Real Estate Market Archives - Real Estate News and Commentary

December 6, 2022December 6, 2022

What’s driving the housing market?

The November 30^th National Association of Realtors press release indicated that the Pending Home Sale Index receded 4.6 percent in October from the previous month. This is the fifth straight month of declines for the forward looking indicator. The index has declined about 37 percent from the same time last year. What is currently driving the housing market?

Many are blaming mortgage interest rates for the sharp declines. NAR Chief Economist Lawrence Yun stated, “October was a difficult month for home buyers as they faced 20-year-high mortgage rates…The upcoming months should see a return of buyers, as mortgage rates appear to have already peaked and have been coming down since mid-November.”

Declining Existing home sales

As for existing home sale stats, the NAR’s November 18^th press release indicated that existing home sales declined for the ninth straight month. Sales slipped 5.9 percent from the previous month, and dropped 28.4 percent from the same time last year.

Increasing home prices

Despite, the slipping sales, median home prices continue to increase. The median existing home sale price increased 6.6% from the same time last year. Although the hedge funds and main stream media talk about huge home price declines in 2023, the reality is that most experts expect home prices to maintain if not increase. If the housing market were really in trouble, existing home sale prices would have already started to recede, but home sale prices actually increased! This is probably why the FHFA announced in a November 29^th press release that conforming loan limits are increasing in high price areas from $647,200 to $726,200.

Inflation and the economy are on everyone’s mind. Zillow chief economist Skylar Olsen stated in a December 1^st press release that the economy and affordability will drive the housing market in 2023. “Affordability is going to be the biggest factor in housing for 2023, but there’s room for optimism on that front if mortgage rates recede.”

Lack of home sale inventory is currently driving the housing market

The reason for declining home sales and increasing home prices, that no one is really talking about, is the existing home sale inventory. The NAR reported that home sale inventory continues to decline. The current level of inventory is equivalent to 3.3. month’s supply, which is indicative of a sellers’ market.

On the surface, home sale stats may seem disastrous. However, keeping perspective, remember that the current housing market is being compared to the previous year of record setting home prices and sales. Also keep in mind that although home sales have slipped, home prices continue to increase. Mortgage rates seemed to have plateaued. However, unless existing home sale inventory increases significantly, expect subdued existing home sales and higher home sale prices.

By Dan Krell
Copyright © 2022

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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.

November 5, 2022December 13, 2022

Outperforming the housing market

In 2011 I wrote an article exploring the question of outperforming the housing market by attempting to time real estate transactions. The question was then aimed at home buyers and sellers. New research published in the Journal of Real Estate Research reveals more interesting data as it relates to real estate investors.

In my 2011 analysis of research and data, I discussed why attempting to “time the market” as an owner occupant wasn’t very favorable. It appeared as if attempting to time a purchase or sale didn’t yield the desired result. The conclusion was that long term home ownership was probably better than speculating on buying and selling homes on the exact bottom or top of the housing market.

Likewise, home sellers waiting for the housing market to rebound before making a move probably missed an opportunity as well. So, who is outperforming the housing market?

A recent article published by Wong, Deng, and Chau in the Journal of Real Estate Research (Do Short-Term Real Estate Investors Outperform the Market?; 2022, Vol. 44 Issue 2, p287-309) reveals an interesting conclusion.

The study attempted to further look into the incentives of short-term real estate investors, specifically how various market conditions affect short-term real estate investor performance. The study analyzed real estate transaction data from Hong Kong and found that three economic conditions were favorable to the investor’s performance that seem to mimic the current low-inventory market we are experiencing here. The three items that help the investor performance are: 1) having few sale comparables; 2) having sale prices of the comparables dispersed; and 3) market prices go down. The study’s conclusion is that buying and reselling withing three months generates a gross return that is 6 percent above market appreciation. The authors caution that their study is limited such that there are multiple investor strategies that need to be studied as to the effects on short-term real estate investor performance. They describe short-term real estate investors as engaging in arbitrage, which by definition is basically “home flipping.”

By Dan Krell
Copyright © 2022

October 25, 2022October 25, 2022

Perception of a housing crisis

If you’ve watched the news lately, you might get the feeling that the housing market is imploding. Unfortunately, the talking heads are reporting the titles of the news releases, such as the October 20^th National Association of Realtors press release headline “Existing-Home Sales Decreased 1.5% in September,” without delving into the details. Like anything else that’s reported, just parroting a headline doesn’t tell the entire story. Get the big picture and avert the perception of a housing crisis.

Here are the highlights of the NAR report: “Existing-home sales sagged for the eighth consecutive month to a seasonally adjusted annual rate of 4.71 million. Sales slipped 1.5% from August and 23.8% from the previous year. The median existing-home sales price increased to $384,800, up 8.4% from one year ago. The inventory of unsold existing homes declined for the second straight month to 1.25 million by the end of September, or the equivalent of 3.2 months’ supply at the current monthly sales pace.”

The takeaway is that yes, existing-home sales have been sluggish (eight consecutive months), however does that mean a housing crash? No. Consider the other important data points included in the news release: the median existing-home sale price increased 8.4 percent year-over-year, AND the inventory of unsold homes continues to decrease.

What’s your perception of a housing crisis ? For many, the memories are still fresh of the housing crisis of 2007 and subsequent foreclosure crisis. So, it’s not surprising that the media’s alarms go off when existing-home sales drop as they did recently. However, the fundamentals of today’s housing market are much different than that of 2008-2010. During the housing crisis of 2007, home sale prices plummeted when home sales dropped. Additionally, inventories of unsold homes swelled to record levels.

Today’s housing market is much different and looking at the entire picture, the stats tell a different story than what is being portrayed by the media. NAR Chief Economist Lawrence Yun chalks up the decline in sales to increasing mortgage interest rates, which are approaching the accepted historical average of 7 to 8 percent. He also points out “…Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory… The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010, when inventory levels were four times higher than they are today.”

By Dan Krell
Copyright © 2022

August 29, 2022August 29, 2022

Reading the housing stats

There has been lots of speculation about the economy and the housing market. Reading the housing stats, there are a few similarities in today’s housing market compared to that of 2006-2007. However, there are also many differences.

Of course, many of you reading the housing stats and bring up that this is as an indication of impending implosion. For example, the National Association of Realtors August 24^th press release report on pending home sales indicated that pending home sales “…dropped slightly by 1.0% from June. It was the second straight monthly decline and the eighth in the last nine months.” There are however, regional differences, “Pending sales fell in three of four major regions, with the West posting a small increase. Compared to the prior year, contract signings declined by double digits in each region, with pending sales in the West down 30%.” Pending home sales is a measure of how many homes went under contract during a specified period of time.

Existing-home sales (resale homes) also declined according to the National Association of Realtors. The NAR August 18th press release reported that existing-home sales “…fell for the sixth consecutive month to a seasonally adjusted annual rate of 4.81 million. Sales were down 5.9% from June and 20.2% from one year ago.”

Although the contracts and sales are evening out, home prices continue to climb. As reported by the NAR, the median home sale price increased 10.8 percent from the same time last year. According to National Association of Realtors Chief Economist, Lawrence Yun, “Home prices are still rising by double-digit percentages year-over-year, but annual price appreciation should moderate to the typical rate of 5% by the end of this year and into 2023. With mortgage rates expected to stabilize near 6% alongside steady job creation, home sales should start to rise by early next year…The ongoing sales decline reflects the impact of the mortgage rate peak of 6% in early June. Home sales may soon stabilize since mortgage rates have fallen to near 5%, thereby giving an additional boost of purchasing power to home buyers.”

And for those of you who are interested in distressed sales, distressed sales (foreclosures and short sales) have been essentially unchanged over the last year. July sales comprised about 1% of distressed sales.

By Dan Krell
Copyright © 2022

August 14, 2022August 14, 2022

The changing housing market is still viable

There are a number of ways to determine a changing housing market. An obvious indicator of a changing housing market is a swelling home sale inventory. According to the National Association of Realtors July 20^th press release, “inventory of unsold existing homes rose to 1.26 million by the end of June, or the equivalent of 3.0 months at the current monthly sales pace.” As a matter of comparison, home sale inventory rose 9.6 percent from the previous month, and 2.4 percent from the same time last year.

Another indicator of a changing housing market is remodeling activity. Believe it or not, there is an index for this. The Leading Indicator of Remodeling Activity (LIRA) is a product of the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. The LIRA projects that investments in home remodeling will “decelerate” from 2022’s 17.4 percent to 10.1 percent by the second quarter of 2023.

In a July 19^th press release, Project Director of the Remodeling Futures Program at the Center, Carlos Martín, stated: “Slowing sales of existing homes, rising mortgage interest rates, and moderating house price appreciation are expected to dampen owners’ investments in home improvements and maintenance over the coming year. Steep slowdowns in homebuilding, retail sales of building materials, and renovation permits all also point to a cooling environment for residential remodeling”

Although a changing market sounds ominous, it’s still a viable market. Abbe Will, Associate Project Director of the Remodeling Futures Program, stated: “While beginning to soften, growth in spending for home improvements and repairs is expected to remain well above the market’s historical average of 5 percent. In the first half of 2023, annual remodeling expenditures are still set to expand to nearly $450 billion.”

Other signs the market is still viable, is that first time home buyers are still a large part of the market, and all-cash transactions continue to be a factor as well. As indicated in NAR’s press release, first-time home buyers accounted for 30 percent of the home sales in June, which is an increase from May, but slightly down from the 31 percent the same time last year. Additionally, buyers paying all cash accounted for 25 percent of home sales, which is an increase from 23 percent the same time last year.

A final note on the health of the housing market, NAR reported that distressed, foreclosure and short sales accounted for less than 1 percent of home sales during June, which is basically unchanged from the previous year.

By Dan Krell
Copyright © 2022