Housing market 2017

housing market 2017
Housing Market 2017(infographic from RE/MAX National Housing Report remax.com)

There’s no doubt that 2016 was an outstanding year for real estate and the housing market.  In fact, National Association of Realtors chief economist Lawrence Yun was reported to say in a January NAR press release (www.nar.realtor) that the 2016 housing market was the best since the Great Recession.  There were 5.45 million total existing home sales in 2016, which exceeded 5.25 million during 2015.  What is necessary for a great housing market 2017, and how will it finish the year?

January’s sales were strong and Dr Yun stated in the press release that there is “resilience” in a “rising interest rate environment:”

“Much of the country saw robust sales activity last month as strong hiring and improved consumer confidence at the end of last year appear to have sparked considerable interest in buying a home…

Market challenges remain, but the housing market is off to a prosperous start as home buyers staved off inventory levels that are far from adequate and deteriorating affordability conditions.”

Home prices also surged during 2016.  A February 28th S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index press release (spindices.com) indicated a 30-month index high, increasing 5.8 percent during December.  The Seattle, Portland and Denver regions were at the top during this period, posting gains of 10.8 percent, 10.0 percent and 8.9 percent respectively (the Washington DC region gained a respectable 4.2 percent).  David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices stated:

“Home prices continue to advance, with the national average rising faster than at any time in the last two-and-a-half years…One factor behind rising home prices is low inventory. While sales of existing single family homes passed five million units at annual rates in January, the highest since 2007, the inventory of homes for sales remains quite low with a 3.6 month supply. New home sales at 555,000 in 2016 are up from recent years but remain below the average pace of 700,000 per year since 1990. Another factor supporting rising home prices is mortgage rates. A 30-year fixed rate mortgage today is 4.2% compared to the 6.4% average since 1990. Another indicator that home price levels are normal can be seen in the charts of Seattle and Portland OR. In the boom-bust of 2005-2009, prices of low, medium, and high-tier homes moved together, while in other periods, including now, the tiers experienced different patterns.”

Of course, the record year was nowhere near the peak market pace of 6.48 million existing home sales during 2006.  However, the economics of the market during that time was different; being influenced by outside forces such as uber-easy money policies and overzealous speculation in the housing market.

The peak market sales records may be a benchmark of a sort.  But in retrospect, those numbers are a reflection of a distorted market where speculators bought and sold homes in record numbers taking advantage of the easy money and a seemingly guaranteed big money payoff (which was a factor in the steep home appreciation spike at that time).  It was a crazy time for housing, when homes were flipped in a matter of days.  Many investors were even making money on homes they never owned by selling their interest in their purchase contracts.  The result was that home buyers found themselves either priced out of the market, or borrowing more than they could realistically afford because of the fierce buyer competition.

After posting impressive housing stats for 2016, the expectations for housing market 2017 are high.  And not surprisingly home sales started the year on the same pace, as the NAR reported January’s existing home sales (homes that settled during January) increased 3.3 percent.  However, the pending home sale index (homes under contract and described by NAR as a forward looking number) showed a different picture with 2.8 percent decrease during January.  Of course in the absence of bad weather, some economists explain that the decrease in pending home sales are due to low inventory and rising interest rates.

Housing Market 2017

Some are concerned about the decreased prospects of future home sales, suggesting that there won’t be a repeat performance of record home sales during 2017.  The recent pending home sale index release is reminiscent of the index reported for January 2014, where the NAR reported that the pending home sale index dropped 9 percent following post-recession record year of home sales during 2013.  At the end of 2014, it was revealed that existing home sales dropped 3 percent from the previous year.  Reasons given for the decrease were low inventory and tight lending.

Many, like myself, remain optimistic for housing market 2017 because interest rates remain historically low, even with recent rate hikes; and mortgage lending has been the easiest since the financial crisis.  The sentiment for housing market 2017 is also shared by consumers; who conveyed increased optimism about the housing market in Fannie Mae’s 2017 Home Purchase Sentiment Index (HPSI).  The February 17th News release (fanniemae.com) indicated that the January’s HPSI increased 2 percent, which is 1.2 percent higher than the same time last year. Doug Duncan, senior vice president and chief economist at Fannie Mae, stated:

“Three months after the presidential election, measures of consumer optimism regarding personal financial prospects and the economy are at or near the highest levels we’ve seen in the nearly seven-year history of the National Housing Survey…However, any significant acceleration in housing activity will depend on whether consumers’ favorable expectations are realized in the form of income gains sufficient to offset constrained housing affordability. If consumers’ anticipation of further increases in home prices and mortgage rates materialize over the next 12 months, then we may see housing affordability tighten even more.”

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.

Greedy home seller tips

Don't be a greedy home seller
Pricing Strategy for a Home Sale (infographic from forsalebyowner.com)

When there is a buzz about home sellers being greedy, you know home sales are doing well.  So, not surprisingly, along with last year’s record home sales came the reports of greedy home sellers.  Are you a greedy home seller?  Or are you adjusting to a market where home prices are increasing?

Greed has developed a bad rap.  Surely there is an evolutionary basis for greed.  Many believe that early hominids promoted personal and group survival by being “greedy” (although disputed by some).  Those who hoarded food, so as to have more than enough, lived through difficult winters and droughts. During times of financial prosperity, greed is looked upon favorably.  However, in the aftermath of a recession, greed is thought of as the basis for fiscal calamity.  Immortalized in Gordon Geckko’s famous “greed is good” speech in the 1987 movie Wall Street, “greed” is a cinematic vehicle to show the fine line between a healthy desire to prosper and a corrupt drive to have more than enough.

Avoid being viewed as a greedy home seller by creating a realistic pricing strategy.  Creating a pricing strategy is an art and a science.  When selling a home, you have to determine the list price.  There are many factors to consider besides recent neighborhood sales, such as condition of your home, sales trends, mortgage interest rates, economic trends, etc.  Like other home sellers, you fall into a conundrum.  If you price your home too high, then it will limit potential home buyers who visit.  However, if you price your home too low to increase home buyer interest, you may not get the price you want.

Contrary to some assertions that a home’s list price doesn’t play a role in the sale, there is evidence to suggest that it really does matter.  Lu Han and William C. Strange determined that a lower list price does increase home buyer visits – but only to a point (What is the Role of the Asking Price for a House? University of Toronto, Rotman School of Management; 2012).  They concluded that there is a point at which the home price is perceived to attract too much buyer competition, which may turn off other home buyers.  Furthermore, their data shows that there is a negative relationship between a list price and the number of home buyers: meaning that the higher the list price relative to the neighborhood, the lower number of home buyer visits, and vice-versa.

If you fear being a greedy home seller by asking for a high price for your home, there is research to suggest that you’ll let go of the greed in order to make a deal.  A 2013 study by Nuno T. Magessi and Luis Antunes looked at how the emotions of fear and greed compete internally (Agent’s fear monitors the spread of greed in a social network; Proceedings of the 11th European Workshop on Multi‐Agent Systems EUMAS, 12-13).  They concluded that greed is mitigated by the fear of loss within the confines of a social network.  When applied to a home sale, the fear of not selling a home competes with the impulse to hold out for the high price.  Deducing further, there is a need to fit within one’s social network by trying to sell a home for the most money, and yet avoid the stigma of a failed home sale.

Don’t be a greedy home seller. RealtorMag described three common home seller mistakes in a 2015 post (3 Mistakes Sellers Often Make; realtormag.realtor.org; April 12, 2015).  Included were “Not being honest with the home’s history,” “Not making a better home presentation,” and “Being unrealistic about the home’s value.”  About unrealistic home value, it was said:

“…Despite tight inventories of homes for-sale in many markets, sellers still need to be careful not to get too greedy with their list price, say real estate professionals…Home owners tend to get a much lower price when they overprice a home at the onset and then drop the price several times. The longer the home lingers on a market, the more likely it will receive a deeper discount…”

If your home doesn’t sell, you must examine your pricing strategy.  Was the price realistic, or were you too greedy?

Copyright © Dan Krell
Google+

If you like this post, do not copy; instead please:
reference 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.

Home prices surprise

home prices
National home prices exceed peak prices. Home equity increases! (infographic from keepingcurrentmatters.com)

Back in January, I told you that the housing market of 2016 would be about home prices.

2016 housing market hinges on home prices.

A home selling season has not been anticipated so much by home sellers since 2013. It’s not that 2015 was a bad year for housing, because it wasn’t. It’s that many home owners who have been wanting to sell since 2010 (some because of being underwater) may be in position to make the long awaited move.

And indeed, national home sale prices have appreciated considerably through the year.  But who would have thought that home prices would once again approach the level reached during the peak market of 2006?

The S&P CoreLogic Case-Shiller National Home Price Index (spindices.com) reported in July that the index was within 3 percent of peak, with another month of 5 percent appreciation.  And surprise!  This week’s release of home price data indicated that the September’s S&P CoreLogic Case-Shiller National Home Price Index exceeded the index that was recorded during the peak market that occurred July 2006!  September’s year-over-year gains were due to a 5.5 percent gain to the National Index, while the 20-City composite remained unchanged at a 5.1 percent.

Of course, regional and local differences explain why actual home prices in many areas don’t seem as high as they were during the peak. Consider that Seattle, Portland, and Denver reported the highest annual home price gains with 11 percent, 10.9 percent, and 8.7 percent respectively.  The Washington DC region realized a 2.7 percent increase; which is well below the top gainers, as well as below the national average.  Although the housing markets in Miami, Tampa, Phoenix and Las Vegas experienced the most home price gains during the peak; current home prices in those cities “remain well below their all-time highs.”

Analysis provided in the November 29th press release states:

“The new peak set by the S&P Case-Shiller CoreLogic National Index will be seen as marking a shift from the housing recovery to the hoped-for start of a new advance” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “While seven of the 20 cities previously reached new post-recession peaks, those that experienced the biggest booms — Miami, Tampa, Phoenix and Las Vegas — remain well below their all-time highs. Other housing indicators are also giving positive signals: sales of existing and new homes are rising and housing starts at an annual rate of 1.3 million units are at a post-recession peak.

The Federal Housing Finance Agency (fhfa.gov) also reported continued home price gains last week.  The FHFA Home Price Index (HPI) increased 6.1 percent year-over-year. The November 23rd press release reported that home prices increased in 49 states during the third quarter of 2016 compared to the same period last year.  However, “Delaware and the District of Columbia were the only areas not to see price increases.”

Indications of a strengthening housing market have been reported for many months.  Last year, the National Association of Realtors® (realtor.org) reported that the national median home sale price recorded for June 2015 ($236,400) surpassed the peak national median home sale price established during July 2006 ($230,400).

And if that weren’t enough, existing home sales have also been expanding.  The NAR reported last week that existing home sales increased during October.  The two-month consecutive increase doesn’t only outpace June’s peak, but is now the “highest annualized pace in nearly a decade.”

Existing-home sales ascended in October for the second straight month and eclipsed June’s cyclical sales peak to become the highest annualized pace in nearly a decade, according to the National Association of Realtors®. All major regions saw monthly and annual sales increases in October.

Termed an “autumn revival,” Lawrence Yun NAR chief economist, stated that “October’s strong sales gain was widespread throughout the country and can be attributed to the release of the unrealized pent-up demand that held back many would-be buyers over the summer because of tight supply…Buyers are having more success lately despite low inventory and prices that continue to swiftly rise above incomes.”

As much as we would like home prices to significantly appreciate indefinitely, market forces and economic factors will intervene.  Increasing interest rates is not only consistent with a growing economy, it will likely moderate home prices.

Fed Chair Janet Yellen stated in her November 17th Congressional testimony  regarding monetary policy:

At our meeting earlier this month, the Committee judged that the case for an increase in the target range had continued to strengthen and that such an increase could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the Committee’s objectives. This judgment recognized that progress in the labor market has continued and that economic activity has picked up from the modest pace seen in the first half of this year. And inflation, while still below the Committee’s 2 percent objective, has increased somewhat since earlier this year. Furthermore, the Committee judged that near-term risks to the outlook were roughly balanced.

Yellen stated that “an increase could well become appropriate relatively soon.”  Yellen referred to economic strengths as rationale, however analysis of new data should comport with the Open Market Committee’s objectives.  Yellen stated that housing market strengths are favorable for an interest rate increase.  Although new home construction has been “subdued,” the fundamentals of the housing market are complimentary to such a move.

Copyright © Dan Krell
Google+

If you like this post, do not copy; instead please:
reference 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.

Home sale timing – sell for more

home sale timing
Timing the home sale (infographic from smartzip.com)

Everyone wants to know the future, especially when it comes to the home sale timing.  Home sellers and buyers want to predict home prices.  Home sellers want to know the best time to sell.  While Home buyers want to know if they’re getting a good price.  And apparently there may be a fairly reliable predictor to home prices, however it’s not what you think it is.

Several empirical studies have attempted to provide a methodology for predicting the housing market (home sale timing).  Of course there is the familiar of forecasting real estate through divorce and premarital agreements.  Back in 2013, the American Academy of Matrimonial Lawyer (AAML.org) issued a press release citing the increase of prenuptial agreements as sign of the improving economy.  The increase in prenuptial agreements meant that people felt there was value in their assets.  And this was meant to be a good sign in for housing market.

Of course there was also a spike in divorces that year, leading some to believe this to also be a good sign that people felt better about the economy because of their willingness to begin anew.  But as University of Maryland sociologist Philip N. Cohen pointed out in his November 2015 blog post (Divorce rate plunge continues; familyinequality.wordpress.com) the increased divorce activity of 2013 was a just a recession related “bump” and in actuality the divorce rate decreased in 2014.

Then there was predicting housing through internet search data, which sounds more like fortune-telling than research to be honest.  However, Beracha and Wintoki (Forecasting Residential Real Estate Price Changes from Online Search Activity; The Journal of Real Estate Research 35.3 (2013): 283-312.) concluded that, indeed, you can gauge regional housing trends through specific keyword search volume.  Given this method, I used Google Trends to look up the keyword “home for sale” for the Washington DC metro region – and it is bound to become a hot market in the next six months (maybe a Presidential election has something to do with that?).

But a better indicator of where home prices will go may be the availability of credit.  Most would argue that mortgage lending is a matter of housing demand.  However, a working paper by Manuel Adelino, Antoinette Schoar, and Felipe Severino (Credit Supply and House Prices: Evidence from Mortgage Market Segmentation; February 19, 2014) concluded that “easy credit supply leads to an increase in house prices.”  They contend that higher conforming loan limits and low interest rates benefit home sellers in the form of higher sale prices.

Adelino, Schoar, and Severino’s premise can be witnessed in hindsight as the pre-recession housing boom seemed to be fueled on easy credit.  As credit became increasingly available, home value appreciation took off.  Likewise, housing stabilized and home values appreciated post-recession as home lending requirements loosened.

Of course, many associate easy credit policies with recessions, and even the Great Depression.  However, it’s not necessarily the easy credit that precipitates the recession – but rather it’s the tightening of creditStephen Gandel (This is When You’ll Know it’s Time to Panic About a Recession; fortune.com; March 8,2016) said it succinctly, “Tightening credit doesn’t always lead to a recession. But every recession starts with that.

One may infer from Adelino, Schoar, and Severino’s research that a home seller can gauge their home sale price based on the lending environment.  Lower interest rates and loose credit points to a higher sale price.  However, tightening credit policies may point to flat or even lower home prices.

Copyright © Dan Krell

If you like this post, do not copy; instead please:
reference 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.

Presidential election and home sales

election and home sales
Election and home prices (from movoto.com)

Elections have vastly changed in mood and intensity.  It used to be that the candidates debated about substantive issues looking for win-win solutions, including housing.  Maybe some of you remember how both the Clinton and Dole campaigns showcased their ideas of expanding the capital gains exemption during the 1996 election.  Housing and home sales doesn’t seem to be a platform issue anymore.  Elections have become divisive and nasty, even among the electorate; and for many Americans, the trending (real estate) election issue is – whom is moving to Canada!

That’s right, moving to Canada.  Maybe you’ve heard someone at work or at the store proclaim they are moving to Canada if “the other candidate” wins the election.  The theme of moving to Canada after the election has become a mantra so much so that it’s become part of pop culture. The idea has even been satirized by the likes of South Park.  And of course there is the growing number of celebrities who vow to move to Canada if the election outcome isn’t to their liking.

Of course the threat of moving to Canada is tongue in cheek (for most), or is it?  Nevertheless, leave it to astute real estate agents who realized that people considering such a move is now a target market.  Agent ads and blog posts popped up in recent weeks reaching out to those disaffected home owners asking for their business.  Reporting for Buzfeed, Craig Silverman reported on two agents who posted such an ad on their Facebook pages (Leaving Because Of Trump? These Texas Realtors Want To Sell Your House; buzfeed.com; May13, 2016).  Although both agents received a lot of attention for their seemingly whimsical posts, there was a mixed response; some did not get the humor.  It was reported that one of the two agents interviewed was asked to remove her post; and of course neither reported any new business from the posts.

Every four years, people wonder if presidential elections effect the real estate market.  During the 2012 election cycle, the real estate portal Movoto took it upon itself to find an answer (David Cross; Election Years Are Bad for Home Prices; movoto.com; May 12, 2012).  They analyzed historical data from the California Association of Realtors® and found that there is indeed a direct effect of a presidential election on home prices (at least in California).  They determined that the average home sale price during an election year is lower than that of the years preceding and following an election.

Movoto’s hypothesis was: “Presidential election years are stressful for the American people and in times of uncertainty people are less likely to take chances—this includes making large purchases such as a new house.”  While the National Association of Realtors® comment on Movoto’s findings was, “We’ve observed no correlation between levels of home sales and an election year. The market responds to a wide range of economic factors, including jobs, interest rates and consumer confidence.”

Although there maybe anecdotal evidence that presidential election years affect home prices; there is no doubt that the outcome of a presidential election effects policy, which as a result affects the economy and the housing market (see Experts: Housing to Grow Steadily, But Maybe Less So if Trump, Cruz or Sanders is Elected President; Zillow.com; May 17, 2016).  But no one has yet suggested that US elections would have an effect on Canada’s real estate market.

Copyright © Dan Krell

If you like this post, do not copy; instead please:
reference 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.