Vacation homes declining

vacation homes
Vacation homes sales decline (infographic from nar.realtor)

According to the National Association of Realtors 2017 Investment and Vacation Home Buyers Survey (nar.realtor), last year’s vacation home purchases plunged 21.6 percent!  Last year’s decline in vacation homes sales comes at the heels of a huge drop in 2015, and has tumbled about 36 percent since the post-recession high marked in 2014.  Are the statistics telling us it’s a good time to buy that vacation home you have been thinking about?  Or is it that Americans are rethinking their view about vacations and retirement?

Of course, Lawrence Yun, NAR chief economist, feels that the decline is due a very tight vacation homes market that may likely make a comeback in the ensuing years. In an April 11th NAR press release he stated that “In several markets in the South and West – the two most popular destinations for vacation buyers – home prices have soared in recent years because substantial buyer demand from strong job growth continues to outstrip the supply of homes for sale. With fewer bargain-priced properties to choose from and a growing number of traditional buyers, finding a home for vacation purposes became more difficult and less affordable last year.”  He added, “The volatility seen in the financial markets in late 2015 through the early part of last year also put a dent in sales as some affluent households with money in stocks likely refrained from buying or delayed plans until after the [2016] election.”

However, another explanation given by the NAR is short term rentals, including airbnb.  Short term rentals allow people to visit vacation and resort towns without committing to buy a home.

To give perspective about the tight vacation homes market, NAR stated that vacation home sales were only 12 percent of all transactions in 2016, a decrease from 16 percent in 2015 (and close to the recent low of 11 percent in 2012).  Additionally, low vacation home inventory pushed sale prices higher.  The 2016 median vacation home price increased 4.2 percent, which is a decade high of vacation home price growth.

A lack of inventory and rising home prices are sure to put a damper on the vacation homes market.  But the slump could be a manifestation of something else.

Bloggers and columnists have reported a shift in the younger generation’s home buying habits for about a decade.  The trend seems to be a rejection of the accepted industry standard home buying cycle set by older generations.  For decades, the Baby-Boom generation has set the bar for home sales.  Their views on home ownership and vacation homes have guided the experts.  However, millennials have a different perspective, having a more conservative take on home buying and exhibiting a strong sense of value.

The NAR’s 2017 Investment and Vacation Home Buyers Survey pointed out that that the top two reasons to purchase a vacation home are for a family retreat and for retirement.  However, just like the trend in home buying, millennials are redefining their retirement and vacation needs.

Expecting to work longer, Millennials’ idea of retirement is not perceived the same as the Baby-Boomer’s vision of retirement.  Staying relevant and engaged is now more important than leisure.

Having a regular spot for the family to congregate and vacation is no longer highly desired.  Millennials want the option to travel rather than visiting the same vacation spot every year.  Millennials are also savers. They may view vacation homes as exorbitant and expensive.  Even though the vacation is only a small portion of the year, there are regular expenses that may include a mortgage, property taxes, HOA fees, and maintenance.

Copyright© Dan Krell
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Selling your home – try, try, again

selling your home
Why your home didn’t sell (infographic from househuntnetwork.com

If your home didn’t sell this spring, it’s ok.  Rocky never quit when he lost, and neither should you.  No one said selling your home was easy.  Take stock and plan for your next sale.

If your home didn’t sell, you’re not alone.  Consider that April’s existing home sales dropped 2.3 percent, according to the National Association of Realtors May 24th press release (nar.realtor).  NAR Chief Economist, Lawrence Yun, stated that the April slide was “expected” because March sales were very strong.  Additionally, he pointed out that new and existing inventory is not meeting demand.  Many prospective home buyers are frustrated because there is not much of a choice and they are not finding the homes they want.  When selling your home, does it have features that buyers want?

Pending home sales also declined in April.  Based on contracts signed, the forward looking indicator suggests additional decreased sales in the months to come.  Yun also attributes the prospect of future decreased home sales to low housing inventory. He stated that the inventory of existing homes for sale decreased about 9 percent from the same time last year.

When selling your home, consider that the appearance of a brief period of slow sales is not necessarily a warning sign of an impending housing crisis.  Instead, a slower sales trend may be considered part of a normal economic cycle after a breakthrough sales year.  It is a sign of a healthy market seeking balance.  The cycle is caused by home buyers and sellers struggling to find equilibrium.

If your home didn’t sell, you may have a better chance in a few months when the cycle changes.  However, before going with the same strategy, try to analyze what happened during this listing period.  You may find interesting and revealing information, about your home and your agent, that could help you the next time.

First, talk to your listing agent.  If they were active in marketing your home, they should have a wealth of information.  Start by asking them about showings.  The number of showings determines buyer interest in your home.  If you had few visits to your home, it could mean the price is too high.  It could also be a result of low quality MLS pictures and information.  Buyers start with the MLS listing to determine if the home is worth a visit.  However, if you had plenty of buyer visits but no offers, there may be other issues that need attention.

Check with your agent for feedback.  Agents often communicate about their visits to homes.  Home buyers who attend open houses also provide feedback.  Skip over the positive feedback because agents and home buyers often offer positive feedback just to be polite, even if it’s not warranted.  Look toward critical reviews for help to improve your home presentation and marketing.  If the same item is mentioned multiple times, you should take that as an indicator and begin there.

When selling your home, price, presentation and marketing are relatively easy to adjust.  However, your home’s condition could be a deterrent.  Buyers in the current market are very demanding and selective.  They want a turn-key home that has the recent updates featuring the newest technologies.  Even though housing inventory is low, many home buyers will not settle for any house.  If your home is not updated relative to the top sales in your neighborhood, you may have to consider a major price adjustment.  If your home’s condition is holding back a sale, do a cost-benefit analysis.  You may discover that selling for less could net you more than if you spent tens-of-thousands on renovations.

Copyright© Dan Krell
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Gonzo home sales and prices

gonzo home sales and prices
Gonzo Home Sales and Prices? NAR Housing Expectations 2017 infographic (from realtor.org)

Everyone seems to be excited about this week’s Case-Shiller home price numbers reported for February.  Even the title of the April 25th press release sounded a little giddy: “The S&P Corelogic Case-Shiller National Home Price NSA Index Sets Fourth Consecutive All-Time High” (spindices.com).  Yes, the Case-Shiller 10-city and 20-city composite indices are close to the 2007 level.  But before you become intoxicated by reports of gonzo home sales and prices and run off to sell your home, here’s more to the story.

Gonzo home sales and prices

Gonzo home sales and prices depend on the market.  According to the recent Case-Shiller release, Seattle, Portland, and Dallas topped the charts with annual index gains of 12.2 percent, 9.7 percent, and 8.8 percent respectively.  Not surprisingly, Seattle and Portland have been the hottest real estate markets over the past year.  Tampa’s and Cleveland’s housing markets are at the opposite end of the spectrum with decreases of -0.5 percent, -0.3 percent during February; while Miami’s home price index was unchanged.  Washington DC reported an annual gain of 4.1 percent, with a 0.2% gain reported in February.

David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices stated:

“There are still relatively few existing homes listed for sale and the small 3.8 month supply is supporting the recent price increases. Housing affordability has declined since 2012 as the pressure of higher prices has been a larger factor than stable to lower mortgage rates.

Housing’s strength and home building are important contributors to the economic recovery. Housing starts bottomed in March 2009 and, with a few bumps, have advanced over the last eight years. New home construction is now close to a normal pace of about 1.2 million units annually, of which around 800,000 are single family homes. Most housing rebounds following a recession only last for a year or so. The notable exception was the boom that set the stage for the bubble. Housing starts bottomed in 1991, drove through the 2000-2001 recession, and peaked in 2005 after a 14-year run.”

Gonzo home sales and prices are dependent on local real estate.  It’s true, housing inventory is lacking.  At a time when homes should be coming to market for the spring season, the Greater Capital Area Association of Realtors Montgomery County single family statistics for March 2017 indicated that there were -1.8 percent less new listings compared to the same time last year.  And the total number of active homes for sale are -16.4 percent less than the same time last year.  Although June is usually the peak time for home sales and prices in our area, home sales increased 17.9 percent month over month, and is 11.7 percent higher than the same time last year; while average home sale prices increased less than 1 percent (gcaar.com)!

Holy shades of 2005, Batman!

Housing stats sound eerily like those before the housing bubble crash.  But this market is different in many respects.  Consider that housing speculation is not as prevalent as it was at that time; homes are not being flipped in a matter of days in most areas.  And home buyers are more sophisticated and savvy than they were in 2005; home buyers are more demanding, as well as sensitive to home condition and price.

Yes, it’s true that house values are increasing.  Yes, home sales are breaking records.  But not all homes sell.  You should realize that that home sale stats includes data of homes that sell.  Homes that don’t sell are not included in the numbers of closings, nor are they included in home sale prices.

Homes that don’t sell tend to be overpriced for the home’s condition, or neighborhood.  Sometimes, the physical location of the house is not ideal; for example, situated next to train tracks.  If you’re selling your home this year, don’t get greedy.  Get a professional opinion on pricing your home correctly; over priced homes tend to not sell quickly, or not at all.

Pricing your home may not be as easy as you think.  Empirical research has confirmed that there are many variables that affect sales price.  Factors that impact home sale price include the home’s location, condition, amenities, and market timing.

If you want to sell your home quickly and capitalize on home sale trends: consider repairing deferred maintenance issues, making updates, and don’t take home buyers for granted.  When making repairs and updates, don’t go for the cheapest quote because it will likely show.  Also, make sure your contractors are licensed.

Home buyers are just as savvy as you, so any attempt to deceive will backfire and hurt your sale.  Focus on broadening your home’s appeal.  Consider making your home turnkey, since most home buyers are looking for a home they can move right in and without making immediate repairs and updates.

For a guide on a successful home sale, take a look at “The magic of 4 to sell a home

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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
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A hot winter housing market

winter housing market
Winter housing market (infographic from househunt.com)

Winter is not usually a time of year when you would think of selling your home.  After all, everyone gets into holiday and hibernation mode.  Between Thanksgiving and New Year’s Day (during the winter housing market), home sale inventory is usually trimmed by an average of 50 percent and contract activity is significantly reduced.

But this winter will be different.  Rising interest rates and pent up demand could make the housing market very active this winter.

Consider that mortgage interest rates are on their way up.  Freddie Mac (freddiemac.com) reported last week about a mortgage interest “spike” that can get fence-sitters to jump into the winter housing market.  The rate for the 30-year-fixed-rate mortgage averaged 3.94 percent, which jumped from the prior week’s average of 3.57 percent.  On the face of it, the increase doesn’t seem significant.  But the difference is about $70 per month on a $300,000 mortgage.

Last week’s interest rate surge could be the beginning of interest rate increases we’ve been anticipating (for five years).  Speculation is that the bond market is anticipating and pricing in a Fed interest rate hike at next month’s Open Market Committee meeting.  Of course, the next sixty days could be a lead up to new mortgage rate expectations, which could exceed 4.5 percent by the end of next year.

Historically low interest rates for a 30-year-fixed-rate mortgage have become part of our lives.  Upward movement will be met with hyperbole and excitement from the media, claiming reduced home sales and a faltering real estate market.  However, let’s put it in perspective.  Mortgage rates averaged above 4 percent throughout 2014.  The last time we had an average mortgage rate above 5 percent was 2010.  In fact, the average mortgage rate at the height of the go-go market during 2006 was above 6 percent.

What does it mean for you if you’re planning a sale?  Don’t wait until spring!  Consider selling during the winter housing market.  You won’t have much competition; and serious home buyers, who are sensitive to interest rates, will be looking through the holidays and winter.

If you decide to sell during the holidays and the winter housing market, make sure your home is ready. Decluttering is the most important aspect of home preparation.  However, winter decluttering may be more difficult because of the colder weather and our desire to slow down during these months.  Besides our inclination to “nest,” it’s easy to accumulate items in the house that make us cozy and comfortable.  But winter clutter can be minimized by organization and a daily straightening-up for incoming buyers.

Check your home’s systems.  Have licensed professionals inspect your furnace and roof.  Besides keeping the house warm and dry for buyers who visit, checking these systems can prevent surprises when a home inspection is performed.

After a weather event, clear your walkways and driveway of ice and snow.  Besides making it easier for home buyers to visit your home, it lessens the possibility of someone falling and getting hurt.

If your home is vacant, have a licensed professional winterize it. Winterizing your home can reduce the risk of bursting pipes and damaging plumbing fixtures.  If you are out of town, have a trusted person check on the home regularly (even if you are listed with a real estate agent).  Your “stand-in” should also be available to take care of any house related issues that occur in your absence during the winter housing market.

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