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
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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.

Buyer’s market home selling

Buyer's Market
Home Selling Mistakes (infographic from floridarealtors.org)

As winter approaches, many home sellers will be contemplating their next move after their homes have not sold.  It is likely that a volatile housing market awaits home sellers during the first half of 2018.  If you’re planning to list your home, you should have a selling plan that is able to adjust to market conditions quickly.  In other words, know about home selling in a buyer’s market.

The good news for home sellers is that this year’s home sale prices continue to climb, as the September 26th 20-city composite of the S&P Corelogic Case Shiller National Home Price Index (spindices.com) revealed.  The national index during July increased 5.8 percent compared to the same period last year, while the Washington DC area realized a 3.3 percent year over year gain.  However, there is expectation home sale prices may moderate or even slightly decrease in the first quarter of 2018 because of Fed policy and other market forces.

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

“While home prices continue to rise, other housing indicators may be leveling off. Sales of both new and existing homes have slipped since last March. The Builders Sentiment Index published by the National Association of Home Builders also leveled off after March. Automobiles are the second largest consumer purchase most people make after houses. Auto sales peaked last November and have been flat to slightly lower since. The housing market will face two contradicting challenges during the rest of 2017 and into 2018. First, rebuilding following hurricanes across Texas, Florida and other parts of the south will lead to further supply pressures. Second, the Fed’s recent move to shrink its balance sheet could push mortgage rates upward.”

Of course, home sale price indices only show sale prices for homes that sell.  And while home sale prices are increasing back to record levels in many areas, the volume of homes sold during 2017 so far is disappointing.  According to a September 20th NAR news release (realtor.nar), August’s existing home sales dropped 1.7 percent.  The Pending Home Sale Index for August dropped 2.6 percent, which made the NAR revise their 2017 home sale forecast to be “slightly below the pace set in 2016.”  Home sale volume in the first quarter of 2018 may also lag due to continued lack of inventory and anticipated increasing mortgage interest rates.  Lawrence Yun, cheif NAR economist, quipped

“The supply and affordability headwinds would have likely held sales growth just a tad above last year, but coupled with the temporary effects from Hurricanes Harvey and Irma, sales in 2017 now appear will fall slightly below last year…The good news is that nearly all of the missed closings for the remainder of the year will likely show up in 2018, with existing sales forecast to rise 6.9 percent.”

Since these are August sales figures from the NAR, it is an unfortunate truth that August sales were not really affected by hurricanes. Mostly because hurricane Harvey hit Texas the very last days of August and Irma hit Florida in September. The main affects of the hurricanes disruption to existing home sales will be seen in September’s statistics. And “missed closings” is a euphemism for phantom closings, because they don’t really exist. So, with regard to sliding home sales, you should take Yun’s “headwinds” of supply and affordability very seriously.

Home selling in 2018, a buyer’s market?

Home sellers positioning themselves solely on this year’s home sale prices may be in for a rude awakening next year.  Sellers may feel as if the market is getting soft, however that may change the latter half of 2018 as home prices moderate.  Sellers will need to be reasonable.  They will need to have awareness of many factors besides home sale prices, including existing home sales volume and neighborhood sale trends.  Including home selling in a buyer’s market.

If you’re planning to sell your home, you will need to play to your audience (home buyers), and listen to their feedback.  Know how to sell in 2018.  Prepare your home before listing it in the MLS by repairing deferred maintenance and possibly making updates.  Home buyers have a track record of paying more for a home that has been totally renovated.  However, if you don’t completely repair and/or update your home, be prepared to lower your sale price.

Be flexible to quickly adjust to the market.  Feedback is highly important to get other’s perspectives about your home.  However, take Realtor feedback with a grain of salt.  Instead, have your agent collect buyer feedback at open houses. Home buyers tend to be more honest when giving feedback, and it can be especially helpful in a buyer’s market.  If the consensus is that the price is too high, the price may actually be too high.  If buyers are turned off by the condition and/or curb appeal of the home, consider making repairs or lowering price to reflect the condition.  If they are focused on your décor, consider hiring a professional stager to make the home more appealing.

Rather than a soft market, we are experiencing the struggle for a balanced market due to an inventory shortage and sharply decreasing affordability.  The last year and a half has been all about the home seller.  However, 2018 will be about the home buyer.  Home selling in a volatile or buyer’s market can be challenging. If you’re planning a sale, be realistic about your home’s condition and value. Over pricing your home from the start can make your home languish on the market, which could get you a much lower price if it sells.

Copyright© Dan Krell
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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.

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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Consumers changing real estate agent commissions

real estate agent commissions
Real estate agent commissions (infographic from visual.ly)

Consumers have most likely complained about real estate agent commissions since the advent of real estate brokerage.  However, before the turn of this century, most did not question the real estate agent commissions they paid because they chalked it up to the cost of selling a home.  Times have changed, such that having a conversation about commissions and compensation is a common topic when agents and consumers first meet.

Real estate agent compensation is evolving as fast as the industry.  The US Bureau of Labor Statistics (bls.gov) reports the median annual wage for real estate sales agents was $44,090 in May 2016 (The lowest 10 percent earned less than $22,230, and the highest 10 percent earned more than $112,570). The BLS states:

“An agent’s income, therefore, often depends on economic conditions, the agent’s individual motivation, and the types of property available. Income usually increases as agents become better and more experienced at sales. Earnings can be irregular, especially for beginners, and agents sometimes go weeks or months without a sale. “

Before the turn of this century, there was more conformity in real estate agent commissions because most agents were not negotiable in the compensation they charged.  However, modern agents have adjusted their business models and are open to negotiate how much they will be paid.

There are also many real estate broker compensation structures from which you can choose.  Some brokers offer limited services, and some offer fee-for services, which includes a MLS placement service.  Some fee for service brokers offer à la carte services, where you can choose specific services for which you want to pay.  Most “full service” agents still charge a percentage, but the percentage can vary from agent to agent.  Full service agents can also vary on the extent of the “full” service they provide; however, many will be open to negotiate their commission rate.  Regardless of model, get the agent’s services in writing and hold your agent accountable.

The increased market pressure on agent compensation is actually good for the consumer.  It doesn’t only lower the cost of the real estate transaction, but it also increases the quality of services.  This was the finding of an empirical study by Panle Jia Barwick and Parag A. Pathak (The costs of free entry: an empirical study of real estate agents in Greater Boston; The RAND Journal of Economics; Vol 46, No. 1, Spring 2015, p.103–145).  Their study investigated three scenarios that are chipping away at the traditional real estate agent compensation models: lower commissions, commissions based on break-even costs, and improved information about agents’ past performance.

Barwick and Pathak found some interesting outcomes from their research.  Besides concluding that there are consequences for fixed real estate agent commissions, they also discovered that the easy entry into the industry (i.e., the ease of getting a real estate license) reduces the quality of service.  Furthermore, the increased competition among real estate agents caused by easy entry into the industry is not beneficial to a home selling or time on market.  They also concluded that

“…lower commissions reduce transaction costs, which might lead to a more liquid housing market, improved asset allocation, and better housing consumption. Flexible commissions also provide a channel for consumers to choose services tailored to their preferences.”

Their results suggest

“…that a 50% cut in commissions would result in 40% fewer agents, social savings that amount to 23% of industry revenue, and 73% more transactions for the average agent.”

Realtors should embrace the discussion about compensation and real estate agent commissions with their clients.  It offers the agent an opportunity to demonstrate their accountability.  It also promotes transparency and the services we Realtors provide, and builds the trust that is lacking in the industry.

Copyright© Dan Krell
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Curb appeal can boost home sale price

curb appeal
Curb appeal (infographic from nar.realtor)

If you want to increase the sale price of your home this spring, you will no doubt focus on the interior.  But how does the home’s exterior look?  You’d be surprised about the amount of necessary cleaning, decluttering and repairing around the exterior of your home.  But don’t skimp on the exterior home preparations before your sale – research conclusively shows that improving your home’s curb appeal can increase the sale price by as much as 8 percent!

An empirical study conducted by Chen, Evans-Cowley, Rutherford, and Stanley (An Empirical Analysis of Effect of Housing Curb Appeal on Sales Price of Newer Houses. International Research Journal of Applied Finance. 2013, Vol. 4 No 11, p1407-1419) was the first to demonstrate the relationship between a home’s sale price and curb appeal.  The authors also discussed how home buyers’ preferences in a home’s exterior influence the home’s sale price.  Besides curb appeal, they suggest that the home’s architectural elements could also be important in the final sale price.  The idea that today’s modern designs are more desirable, and likewise costs more money, is only transitory; such that today’s designs could become trite and tired in twenty years.

The study used a seven-point “attractiveness” scale to determine how respondents viewed the attractiveness of a home’s exterior.  They concluded that there is a relationship between a home’s exterior attractiveness and the home’s sale price.  In fact, they reported that a one-point increase in their scale corresponded to an 8 percent increase in the home’s value!

Home buyers make assumptions about your home’s interior based on the appearance of the exterior.  An unattractive exterior can repel home buyers before they even see the beautiful and updated interior.  Attract home buyers and boost your home sale price by focusing on cleaning, repairing, and “finishing” your home’s exterior.

Basic landscaping can make a huge difference in your home’s attractiveness.  Having too many plants, or letting them grow too much can make the home’s exterior appear crowded and unkempt.  Make sure your lawn is full but manicured throughout your listing.  Properly trimmed trees not only look tidy, but allow home buyers to see your home from the street.  Appropriately placed and trimmed shrubs and flower beds can accent the home’s architectural design.

Check your home’s siding.  Replace and repair any missing or broken siding pieces.  Freshen up siding by power cleaning, or painting.  Even if your home has artificial materials as siding, inspect window frames and fascia boards; these areas are often neglected and may need urgent repair.

How does the deck look?  Unless you maintain the deck regularly, chances are it may seem dull and tired, and may need to be re-treated.  Even if your deck is made of artificial decking, check the railings.  Hire a licensed contractor to repair and secure the deck as necessary.

How about the sidewalks and patio?  The sidewalk and patio can be easily cleaned by power washing.  Cracks in the sidewalk and patio are not only unsightly, but can be a trip hazard.  Cracks are typically caused by rain and water runoff, but can be repaired.  Consider also sealing the sidewalk and patio to prevent further water damage.

Finally, consider finishing the exterior to make your home more appealing and cordial.  Much like staging the home’s interior, you can use similar principles to increase the exterior’s attractiveness; such as placing appropriate chair(s) and potted plant(s) on the porch, deck or patio.

Copyright© Dan Krell
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