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April 21, 2016November 23, 2021

Coping with today’s market

It’s that time of year again; the real estate market is getting hot along with the temperature. And that’s about the only thing most are able to predict about this year’s real estate market. Since the Great Recession, early forecasts about home buying and selling trends have typically missed the mark; the trends have varied, sometimes significantly, from year to year. Notwithstanding a very active season, many will be in for a surprise; some will be pleased about their home sale, while others not so much. And if you are selling a home, I’ve provided some tips to help you cope with today’s market:

Home buyers in today’s market

The most important point to remember this year: many home buyers are looking to buy a home, but not necessarily yours. The notion that your home appeals to all home buyers is false. If your home isn’t selling as fast as you thought it would, consider stepping back for a moment to re-evaluate your home and marketing plan.

Most home buyers are looking for a “turn-key” home and won’t settle for just anything on the market. Additionally, most are not willing to spend time and money updating a home they just purchased. Know your home before marketing it and consider making repairs if your home has considerable deferred maintenance.

Prepare your home for today’s market

The next item to remember this year, is that no matter how well your home shows: be prepared for a less than complimentary home inspection. Because there are a number of systems and many components to your home; chances are that there are items that need attention, repairing, and/or replacement – which the home inspector will cheerfully point out. Home inspectors will visually inspect your home, probing structural components when necessary; a detailed report indicates their observations. Most home inspectors are not experts in all aspects of home construction; and commonly recommend other professionals to examine items more closely.

As a home seller, you should understand that buyers in today’s market are under pressure about the investment they are undertaking; and are willing to walk away based on the home inspection findings. Sometimes, it’s not what – but how it’s said that will rattle buyers. Regardless, an uncomplimentary report does not have to blow up the deal. Be prepared for extra rounds of negotiating after the home inspection. Every transaction is different, and your agent should provide guidance on what’s reasonable and appropriate.

A final thought: don’t get greedy, but don’t leave money on the table either. Although inventory remains an issue in a number of areas, don’t feel compelled to over price your home based on the lack of homes for sale. However, don’t be complacent with the “average” home sale price of the neighborhood either. When comparing recent neighborhood sales, you should make pricing adjustments (plus and minus) depending on differences in your home’s age, amenities, size and other factors.

A word of caution: There is a growing trend in the reliance on automated valuations by real estate agents. AVM (automated valuation models) are helpful, but not always accurate. These reports are based on public information about your home and may not include correct information. If your agent recommends a sale price based an automated valuation, you should review the report attentively. If the report confidence level is low to medium, be prepared to carefully review the report and comparables, making adjustments as needed.

Original located at https://dankrell.com/blog/2016/04/21/home-sale-tips-on-coping-with-todays-market/

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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.

March 25, 2016February 8, 2020

Is housing market in trouble?

home sales stats — Home sales stats from nar.realtor

Two seemingly mundane and unrelated news items were reported over the last couple of days without much attention, but could be a warning that housing activity is slowing. First are reports of disappointing home sales during February, while the other is about mortgage principal write downs.

The National Association of Realtors® (nar.realtor) reported in a March 21^st statement that February home sales plunged 7.1% from January’s sales; however, February sales were still 2.2% higher than the same time last year. The disappointing sales were recorded in all four national regions; and were likely due to a combination of extremely low inventory and increasing home prices.

NAR chief economist Lawrence Yun stated in the release that although the northeast blizzard may have had some impact, vapid sales were more likely due to the lack of supply and affordability. He stated, “…Finding the right property at an affordable price is burdening many potential buyers.” Yun pointed out that although there are gains in job growth, NAR’s latest quarterly Home Survey indicated that fewer respondents believed the economy was improving, while a lower number of renters stated it’s a good time to buy a home. Remaining optimistic, Yun qualified February’s data saying home buyer demand is still high, however, “…home prices and rents outpacing wages and anxiety about the health of the economy are holding back a segment of would-be buyers.”

NAR also reported that February’s median existing home price for all housing types was up 4.4% year-over-year; while exiting inventory is 1.1% lower compared to the same time last year, which leaves unsold inventory at a 4.4 month supply.

However, a housing slowdown may not be noticeable in my area. Statistics reported by the Greater Capital Area Association of Realtors® (gcaar.com) indicated that settlements during February for Montgomery County single family homes are actually up 19.3% and homes under contract increased 12.4% compared to the same time last year. However, February’s new inventory for Montgomery County single family homes decreased 3.4% year-over-year.

Although continued increases in home prices is good news for homeowners; it is easy to see that affordability is an impediment to home ownership for many would be home buyers. Additionally, possibly keeping home sales inventory down are the number of homeowners who continue to feel that they cannot sell because they still owe more than the value of the home. Consider that Realtytrac (realtytrac.com) reported that there were 6.4 million properties that were seriously underwater at the end of 2015; which represents about 11.5% of all homes with a mortgage.

In an effort to offer relief to underwater homeowners, the Federal Housing Finance Agency (conservator of Fannie Mae and Freddie Mac) approved a plan to reduce mortgage balances on a “large scale.” Joe Light reported for the Wall Street Journal (Fannie, Freddie to Cut Mortgage Balances for Thousands of Homeowners; wsj.com; March 21, 2016) that as many as 50,000 underwater homeowners could see their mortgage principal reduced by Fannie and Freddie.

Although the number of assisted homeowners seems small in comparison to the number of underwater properties reported by Realtytrac, and is not expected to impact the housing market; it is a milestone nonetheless. Mortgage principal reductions has been controversial, and has been bandied about by industry experts and regulators since the foreclosure crisis began in 2007. Light reported that the previous FHFA director, Edward DeMarco, was reluctant to support such a program because of the cost to taxpayers. However, current FHFA director, Melvin Watt, has taken a “measured approach” to the plan.

By Dan Krell
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August 27, 2015November 23, 2021

Will stock volatility spill into real estate market

After a few days of steep stock market declines, I, like others, wonder if there will be spill over into the real estate market. Many have forgotten the consequences of the dot-com crash of the late 1990’s, and the brief housing market slowdown that followed in 2000. One thing is certain – there is no consensus from the financial talking heads about the meaning and impact of the equity markets on the economy; some are optimistic, while others caution for rippling effects across other sectors.

MarketWatch’s Steve Goldstein estimated that $1.8 Trillion have been lost in the market over the past week (Households just saw $1.8 trillion in wealth vanish as stocks fall; marketwatch.com, August 24, 2015). And because many rely on their 401k and other equities investments for down payment funds on their home purchase – housing may be impacted. If mortgage rates increase, as anticipated earlier this year, combined with a lack of down payments; home prices could be pressured downward.

In the face of a stock market meltdown, the good news is that the housing market has been gaining momentum, such that existing home sales are as strong as just before the housing decline! According to a National Association of Realtors® (realtor.org) August 20^th press release, existing home sales “are at the highest pace since February 2007.” July existing home sales increased 2%; which is the tenth consecutive month showing year-over-year gains. Additionally, median home prices increased 5.6% compared to the same time the previous year.

Pending home sales, a forward looking indicator of homes under contract, have also been strong. An NAR July 29^th press release indicated that pending home sales increased 8.2% year-over-year during June; which is the tenth consecutive month for such an increase. Lawrence Yun, NAR Chief Economist, surmised that “Strong price appreciation and an improving economy is finally giving some homeowners the incentive and financial capability to sell and trade up or down…”

Locally, the Greater Capital Area Association of Realtors® (gcaar.com) reported that Montgomery County single family home sales increased 13.3% year-over-year during July; while pending home sales increased 13.2% year-over-year. However, July’s median home sale price for Montgomery County single family homes dropped slightly, from $460,000 to $458,000.

An interesting detail is that although home sales continue to increase, the NAR August 20^th release reported that some buyer pools are shrinking; first time home buyers, cash buyers, and individual investor buyers have decreased compared to the same time the previous year. In light of this, some are beginning to question the validity of NAR’s recent existing home sales data reporting. In addition to dwindling home buyer pools, ZeroHedge pointed out a data discrepancy between increased home sales and decreased mortgage applications by (rhetorically) asking the NAR, “where are the buyers coming from… and how long is this sustainable?” (Existing Home Sales Extrapolation Surges To Highest Since Feb 2007; zerohedge.com, August 20, 2015).

ZeroHedge alluded to NAR’s history of predictions of strong home sales and rising home prices through 2006. Of course, the NAR announced in 2011 of about five years worth of home sale data revisions, calling it “re-benchmarking.” According to the NAR, “data-drift” was revealed in existing home sales data compiled from MLS boards; that was due to a number of factors, including: double listings, and inconsistencies.

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February 25, 2015July 6, 2019

Stumbling housing market reignites housing policy debate

Surely 2015 is to be the year when the housing market would bounce back from its recent disappointing performance; at least that’s what I wrote back in November. But as January’s news from the National Association of Realtors® (NAR) is not as rosy as we expected; a housing policy debate, that has been subdued since 2010, gets heated.

The NAR revealed in a February 23^rd press release (nar.realtor) that although the pace of home sales increased compared to the same time last year, existing homes sales have declined to the lowest rate in nine months. The typically optimistic Lawrence Yun (NAR Chief Economist) was cited as saying “the housing market got off to a somewhat disappointing start to begin the year with January closings down throughout the country.” Adding that “seasonal influences” can make January data erratic, the combination of low inventory and home price gains over the pace of inflation seems to have slowed home sales – notwithstanding low mortgage interest rates.

Keeping mortgage interest rates low is not the sole solution; however, if it was, the housing market may have bounced back several years ago. Although a myriad of causes have been blamed for a lackluster housing market that has been trying to make a comeback for six years, most are correlational and incidental.

However, Richard X. Bove (Equity Research Analyst at Rafferty Capital Markets) recently made a case for a sole cause in his February 23^rd commentary (There’s a new mortgage crisis brewing; cnbc.com/id/102447414). Bove described how mortgage markets are in trouble; rules and regulations put into place to strengthen the market by increasing borrower standards have dried up a lot of the funding. And not necessarily in the way you might expect; besides shrinking the pool of qualified buyers, Bove suggested that the rules and regulations have made mortgage lending unprofitable and unpalatable for some lenders (leading them to walk away from the business).

As a response, it would seem as if the Federal Housing Finance Agency (FHFA) took steps to make mortgages increasingly available (returning to 3% down payment loans, and increasing the number of loans on Fannie and Freddie’s balance sheets). These actions, along with recorded losses in Q4 2014, Bove described, is making some nervous.

If you don’t remember, the FHFA was created in 2008 as a temporary conservator to Fannie Mae and Freddie Mac; whose original goals included: ensuring a positive net worth for Fannie and Freddie; reducing Fannie and Freddie’s mortgage portfolios; and facilitating a streamlined and profitable model for Fannie and Freddie.

Bove’s catch-22 conclusion, of either hindering the housing market by stopping Fannie and Freddie’s growth or increasing Fannie and Freddie’s debt obligations with continued growth, is not a new dilemma. The debate has been ongoing since 2008.

Having faded somewhat since 2010, the housing policy debate heated up during testimony given by FHFA Director Mel Watt on January 27^th during the congressional hearing, “Sustainable Housing Finance: An Update from the Director of the Federal Housing Finance Agency.” Trey Garrison of HousingWire succinctly portrayed opposing views (January 27, 2014; FHFA hearing: GOP fear housing policy headed for Crash 2.0; housingwire.com): “Democrats said policies in the past year are necessary to expand housing opportunities to lower income and challenged borrowers…” while, “…Republicans…said the administration is adopting dangerous policies that risk another housing crash that will put taxpayers on the hook for billions.”

By Dan Krell
© 2015

August 21, 2014July 5, 2019

Will home prices depreciate second half of 2014?

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 19^th 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 22^nd (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