Affordable housing redux

Affordable Housing

Statistics and indices have indicated that buying a home has become more affordable in recent years. In fact, the October 2014 Trulia Rent vs. Buy Index indicated that buying a home was 38% cheaper than renting (trulia.com). Additionally, the S&P/Case-Shiller National Home Price Index released December 30th indicated that average home prices for the 10-City and 20-City Composites are at “autumn 2004 levels” (housingviews.com). However, while interest rates continue to be favorable along with an expanding inventory that offers more choices, obstacles remain to home ownership.

Unlike the high home prices that drove affordable housing concerns in the past, many would-be home buyers today face income and savings challenges. Statistics suggest that many do not earn enough to qualify for a home purchase and/or have not saved enough for a down payment and closing costs. The latest report (Q2 2014) of the Maryland Association of Realtors® First-time Homebuyer Affordability Index revealed a decrease in home affordability from 84.1% to 75.7%; which indicates that Maryland first time home buyers had 75% of the income required “to purchase a typical starter home” (mdrealtor.org).

More importantly, a survey conducted by the Consumer Federation of America (7th Annual Savings Survey Reveals Persistence of Financial Challenges Facing Most Americans; February 24, 2014, consumerfed.org), revealed that “most Americans are meeting their immediate financial needs but are worse off than several years ago.” And, “… that, despite the economic recovery, most Americans continue to face significant personal savings challenges….” Stephen Brobeck, Executive Director of the Consumer Federation of America and a founder of America Saves, was quoted to say: “Only about one-third of Americans are living within their means and think they are prepared for the longterm financial future. One-third are living within their means but are often not prepared for this longterm future. And one-third are struggling to live within their means.

With an eye to address housing affordability, the President reduced the FHA annual mortgage insurance premium (MIP). Increases in FHA’s MIP in recent years have helped offset losses from the foreclosure crisis; and inadvertently made mortgages more expensive. And although the recent MIP reduction helps more home buyers qualify, critics claim it increases FHA’s risk and exposure to future foreclosure losses. According to Zillow (How Much Can You Save with Lower FHA Annual Mortgage Insurance Premiums?; January 7,2015, zillow.com), a home buyer who has a 3.5% down payment on a 30 year mortgage of $175,000 can save about $818 per year (about $68 per month).

For those who have not saved enough for a down payment and closing costs, State and local initiatives offer down payment assistance and low interest rate mortgage programs. The Maryland Mortgage Program (mmp.maryland.gov) offers down payment assistance in the form of loans, an employer match program, or financial grants. Locally, the Housing Opportunities Commission of Montgomery County (hocmc.org) offers several down payment assistance options, including the House Keys 4 Employees program for many Montgomery County Employees. These programs have restrictions; you should check with each program for qualification and eligibility requirements.

The Montgomery County Department of Housing and Community Affairs (montgomerycountymd.gov/DHCA) offers additional affordable housing options: The Moderately Priced Dwelling Unit (MPDU) Program offers affordably priced homes to first-time home buyers who meet the program’s eligibility; and the Work Force Housing Program promotes “the construction of housing that will be affordable to households with incomes at or below 120% of the area-wide median.”

By Dan Krell
© 2015

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Why real estate and home sales will rebound in 2015

home for saleThe recent stumble of the housing market recovery has been a head scratcher for many. Surely low interest rates and an abundant number of homes for sale should have been incentive for any home buyer. But alas, many have been disappointed by the 2014 housing trends; even with sparse anecdotes of quick sales and bidding wars. However, many are optimistic about the housing market for 2015 because of the combination of low mortgage interest rates, increased access to credit, and moderating home prices – which could transform reluctant “looky loos” into eager home buyers.

Don’t count on low mortgage interest rates, per se, to incentivize home buyers. Although interest rates have been historically low since shortly after the financial crisis, it seems to not have been an incentive on its own to purchase homes. Industry experts have tried to pinpoint the timing of rate increases since rates first dipped below 5% in 2010. And even though rates were anticipated to have jumped when the Fed tapered its asset purchasing program this year, rates continue to be relative to historical lows. The average mortgage interest rate according to the Freddie Mac Primary Mortgage Market Survey (freddiemac.com) is 4.01% (as of November 13th); yet home sale volume continues to lag behind 2013 figures.

Very low interest rates may continue into 2015. Back in 2012, the Federal Reserve Open Market Committee indicated that interest rates would remain “exceptionally” low through 2014. Fast forward to September’s Federal Reserve Open Market Committee meeting; the October Fed press release (federalreserve.gov) reported the FOMC maintaining the 0 to ¼ percent target rate, even for a “considerable time following the end of its asset purchase program…”

On the other hand, loosening mortgage credit underwriting could help some would-be home buyers; but it is unclear who would take advantage of such programs, and how it will help them. Tightened credit and underwriting standards that resulted from the financial crisis, along with government intervention in the form of the Dodd – Frank legislation, created regulation and stringent lending standards (such as comprehensive validation of financial standing and strict adherence to debt to income ratios); which critics point to as having hampered lenders from making loans. However, some lenders are beginning to introduce less restrictive mortgage programs, which may accommodate the self employed and those with high student loan debt.

Of course, home prices have been a point of contention between home buyers and sellers for a number of years. Home sellers seeking higher prices are sometimes thwarted by home buyers looking for affordability and value. The seeming home price tug-of-war that favored home sellers in 2013, appeared to turn back in favor of home buyers during late summer of 2014. The October 28th release of the S&P/Case-Shiller Home Price Indices (housingviews.com) reported further deceleration of home price appreciation. The National Index showed a 5.1% annual gain, which is lower than the 5.6% annual gain reported in July. The Washington DC region saw a 3.1% annual increase; but a 0% change in August, compared to the 0.1% change in July.

Additionally, the 15% increase in national foreclosure activity, as reported by RealtyTrac (realtytrac.com), could be a wildcard for home prices. It remains to be seen if the 26% increase in foreclosure activity in the D.C. metropolitan area from the previous year is a trend, or just a result of lenders clearing “shadow” inventory.

© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home designs for multigenerational families under one roof

For Sale“Wait long enough and it will come back in style” is a saying that typically applies to clothing styles and fashion. And unlike fashion trends, which typically relies on pop culture, fads, and a designer’s vision; home design trends are more practical and rely on changing life styles, advances in building technologies, and the development and/or use of new construction materials.

Although the idea of extended family living under one roof has not been commonplace for decades, multigenerational life styles have been trending in recent years. And this year, there was a surge in the demand of multigenerational home designs.

Consider a Pew Research Center analysis, as reported by Sally Abrahms in the AARP Bulletin (3 Generations Under One Roof, April 2013; aarp.org), that indicated multigenerational households increased 10.5 percent (which is about 16.7 percent of the U.S. population) between 2007 and 2009. She also cited a 2012 survey by the Pulte Group, that indicated about 32 percent of adult children plan to live with their parents.

Such surveys make sense, if you consider that our population is increasingly aging. And as long term care costs are increasing, there is growing pressure on adult children to take care of their parents during their waning years and declining health (as was once expected decades ago). Consider the cost of long term care as reported by Genworth Financial (genworth.com): the 2014 Maryland median cost of a private one bedroom accommodation in an assisted living facility is $40,800 per year; while the 2014 Maryland median cost for a semi-private room in a nursing home is $98,368 per year.

Besides the rising aging population, Abrahms also pointed out that multigenerational living is also due to the return of young adults to their parents’ homes. Also known as the “boomerang generation,” many pay rent and contribute to housing costs. About 75% of young adults aged 25-34 moved back with parents; as well 61% of young adults aged 25-34 who know of friends or family who moved back with parents due to lack of living arrangements, lack of money, and/or lack of employment.

In the past, the extended families that lived under one roof had little choice but to make the best use of a home typically designed for one family. However, home builders have taken notice of the trend in multigenerational households and have responded. Amy Taxin, of the Associated Press, reported (The family that stays together: Homebuilders are making room for more multigenerational households; Associated Press – The Washington Times, April 16, 2012) that builders are offering single family home designs with “…semi-independent suites with separate entries, bathrooms and kitchenettes. Some suites even include their own laundry areas and outdoor patios for additional privacy, though they maintain a connection to the main house through an inside door.

Taxin pointed out multigenerational housing options, which includes: Lennar Corp, which offered a 3,400 square foot home in the Las Vegas area that contained 700 square foot suites; and Standard Pacific Homes that rolled out the “casitas” idea which is independent living areas attached to the main house.

After many decades of the “break-away” family, a number of socio-economic factors have come together to bring about the reintegration of the extended family under one roof. The idea that multigenerational living is once again popular has created a new niche and trend for home builders and architects.

© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home equity entitlements, home prices, and talk of external price controls

single family homeA home buyer who visited a recent open house told me that home sellers need to “let go of their perception of entitled equity.”

I will pause here for a moment, as you are no doubt trying to make sense of the last statement.

Was this visitor verbalizing that a seller’s home equity be measured and controlled? And the follow up question might be: “Since when is a home owner’s equity perceived as an entitlement?” Was the buyer saying that there should be outside intervention to determine the equity a home owner may net on their sale (so as to make housing affordable), much like rental controls that exist in some areas around the country?

Who makes the decision as to how much equity a home owner may realize (net)? Sure, one could argue that home equity is an intangible concept that comes from the perceived value of your home; where the value is relative until it is realized (liquidated). You could also say that equity is realized through liquidation of the home by either selling it (or cashing out with a mortgage or equity line of credit); the value being the price a buyer is willing to pay, (or the amount a lender decides so as to make a loan). So it seems that when it comes to home sales, market forces still (mostly) determines the sale price and the amount of equity (if any) the home seller nets from the sale. Simply put – buyers and sellers negotiate home prices; generally, buyer pushback on listing prices can pressure sale prices to decrease, much like high demand can pressures prices to increase.

Let’s give the open house buyer the benefit of the doubt; maybe having outside intervention was not what he meant by saying home sellers need to let go of their perceived entitled equity. Maybe he was using (or misusing) economic jargon to make a point by expressing his opinion that housing is currently overpriced.

As I wrote in August, if you want to know where the housing market is headed, ask a home buyer. And it seems as if this buyer is not alone in his sentiment, as the attitude that home prices are too high is (again) an increasing view among many home buyers.   It could be that the housing market is encountering what was experienced in 2009, when at that time there was a growing disparity between the price home sellers are asking and what home buyers are willing to pay. After all, it was during 2008-2009 when similar attitudes were strongly expressed, a time when rapidly falling home prices did not encourage home sales.

Quentin Fottrell pointed out in his pithy MarketWatch analysis of recent housing data (10 most overvalued (and undervalued) housing markets, marketwatch.com, 10/1/2014) that “Seven of the top 100 metro areas are overvalued by more than 10%, the highest number since the first quarter of 2009.” He also mentions that the last time this occurred was early in the housing bubble; but Fottrell says there should be little concern of current housing bubble because of the current economic environment (jobs and construction).

Conversations with home buyers are extremely valuable to home sellers for many reasons. What you might come away from this conversation is that there is continued push back on listing prices; and unless home sellers are responsive to pricing feedback, they should prepare for a long time on market.

© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Will home prices depreciate second half of 2014?

house for sale

It’s no secret that the pace of home sales has slowed during 2014. So what’s ahead for real estate and the housing market? If you really want to know, Irwin Kellner, Chief Economist for MarketWatch, has some advice. In his August 19th MarketWatch.com piece (Opinion: Don’t count on U.S. consumer to save economy) he eloquently and succinctly stated, “If you are trying to discern where the economy is heading, look at the consumer.” And this applies directly to real estate too.

July housing figures from the National Association of Realtors® are due to be released this week (July housing press release August 21st); and although good news may be suggested, the numbers may be revealing of where the market is heading – and it may not be good. The NAR July 22nd (realtor.org) press release indicated that June’s existing home sales increased (compared to May 2014), however it stated that existing home sales were down 2.3% compared to the same time last year. In the area where I list and sell homes, Montgomery County single family home closings (sales), reported by the Greater Capital Area Association of Realtor® (gcaar.com) also dropped off in June (decreased 1.5%); and particularly telling is July’s decrease of 16.2% compared to the same time last year, as well as the 7.4% decrease year to date (compared to last year)!

The silver lining is that NAR reported that median home prices have increased in 71% of the “measured markets.” However, 27% of the measured markets showed a decline in median home prices from last year. Montgomery County median home sale prices are moderating (according to GCAAR stats): increases were about 3% during June and about 2% during July compared to the same periods last year.

Taking Irwin Kellner’s suggestion of “looking to the consumer,” let’s look at home buyer behavior trends; which may be understood through home absorption rate (the number of homes sold compared to the number of available listings during a given time period). It should be no surprise that the home absorption rate decreases compared to recent years due to the steady growth of home inventories and the reduced number of closings. Surprising is the rate of decrease in the absorption rate (calculated from MLS data) during June and July compared to the same periods last year (a decrease of 15% and 39% respectively).

Like the average consumer, it seems that home buyers may have become a bit skittish. Kellner points out that contrary to economist’s expectations, the August report of the Thomson Reuters/University of Michigan survey of consumer sentiment has dropped to a 10 month low. Additionally, he reported that although there has been some good news about employment, he argues that wages are not keeping up with inflation due to the nature of many newly created jobs, which are temp or part-time. Furthermore, he states that consumer savings are either low or “depleted.” Rounded out by the usual concern about job security, geopolitics, and the general economy: Kellner gives us a glimpse of today’s consumer.

As for real estate, the statistics suggest that the housing market may be at another crossroads. Homes sales have already dropped off during the busiest time of year, and it may be reasonable to expect that sales for the remaining year may also be subdued. The mediating factor will be home prices; which may eventually decline as home sellers try to be competitive with other listings, as well as entice home buyers to buy their homes.

By Dan Krell
© 2014

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.