Housing inventory crisis?

housing inventoryThe low housing inventory crisis has plagued the housing market for about six years.  Low inventory has frustrated home buyers and all but eliminated move up home buyers.  The ongoing housing inventory crisis is an obstacle to a balanced housing market.

As a result of the ongoing housing inventory crisis, existing home sales may see a decline in the next few months, when spring sales should be strong.  Seasonal increases are a given, as National Association of Realtors (nar.realtor) data indicated a 3.0 percent month-over-month increase for February existing home sales and a 3.1 percent month-over-month increase in the Pending Home Sale Index (the Pending Home Sales Index is a forward-looking dataset indicating the number of homes that are under contract).  However, February sales only increased 1.1 percent from last year.  But the tell of slowing activity is the 4.1 percent decrease in pending home sales from last year.

Most experts blame the sluggish home sale activity on low housing inventory.  NAR’s reporting that February’s seasonal month-over-month 4.6 percent increase of total housing inventory is expected.  However, the 8.1 percent decrease in housing inventory compared to last year is worrisome.

The Greater Capital Area Association of Realtors (gcaar.com) March 2018 data for single family home sales in Montgomery County indicated a decline in activity across the board.  Listings decreased 11.1 percent month-over-month and 7.8 from last year.  Contracts decreased 6.6 percent month-over-month and 6.9 percent from last year.  While closings only decreased 3.8 percent month-over-month, there was a 7.8 percent decrease from last year.

Another sign that that the housing market is in crisis is last week’s announcement from Zillow.  If you have not yet heard, Zillow is expanding their Instant Offer program and plans to jump into the housing market (zillow.com).  They plan to fix and flip homes by making cash offers and buying houses like other investors who participate in their IO program. The homes will be listed for sale with real estate agents who subscribe to Zillow’s Premier Agent program, as well as select partner brokers.

Zillow Chief Marketing Officer Jeremy Wacksman stated,

“Even in today’s hot market, many sellers are stressed and searching for a more seamless way to sell their homes…They want help, and while most prefer to sell their home on the open market with an agent, some value convenience and time over price. This expansion of Instant Offers, and Zillow’s entrance into the marketplace, will help us better serve both types of consumers as well as provide an opportunity for Premier Agents to connect with sellers. This is expected to be a vibrant line of business for us and for our partners in the real estate industry, while providing homeowners with more choices and information.”

The venture into flipping is a huge deviation for the internet juggernaut, whose revenue is mostly generated by selling advertising and leads to real estate agents and loan officers.  The reaction in the industry is mixed, however Zillow’s stock dropped 7 percent the day after the announcement.  Critics, including experienced real estate investors, scoffed at Zillow’s ambitious plan to flip a house within ninety days.

In a market where home owners are reluctant to sell, and frustrated home buyers are dropping out, Zillow needs to find ways to increase lead generation to grow subscribers (see why tech models looking for alternate revenue).

While being ridiculed by many, Zillow’s flipping plan may be a brilliant strategy to generate home seller leads for agents.  Zillow acknowledges in their press release that “the vast majority of sellers who requested an Instant Offer ended up selling their home with an agent, making Instant Offers an excellent source of seller leads for Premier Agents and brokerage partners.”  If Zillow’s plan works, it could also grease the wheels of the housing market by turning reluctant home owners into sellers.

As a home seller, the home sale inventory shortage limits your competition.  But be aware that it’s not entirely a seller’s market.  Your home’s condition can significantly lower the sales price, or even prevent a sale.  Serious consideration should also be given to your listing price.  Additionally, you should focus your attention to preparing your home to show to home buyers.

Copyright© Dan Krell
Google+
If you like this post, do not copy; instead please:
link to the article,
like it on facebook
or re-tweet.

Protected by Copyscape Web Plagiarism DetectorDisclaimer. 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.

Interest rate increase – Don’t panic

interest rate increase
45 years of mortgage interest rates

Last week, the Federal Open Market Committee (FOMC) decided to raise the federal funds rate. The federal funds rate is the interest rate that is charged to banks for borrowing overnight funds to maintain the required target funds. Although the Fed interest rate increase means that a banks’ business is getting more expensive, it doesn’t necessarily mean that mortgage interest rates increase in kind.

If mortgage rates are not always affected by the Fed’s interest rate increase, then what is?

Katherine Reynolds Lewis pointed out that the FOMC’s interest rate hike indirectly influences jobs, wages, prices of the things we buy, and other items (7 ways the Fed’s decisions on interest rates affect you; bankrate.com; March 20, 2018). She states, “Sometimes mortgage rates go up when the Fed increases short-term rates, as the central bank’s action sets the tone for most other interest rates. But sometimes mortgage rates fall after the Fed raises the federal funds rate.” An example of this is the seventeen rate increases during 2004-2005 when mortgage interest rates initially dropped, then slightly increased a year later. And most recently, the three Fed rate increases during 2017 when mortgage interest rates remained stable.

The reason why a FOMC interest rate increase doesn’t always affect mortgage interest rates is because mortgage interest rates are tied to the bond market. The bond market is typically a bellwether of the economy. It is highly likely that the bond market baked in last week’s Fed’s rate increase prior to the FOMC announcement. Bond yields have already been increasing due to an improving economy, which pushed mortgage rates higher in recent weeks.

In fact, the Freddie Mac Press release the day after the Fed’s announcement indicated that mortgage rates increased one basis point (freddiemac.com; March 22, 2018):

“The Fed’s decision to raise interest rates by a quarter of a percentage point puts the federal funds rate at its highest level since 2008. The decision, while widely expected, sent the yield on the benchmark 10-year Treasury soaring. Following Treasurys (sic), mortgage rates shrugged off last week’s drop and continued their upward march. The U.S. weekly average 30-year fixed mortgage rate rose 1 basis point to 4.45 percent in this week’s survey.”

Immediately following the Fed’s interest rate increase, NAR’s chief economist, Lawrence Yun, statedWe are in the middle innings of monetary policy normalization (nar.realtor, March 21, 2018).” Yun believes that the labor market is pushing the Fed to act to stave off inflation. He stated that consumers should expect more rate increases throughout 2018. However, he believes that increased new construction can belay future Fed rate increases:

“Housing costs are also rising solidly and contributing to faster inflation. The one thing that could slow the pace of rate increases would be to tame housing costs through an increased supply of new homes. Not only will more home construction lead to a slower pace of rate hikes, it will also lead to faster economic growth. Let’s put greater focus on boosting home construction.”

Yun’s call to home builders to increase housing stock is preaching to the choir. The housing market’s tight sale inventory should already be spurring home builders to crank out new homes. But there are challenges. The latest new construction statistics released by the US Census (census.gov) indicated that building permits issued during February were 5.7 percent lower than January’s permits, but 6.5 percent higher than last February.

Copyright© Dan Krell
Google+
If you like this post, do not copy; instead please:
link to the article,
like it on facebook
or re-tweet.

Protected by Copyscape Web Plagiarism DetectorDisclaimer. 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.

New homes allure is neurological

new homes
New homes (infographic from candysdirt.com)

Last week I mentioned that new home sales jumped 18.7 percent year-over-year, which is a ten-year high.  It should come as no surprise that new homes are selling like hotcakes.  After all, existing home inventory has been and remains historically low, which doesn’t give many options to home buyers.  But there are other reasons for the allure of new construction.  Some of the home buyers’ motives are apparent and some are not so obvious.

The idea of buying new construction goes beyond the “new home feel.”  Buyers of new homes are attracted to modern designs and trends that are incorporated into new houses.  New home construction takes advantage of modern building techniques and materials that allow for the open floor-plan concept that many home buyers prefer.  Many of the materials used in new construction are “engineered” for efficiency and longevity.

Buyers of new homes like the feeling that there will be minimal maintenance for the first year.  Everything is brand new and there is sense of confidence that the home’s systems won’t need major repairs or replacement.  Being the first owner of a home also gives assurance that they won’t have to deal with the poor maintenance habits of the previous owner.  This is a plus for home buyers who don’t have a lot of financial reserves to address home maintenance emergencies.  Instead, they can begin to save and budget for future repairs and replacements that should be years down the road.

New home builders take advantage of current trends in green building practices.  Many new home builders tout their LEED certification, demonstrating their commitment to energy efficiency and sustainable resources.  Green building practices are not only used when the home is built, but is actually built into the design.  Home owners seeking LEED certified builders believe they will have a smaller impact on the environment and save money on energy costs.

A new trend that buyers are pursuing is the “healthy home.”  The healthy home concept emphasizes the quality of the air inside the home.  Home buyers are becoming aware of the physical and environmental benefits of good indoor air quality, which can improve their emotional well-being and reduce the potential for respiratory distress.

But there is another reason why home buyers are attracted to new homes, and it lies within the brain.  Research has demonstrated time and again that consumers respond to novelty.  This means that home buyers have a tendency to want “new.”  This can be interpreted into making an old home new by renovating a kitchen, bathroom, etc.  Or it can mean buying a newly built home.

new homes
the desire for new homes may start with the limbic system (infographic from success-mohawk.com)

The novelty seeking behavior of the home buyer isn’t just a choice, as some may argue, it’s neurological.  Basically, the desire for a new home lies within the brain.  A study conducted by Nico Bunzeck and Emrah Düzel (Absolute Coding of Stimulus Novelty in the Human Substantia Nigra/VTA; 2006; Neuron 51, 369-379) demonstrated that the hippocampal region of the brain responds to novel (new) stimuli.  The hippocampal region is part of the limbic system, which is noted for being responsible for memory and emotions.  It has also been associated with motivation.

The study also discusses the idea that novelty seeking behavior isn’t just emotional, but it is also rewarding.  This means that there is a behavioral loop for seeking new things, including buying a new home.

Home sellers need to take note of these findings.  Translating this study to home buyers may mean that a home’s feeling of “newness” is important, regardless if it’s construction, renovation, or even how the home is decorated.  Understanding what attracts and motivates home buyers can be the tipping point to get a home sold.

Copyright© Dan Krell
Google+

If you like this post, do not copy; instead please:
link to the article,
like it on facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector
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.

Consumer data breach

consumer data breach
Consumer data breach (infographic from breachlevelindex.com)

If you haven’t heard of the Equifax consumer data breach then you’re either uninformed or you just don’t care. Regardless, this breach of personal and private information should make you very concerned.  If not for your own personal data, then for our economy.  The Equifax breach was a massive data heist that included names, birth dates, addresses, phone numbers, and in some cases driver’s license numbers.

Besides causing personal harm, this data breach has the potential to wreak widespread economic havoc.  It was reported that the hack could impact up to 143 million consumers (almost half the country’s population is at risk).  If only 1 percent of the 143 million are not able to buy a home as a result of this data breach because of identification fraud or other credit report problems, that would be about 1,430,000 fewer homes sold, which is about 26 percent of all the existing homes sold in the US last year.  To put it in perspective, there was only a 20 percent drop in existing home sales from market peak (2006) to trough (2009) triggering the worst housing market since the Great  Depression and wiping out much of the country’s real estate wealth.

Let’s be clear, this is not a wake-up call.

The wake-up call came years ago when consumer data breaches and hacking first got the attention of the public and government.  Since, the snooze alarm has continually been reset.  According to the Privacy Rights Clearinghouse (privacyrights.org), since 2005 there have been 7,671 data breaches totaling to 1,070,164,636 records breached.  The clearinghouse only counts the data breaches that “have a high chance of exposing individuals to identity theft.”

One of the first consumer data breaches to draw government ire and fines was the Choicepoint breach in 2005.  The 145,000 consumers affected by that breach pales in comparison to the Equifax consumer data breach.  Choicepoint was fined $10million by the FTC as well as having to provide $5million for consumer redress.

Since Equifax’s public announcement of the consumer data breach, Congress and the Consumer Financial Protection Bureau has called for hearings.  Of course, hearings take time and are a knee jerk reaction to the damage that has already been done.  But the hearings will address the many questions surrounding this incident, such as: how the hack occurred; why it allegedly took Equifax two months to reveal the hack; and why were Equifax executives allegedly allowed to sell company stock before the data breach announcement?

And because of the potential financial and economic impact of hacking and consumer data breaches, the questions that should also be asked include: Why hasn’t government taken steps to protect such information prior this data breach?  How will government protect consumers moving forward?

Are consumer data breaches becoming acceptable?

Equifax’s incident is not the first of its kind, and unfortunately, nor will it be the last.  But it is the largest breach of private and personal information to date.  This incident should make you wonder if the stewards of our private and personal information, along with the government agencies and bureaus, are incapable of or not totally invested in protecting the consumer.

Be vigilant.

Equifax has set up a site to check if you’re affected by this data breach, however many have demonstrated that it does not work properly.  It may be best to assume you’re at risk and take necessary actions to protect yourself. The Federal Trade Commission (www.consumer.ftc.gov/blog/2017/09/equifax-data-breach-what-do), the CFPB (www.consumerfinance.gov/about-us/blog/identity-theft-protection-following-equifax-data-breach) offer tips in protecting your personal and private data.

Copyright© Dan Krell
Google+

If you like this post, do not copy; instead please:
link to the article,
like it at facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector
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.

Improving home buyer credit scores

home buyer credit scores
Credit scores (infographic from visual.ly)

There’s been a lot of anticipation about the new credit scoring model by VantageScore (vantagescore.com).  It’s supposed to increase the availability of credit to many consumers.  Launching this fall, VantageScore 4.0 is touted to be a more accurate scoring system that uses trending data instead of “snapshots.”  This credit scoring system is also supposed to help those with limited credit, and incorporates the improved credit reporting standards included in the National Consumer Assistance Plan.  This and other new scoring systems have a lot of promise, but will improving home buyer credit scores help the mortgage process?

Let’s take a step back to see how home buyer credit scores reporting has evolved in recent years.  The National Consumer Assistance Plan (nationalconsumerassistanceplan.com) was launched in 2015 as a result of an agreement between the credit reporting agencies (Equifax, Experian, and TransUnion) and New York Attorney General Eric Schneiderman.  The agreement stemmed from Schneiderman’s investigation into the credit reporting agencies’ practices including (but not limited to) the accuracy of collected data, the practices in handling consumer disputes, and the reporting of medical debt.

The National Consumer Assistance Plan’s focus is to improve the consumer’s experience as well as increase data quality and accuracy.  Consumers will have increased information related to credit report disputes, including instructions on what to do if they’re dissatisfied with the result of their dispute.   Additionally, there is an “enhanced dispute resolution process” for fraud victims.

Among the many changes made by the National Consumer Assistance Plan to increase accuracy and quality of data includes: issuing consistent standards for those who report data to the credit agencies; medical debt won’t be reported during a 180-day waiting period so as to allow for insurance payments to catch up with billing; and the elimination of reporting of debts that were not contractual (such as parking tickets).

From The National Consumer Assistance Plan:

Consumers visiting www.annualcreditreport.com, the website that allows consumers to obtain a free credit report once a year will see expanded educational material.

Consumers who obtain their free annual credit report and dispute information resulting in modification of the disputed item will be able to obtain another free annual report without waiting a year.

Consumers who dispute items on their credit reports will receive additional information from the credit reporting agencies along with the results of their dispute, including a description of what they can do if they are not satisfied with the outcome of their dispute.

The credit reporting agencies (CRAs) are focusing on an enhanced dispute resolution process for victims of identity theft and fraud, as well as those who may have credit information belonging to another consumer on their file, commonly called a “mixed file.”

Medical debts won’t be reported until after a 180-day “waiting period” to allow insurance payments to be applied. The CRAs will also remove from credit reports previously reported medical collections that have been or are being paid by insurance.

Consistent standards will be reinforced by the credit bureaus to lenders and others that submit data for inclusion in a credit report (data furnishers).

Data furnishers will be prohibited from reporting authorized users without a date of birth and the CRAs will reject data that does not comply with this requirement.

The CRAs will eliminate the reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as traffic tickets or fines.

A multi-company working group of the nationwide consumer credit reporting companies has been formed to regularly review and help ensure consistency and uniformity in the data submitted by data furnishers for inclusion in a consumer’s credit report.

Recent credit reporting changes are sure to make an impact for home buyer credit scores.  But, you may still have impaired credit that would make it difficult for you to buy a home.  So how can you improve your home buying process?  Be proactive!

A credit report contains a lot of information about you.  It reveals your personal information, including where you’ve lived and worked.  It indicates the credit cards and other loans you have, and how you pay on them.  It may also include any collection activity against you, as well as bankruptcies, liens or judgements.  Know what’s being reported about you by obtaining your free annual credit report (annualcreditreport.com) and dispute discrepancies.  Successful disputes should improve your credit score.

However, if your home buyer credit scores are impaired as the result of poor habits, don’t despair.  You can improve your credit report and score on your own by creating “good” credit habits.  First: make sure you pay your bills on time.  Planning specific times each month to pay bills will make it hard to miss a payment.  Second: reducing credit card balances may improve your credit score.  And third: be mindful of how many credit cards you maintain.  Having too many credit cards could lower your credit score.  Also, be careful to not apply for too much credit at any given time, as these “inquiries” could lower your score as well.

To learn more how a credit report functions, affects you, and how improve your home buyer credit scores, visit the Consumer Financial Protection Bureau (consumerfinance.gov), the Federal Trade Commission (ftc.gov), and the Federal Deposit Insurance Corporation (FDIC.gov).

Copyright© Dan Krell
Google+

If you like this post, do not copy; instead please:
link to the article,
like it at facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector
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.