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 bubble countdown

Housing Bubble
Cycle of housing bubble (infographic from estate123.com)

The March S&P/Case-Shiller U.S. National Home Price Index (spindices.com) was announced May 31st to reveal a 5.2% increase in home prices.  Although down from last March’s 5.3% increase, home prices seem to be appreciating at a regular pace, with the metro areas of Portland, Seattle, and Denver leading the way with double digit gains (year-over-year price increases of 12.3%, 10.8%, 10.0% respectively).  As home prices climb, so too are the claims that we are experiencing a housing bubble.

Those concerned about the next bubble have been ringing the alarm bells since last fall, when the combination of limited inventory, multiple offers, and rising prices created an environment in some regions that was reminiscent of the go-go market just prior to the last market bust.  And like the broken watch that is correct twice a day, those naysayers may eventually be correct – but it may not be for another eight years.

According to Ted Nicolais, the real estate cycle has been steady since 1800 (How to Use Real Estate Trends to Predict the Next Housing Bubble; dce.harvard.edu; February 20, 2014).  Writing for the Harvard University’s Department of Continuing Education’s The Language of Business blog, Nicolais maps out Homer Hoyt’s cycles and found a regular 18-year cycle to the bubble and bust housing market (albeit two exceptions).

The 18-year cycle, as it turns out can be observed by analyzing trends.  An applying Henry George’s four phases of the real estate cycle (as modernized by Glenn R. Mueller), Nicolais can determine how and when the next housing bubble will occur.  (Henry George was a nineteenth century economist who studied the boom-bust cycle of the economy).

The first phase is the “recovery.”  Home prices are at the bottom, and demand increases.  Real estate vacancies decrease as economic activity increases, which fuels the economy.

real estate bubbleThe second phase is the “expansion.”  Housing inventories dwindle, there is little is available to buy, and finding a rental becomes difficult.  Nicolais explains that an issue with real estate is that once demand increases, filling inventory takes a long time.  New development can take two to five years.  Until new inventory is added, price growth accelerates; and rather than valued at market conditions, real estate becomes priced to future gains.  During a real estate boom, people buy into the prospect of “future growth” and believe the escalating prices are reasonable.

Phase three is “hyper supply.”  When the completion of new development begins to satisfy demand, inventories fist stabilizes and then swells.  Price growth begins to slow.  Nicolais stated that the amount of continued development will determine the severity of the impending recession; while demand is satiated, new inventory comes to market and vacancies increase.  He asserted that “wise” developers stop building during this phase.

Phase four is the “recession.”  New development is stopped, while projects coming to completion add to a growing inventory.  Occupancy rates and prices fall; property values and profits dwindle.  Developments in mid-construction may not be completed because they are no longer financially feasible.

Following the four phases and the 18-year cycle; Nicolais stated that the great recession was not caused by external forces, but rather occurred on schedule!  He figures that the current housing market is transitioning from recovery to an expansion phase.  And with the exception of the occasional slow down, he predicts that the next housing bubble will be in 2024.

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Home pricing strategy and housing market shift

Home pricing strategy
Home pricing strategy (from California Association of Realtors® www.car.org)

Home sellers should be concerned about the reports of a tumbling luxury home market, and consider changing their home pricing strategy.  The stalwart of the American real estate market since the recession (and possibly skewing home price indices) is showing signs of weakness.  Leigh Kamping-Carder of the The Wall Street Journal reported that 50% more homes priced $5 million or more reduced prices during this past January, compared to January 2015 (More Luxury-Home Sellers Drop Their Asking Prices; wsj.com; April 12, 2016).  Additionally, Kelsey Ramírez reported for HousingWire about a Redfin home price analysis that indicated weakened luxury home prices; the sector realized a 1.1% annual decrease during the first quarter of 2016 (Luxury home prices decrease for first time since 2012; housingwire.com; May3, 2016).

The apparent luxury home market collapse is most likely due to an increased inventory of luxury homes, and a lack of foreign investors (who were active in the market several years ago).  The impact of reduced prices is noticeable in home price indices as well, as there seems to be a consensus that there is a hint of a slowdown of price appreciation.

Corelogic’s May Home Price Insights (corelogic.com) indicated that nationwide home prices during March increased 6.7% year over year; and projects 5.7% appreciation for next March.  Additionally, the report highlights twelve states that have reached new home price highs.  Month over month average home prices nationwide increased 2.1%; however next month’s projection is for a gain of only 0.7%.

April’s S&P/Case-Shiller National Home Price Index (spindices.com) indicted that February home prices increased at an annual rate of 5.3%, which is roughly the same as the previous month’s index.  The hot real estate markets of Portland, Seattle, and Denver realized the highest year over year gains, growing at 11.9%, 11% and 9.7% respectively. However, the national 0.2% month over month gain was not as encouraging.

David Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices, provided commentary about the April S&P/Case-Shiller report, saying “…Home prices continue to rise twice as fast as inflation, but the pace is easing off in the most recent numbers…While financing is not an issue for home buyers, rising prices are a concern in many parts of the country. The visible supply of homes on the market is low at 4.8 months in the last report. Homeowners looking to sell their house and trade up to a larger house or a more desirable location are concerned with finding that new house. Additionally, the pace of new single family home construction and sales has not completely recovered from the recession.”

Although the recent home price indices have not yet established negative trends, they are telling of a housing market under pressure.  Local home sellers should take note that the S&P/Case Shiller Home Price Index for the Washington DC metro area indicates a month over month -0.2% (negative two tenths of a percent) change in the average home price.  The Corelogic HPI Market Condition Indicator for the Washington DC-MD-VA-WV metro area is “Overvalued.”

If you are planning a home sale during the latter half of this year, you should be extra aware of the local market trends; paying attention to competition and general inventory.  Home pricing strategies that were common last year may not work to your advantage.  Over pricing your home could result in driving home buyers to your competition, rather than netting a higher sales price.

Copyright © Dan Krell

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Home pricing strategies focal point of 2016 housing market

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.

Home Prices
CoreLogic HPI (from corelogic.com)

A central reason for the reanimation of the housing market is, of course, home prices. Several major indices concur that home prices have made significant improvements through 2015. S&P/Case-Shiller U.S. National Home Price Index (spindices.com) reported a 5.2% annual increase in October, while the FHFA House Price Index (fhfa.gov) revealed a 6.1% year over year increase in October. November’s CoreLogic HPI (corelogic.com) indicated a 6.2% year over year increase and project a 5.4% year over year home price increase next November. And as much as home values had healthy gains nationwide, the local Washington DC metro region’s home annual price increases were more modest: 3.1% according to CoreLogic, and about 1.7% according to S&P/Case-Shiller.

home equity
US Home Equity Report (from corelogic.com)

Although negative equity continues to burden many home owners, the good news is that the number of underwater homes is decreasing. Although home prices continue to edge higher throughout the nation, there are many who are still underwater. According to CoreLogic’s Equity Report Q3 2015 (corelogic.com), 256,000 homes regained equity. And although 92% of mortgaged homes now have equity, about 4.1 million homes continue to be underwater. 17.6% of mortgaged homes are considered “under-equitied” (less than 20% equity), while 2.2% are “near negative equity” (less than 5% equity). 29.3% of underwater homes in the US are located in five states: Nevada, Florida, Arizona, Rhode Island, and Maryland. While 87.9% of Maryland mortgaged homes have equity, 95.5% of mortgage homes in Washington DC have equity. However, the local Washington DC metro region (DC – VA – MD) records 89.2% of mortgaged homes with equity – leaving about 10.8% of mortgaged homes underwater.

If you’re selling your home this spring, you want to capitalize the market. Although you want to benefit from the current low inventory; realize that by late spring, the housing market gets into full swing and inventory surges while your competition intensifies. Also consider the home buyer: many consider themselves savvy consumers who are money conscious and more fiscally responsible than their 2006 counterparts. Most home buyers want homes that have new or recent updates, including systems (such as HVAC and roof). There are few who are willing to make repairs or upgrade homes they are moving into; much less budget for a new roof or furnace in the first years of home ownership.

Real EstateThe sensible way to make the most of your sale is to have a plan, and pricing your home correctly should be the focal point. Don’t fall into the trap of pricing your home by comparing national price increases or worse yet – media reports of hot markets. Real estate is a local phenomenon and you should collect data within your neighborhood (the closer to your home the better). Your real estate agent should be able to produce a detailed market analysis and explain how the comps vary and correspond with each other and to your home. Consider your home’s condition and amenities. You may have to adjust your price if your home is in need “TLC.” However, updates to the kitchen, bathrooms, windows, roof, flooring, and HVAC not only add appeal but also add value.

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Real estate year in review 2015

home prices
How will Home Prices do in 2016? (from WinningAgent101.com)

2015 could have been considered a “damn if you do and damn if you don’t” year for the Fed. The Fed is often criticized (sometimes harshly) for their action and inaction. And as the historic run of near zero interest rates ended this year, many criticized the Fed for waiting too long to raise interest rates, while others said it was still too soon. The full impact of the first Fed rate hike in nine years won’t be known well into the next year.

Another real estate milestone that occurred this year was the implementation of the TRID (TILA-RESPA Integrated Disclosure) rule. Although the Consumer Finance Protection Bureau decided to delay enactment once; the decision to put the rule in effect in October was not only significant, but a historic change to the real estate settlement process. Initially, there was mixed reception; some lenders indicated that they have transitioned smoothly, while others reported having difficulty. Even Congress attempted to provide a grace period for those still transitioning (Homebuyers Assistance Act, H.R. 3192). Like the Fed’s rate increase, the full effect of TRID on consumers and the industry won’t be realized until next year.

HomeEven though the 2015 housing market started slowly, because of record cold weather; the market demonstrated its resiliency with increased sales and continued home price growth throughout the year. Some markets were on fire this year; such as the Seattle WA region, where multiple offers and single digit days on market were the norm and home price indices exceeded the national average. However, most other regions (such as the Washington DC region) experienced average growth. The lack of inventory in some markets was said to add pressure on price growth. Home sale growth is expected to continue in 2016, as housing formation and employment outlooks are brighter. While home prices are still below the 2006 peak, home prices are expected to increase with a market expansion. And as housing affordability decreases, some housing critics are clamoring to predict another housing bubble.

San Francisco CA was one of 2015’s hottest markets. The market was so heated that many described it as “insane.” Madeline Stone reported that San Francisco teardowns sold for well above $1M while resales typically sold for 70% above list price (San Francisco real estate has gotten so crazy that this startup founder was offered stock options for his house; businessinsider.com; March 31, 2015).

And of course, there is the notable sale of a 765sf two-bedroom home that sold for $408,000 earlier this year (17% over list price). The significance of the 100-year-old San Francisco home is that it was described as a “shack” and needed much more than TLC (Daniel Goldstein; San Francisco earthquake shack sells for $408,000; marketwatch.com; October 22, 2015).

And what can be more proof that the real estate market has been recovering (at least for those who can afford it) than the world’s priciest home sale. Patrick Gower, Francois De Beaupuy , and Devon Pendleton reported on December 15th (This $301 Million Paris Chateau Is the World’s Priciest Home; bloomburg.com) about the sale of Chateau Louis XIV for €257Million (approximately $301Million); a private sale to a Middle Eastern buyer. Located in a 56-acre park, the recently built Paris estate is said to have taken three years to build. Amenities include an aquarium, cinema and a wine cellar, and a gold-leaf fountain.

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