferral and profit sharing.
In 2020, you can defer up to $19,500 of income, or $26,000 if you’re 50 or older. Your profit-sharing contribution is based on your earnings. The sum of your salary deferral and profit sharing can’t exceed $57,000 (or $63,500 if you’re 50 or older). If your spouse is employed by your business, you each can contribute the maximum amount allowed.
- SEP IRA—If you have just a few employees or are self-employed with no employees, you may want to think about a SEP IRA. You’ll fund the plan with tax-deductible contributions, and you must cover all eligible employees. (Employees themselves cannot contribute.)
You can generally contribute up to 25% of compensation, up to $57,000 annually. And you can fund your SEP IRA with virtually any type of investment.
- Solo defined benefit plan—Not many businesses still offer pension plans, also known as defined benefit plans, but you can set one up for yourself if you’re self-employed or own your own business.
This plan has high contribution limits, which are determined by an actuarial calculation, and your contributions are typically tax-deductible.
A financial professional can help you choose the appropriate retirement plan. But you’ll still need to think about succession planning. Of course, you can always sell your business outright at any time you like. Or you could leave your business to your children in your will, but if you give it to them gradually during your lifetime, you can become more confident they’ll be able to manage the business on their own.
Another alternative might be to transfer the business with a buy-sell agreement, which allows you to determine when, to whom, and at what price you can sell it. Because you can establish the purchase price as your business’s taxable value, a buy-sell agreement is useful in estate planning.
If you want to keep the business in your family, you might want to consider funding the buy-sell agreement with life insurance, so family members can use the death benefit proceeds to buy your ownership stake.
In any case, given the complexities and tax issues involved with succession planning, you’ll need to consult with your legal and tax advisors when creating a strategy. But don’t wait too long. You can’t predict the future, but by planning ahead, you can help achieve the outcomes you desire.
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