High Expectations for the 2007 Market

By Dan Krell
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The past year’s real estate market was not what people expected. With much speculation and pessimistic media reports many expected the worst. The worst never happened and the numbers for 2006 were respectable, as home sales go.

It was interesting to see the inventory grow as the number of active listings increased through the year. In fact, 2006 has had the most active listings at one time since before 1999! Many home sellers were taken aback by the amount of competition they faced for potential home buyers; while at the same time home buyers were overwhelmed with the amount of choice.

Now that we are heading towards the end of the year, many home sellers are taking their homes of the market after a disappointing fall and many days on the market. These home sellers are anticipating re-listing their homes in the spring. In fact the number of active single family homes listed in Montgomery County has hovered around the 4000 unit mark since June, however recently dropped to about 3000 units in November (which is still more than last year at the same time) (GCAAR.com). While some of those homes did sell, most did not.

Although the average home price has steadily increased in the county, many neighborhoods are seeing depreciation in the form of lowered sales prices. The home price average in Montgomery County is more likely skewed due to the increase of home sales in the million dollar or more range. November showed a decrease in sales in all price ranges except $1.5M or higher. There was an increase of almost twelve percent in sales in November as compared to the same time last year for this price range; there were 296 sales of homes priced $1.5M and higher in November 2006 in Montgomery County.

Many are anticipating a brisker market this upcoming spring. Many forecasters are predicting a nationwide recovery in the real estate market place. While perusing the optimistic reports about the 2007 real estate market don’t expect a huge appreciation in home values. Many forecasters predict a balanced market across the nation. Economists for the National Association of Realtors predict that the number of existing home sales will maintain at the roughly the same level as 2006, however new home sales will continue to slide into 2007 (Realtor.org).

Locally, the outlook is also positive due to a strong economy, relatively low unemployment, and relatively low interest rates. Another positive sign for the market in 2007 is the foreclosure rate. A recent article in the Baltimore Examiner (examiner.com) reported about a 12% drop in Maryland foreclosures from 2005, while the rest of the country realized a 27% increase during the same time!

As the spring market arrives, we will see many homes returning to market along with new listings of existing homes. Adding to the many options available will be the high builder inventory, which has been accumulating through the fall.

Spring will also bring many home buyers to explore the market as well. However, with many choices to consider, the average days on market for listed homes will remain high. Let’s face the truth that the market has slowed; however, the good news is that we are not heading into oblivion.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel 12/13/2006. Copyright © 2006 Dan Krell.

Big Banks in Real Estate Brokerage

By Dan Krell

One of the biggest controversies in the real estate industry has been disputed since 2001, yet many realtors and most consumers are unaware it exists. What is it? The controversy is allowing banks to participate in real estate brokerage.

The controversy has root in the Gramm-Leach-Bliley act of 1999, also known as the Financial Modernization Act of 1999, which generally gave banks more freedom in affiliating with other financial institutions, such as securities and insurance brokers. In 2001, the Federal Reserve Bank and the U.S. Treasury Department felt that buying and selling a home was also primarily a financial endeavor, so they pushed for legislation to allow banks to become real estate brokers.

Banking proponents assert that allowing banks to participate in real estate brokerage is good for consumers. They state that it would increase competition and allow consumers the true “one stop shop” for financial services, and allow the reduction of costs and fees associated with the purchase of a home.

The proposed legislation was defeated consistently for several years. It remains to be seen if this will reappear in the next congress.

The opponents to the legislation have declared that the purchase of a home is not finance but commerce. The National Association of Realtors’ position was and is that finance and commerce should remain separate. Additionally, this type of legislation would be anti-competition as it would increase the general power of the financial institution which would decrease the availability of consumer choice (Realtor.org).

Additionally, there is concern over conflicts of interest. Besides that banks might push their listings just as they push to sell their proprietary mutual funds, loan officers and underwriters might be influenced to make poor loans on homes that are in the bank’s inventory. Can you imagine being turned down for a mortgage by your local bank, finding out later that your friend, who has a similar credit history, was approved because he was buying one of the bank’s listings?

Reducing costs and fees in the real estate transaction is always a great idea. The position that allowing banks to become real estate brokers would drive the cost of purchasing a home is questionable. Banks have a history of increasing fees as well as adding charges to services. A recent BankRate.com survey (December 1, 2005) confirms the view that banks have found ways to increase fees as well as hide service charges. ATM fees, returned check fees, and account maintenance fees are examples of the current focus of increases.

For a first time home buyer, the purchase of a home can be overwhelming and confusing. It is difficult enough for an average home buyer to understand the complexities of the transaction yet be able to see if the settlement sheet is padded with extra charges. Hopefully, the home buyer’s Realtor is able to spot any charges which are excessive or fake. However, if the Realtor is taken out of the process, the home buyer might not be able to spot any sham or excessive charges.

The issue of banks becoming real estate brokers is not just an issue of competition, but it may ultimately become an issue of privacy as well. Although the controversy is dormant for now, it is yet to be decided. As banks continue to push for more freedom, the debate could turn into a nasty battle.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel 12/26/2006. Copyright © 2006 Dan Krell.

Things to Come in 2006

By Dan Krell

In reading some of the real estate forecasts for 2006, I was reminded of H. G. Wells’ novel, “The Shape of Things to Come.” What does H. G. Wells have to do with Real Estate? Nothing. Well almost nothing. Any self respecting science fiction enthusiast knows that the 1933 novel about the future of mankind was eerily prophetic about the outbreak of the Second World War as well as some technological advances. However, the novel was pure science fiction.

So I had to ask myself, “what is it about economic forecasts, real estate market predictions specifically, that seem to be prophetic in one regard and erroneous in other details?” I believe that in order to get a balanced perspective you have to get information from various sources and pull the pertinent plausible statements to form the picture. The same holds true to the coming year in the local real estate market.

So what lies ahead?

The National Association of Realtors predicts 2006 to be the second best year in history for sales activity (Realtor.org). David Lereah, chief economist for the NAR, stated in a NAR press release on December 12 that he feels that economic conditions will be positive for the housing market in the coming year. He states that general economic conditions will be good to help sustain a stable real estate market.

Conversely, the UCLA Anderson Forecast (UCLAForecast.com), the folks who accurately predicted the recession in 2001, predicted in a recent press release that there will be a “weakness” in the national economy due to problems in the housing sector. Their vision is a weaker economy through 2007 because of a slower housing market and loss of construction and housing related jobs. The bottom line is that they believe that there is a rough road the next few years, but there will be no recession.

Interestingly enough you might think that Realtors who are active in the local market would have cohesive and consistent outlook on the future. That is not the case. Local Realtors who are quoted in Realty Times (realtytimes.com) share differing opinions about the state of the present market and offer differing views about the near future.

So, what can we make of all this confusing information? Well, with regard to mortgage interest rates, the Fed is expected to have at least one more increase planed, so it will remain to be seen where mortgage interest rates level off. Currently, mortgage rates are higher than they have been in recent history, but still hover at a respectable 6.25%. Additionally, home sales have dropped off from last year’s pace but prices are still increasing. So economically, it seems as if there is a sense of return to equilibrium.

What people have described as a bubble bust, or a downturn in the real estate market, is actually a return to a more balanced market. The dysfunctional expectation that a home should sell for $25,000 (or more) than the last home sold, and have many home buyers place an offer on one home in a moments notice will change to the more reasonable expectation of selling at market value and having a buyer contract on a home in several (or more) weeks.

Equilibrium. Normality. No matter how it is said, it is a vision of things to come.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel 12/19/2006. Copyright © 2006 Dan Krell.

Housing the Workforce

By Dan Krell
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It can not be over stated how good the real estate market has been for many home owners. The sharp escalation of home appreciation in the last few years has made many home sellers feel like they won the Maryland lottery.

Housing appreciation and home prices are not the only housing indicators escalating. The trend of decreasing housing affordability for middle income families is also escalating. Every year there are more middle income home buyers who were edged out of the market or for that matter did not even venture to purchase a home, because home prices escalated beyond their ability to afford a mortgage.

Housing for the middle income home buyer has been deemed “workforce housing.” Workforce housing as defined on the Montgomery County Department of Housing and Community Affairs web site (montgomerycountymd.gov) as affordable housing for families who fall between 80% and 120% of the median income for the Washington metropolitan area. In 2005, a family of four would fall into this category if the household income was between $71,400 and $107,000. Additionally, the county considers anyone who works in the county (e.g., police, firefighters, nurses, and teachers) and cannot afford housing to fall into this category as well.

It is clear that for many years there has been support for affordable housing and home ownership in general, as can be seen by the many state and county programs available, for qualifying home buyers. As a matter of fact, there has been an affordable housing conference in Montgomery County since 1991. The goal of the conference has always been to address issues related to affordable housing. The mission of the conference, as stated on their web site (affordablehousing.org), is to bring together elected officials, housing and community leaders, business professionals, activist, and others to work toward affordable housing solutions. The theme for the 2005 conference was “Work Here, Live Where?” and addressed the growing crisis of workforce housing.

The increasing number of families who earn more than the maximum to qualify for a Moderately Priced Dwelling Unit (MPDU) yet can not afford to purchase a home in the county are rising to crisis levels. The crisis has been identified by some governmental departments, yet others lag behind. Many commissioners who attended The Governor’s Commission on Housing Policy on January 2004 as given by the Maryland Department of Housing and Community Development (see minutes from January 6, 2004) concluded that workforce housing issues should be addressed.

The Maryland-National Capital Park and Planning Commission (mc-mncppc.org) has taken on the issue and generated a strategic plan as well as a web site to address the problem. Additionally, the MNCPPC created a program called “Housing Montgomery: Housing the People who make Montgomery County Work.” The program is to focus on initiatives that function to increase the supply and affordability of housing, improve data tracking, and expand community outreach.

The program development many initiatives, which include the development of a workforce information packet, discussion of employer assisted housing, discussion park workforce housing, discussion of Montgomery County Department of Parks and Planning employer assisted housing, and to expedite approvals for affordable housing.

Workforce housing will continue to be a concern for many years to come as housing costs continue to escalate. Hopefully, community leaders will continue to develop an agenda to assist Montgomery County’s workforce to live in the county

This column is not intended to provide nor should it be relied upon for legal and financial advice. This Article was origanlly published in the Montgomery County Sentinel 12/12/2005. Copyright © 2006 Dan Krell.

HUD is Kicking Back

Dan Krell © 2006

When you bought your home recently did your Realtor or lender tell you that you had to use a specific lender or title company? Did the seller require you to use the mortgage and title companies of their choosing? If so, you may have been denied your right to choose the lender and title company to conduct the settlement for your home purchase.

To help home buyers become educated consumers about settlement services a law was passed in 1974 called the Real Estate Settlement Procedures Act also known as RESPA. RESPA has many caveats associated with it however there are several common provisions associated with a home buyer’s choice of settlement companies and lenders.

First, RESPA requires that home buyers receive disclosures that disclose costs related to settlement, as well as outlining lender servicing and escrow account procedures, and disclosing relationships between settlement professionals and other real estate professionals. This protects the home buyer by allowing them to know what they are to expect with regard to fees, affiliated business relationships, etc.

Second, RESPA is widely known for prohibiting giving or receiving anything of value, including money, for settlement service referrals, also known as kickbacks. RESPA also prohibits fee splitting and receiving compensation for services that were not provided. This is done because kick backs typically increase fees charged to the home buyer, sometimes excessively, so as to “take care” of the referring party.

Third, RESPA prohibits a home seller from requiring a home buyer to use a specific title company or lender.

Penalties for violating RESPA are stiff. Violations of RESPA include civil and criminal penalties. The penalties vary depending on the infraction. For example, if someone is found guilty in criminal court of giving or receiving a kickback, they may be subject to a $10,000 fine and a year in jail. The civil penalty for kickbacks is the repayment of three times the fee in question.

Although kickbacks are not as common today as they were in years past, they still exist. In response, the U. S. Department of Housing and Development (HUD) has taken a firm stance on kickbacks in the last several years. There have been many out of court settlements in the last few years, and there may be some serious criminal charges pending as investigations continue.

It is not uncommon for home buyers, especially first time home buyers, to ask their Realtor for lender and title company recommendations. After all, most people do not buy homes very often. As a practice, many Realtors provide a list of several names of lenders or title companies for the home buyer to interview. The list is usually comprised of professionals with whom the Realtor has worked with in the past and (hopefully) had a good experience. As a home buyer, you can always start with whomever you bank with. It makes sense that since you have already developed a banking relationship with your bank, why not start there?

If you find yourself in the situation where you are “forced” to use a specific lender or title company, or you think this may have occurred in the past, you can contact HUD (HUD.gov) or contact the state attorney general’s office of consumer protection for additional information.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This colum was originally published in the Montgomery County Sentinel 12/5/2006. Copyright 2006 Dan Krell.