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.

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.

The 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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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.

December 30, 2015August 14, 2019

Real estate year in review 2015

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.

Even 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.

By Dan Krell
Copyright © 2015

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May 30, 2015July 6, 2019

Hot regional housing markets change reliance on MLS listings

Good news for home sellers, in most US regions. Tuesday’s news release from S&P/Case-Shiller Home Price Indices indicates a nationwide home price gain. The 10-city and 20-city composites continue to show home price gains, as the composites realized a 4.7% and 5.0% year over year gain respectively (month over month gains were 0.8% and 0.9% respectively). The nearby Washington DC region was not as robust as the other US regions in the composite, however, as home prices gained about 1% year over year and about 0.8% month over month (us.spindices.com).

The S&P/Case-Shiller index seems to be in agreement with the U.S. House Price Index Report issued by the Federal Housing Finance Agency (fhfa.gov), which indicated that national home prices gained 1.3% during the first quarter of 2015. However here in Maryland, home prices did not fare as well with a 0.38% decline year over year.

Hot markets in western regions of the US, such as Washington, are making news besides strong home prices. In one of the hottest markets in the nation, a Seattle Washington broker has decided to drop out of their MLS. Counter intuitive to the idea of maximizing listing exposure, Rob Smith of the Puget Sound Business Journal reported that Quill Realty is dropping out of their local MLS (Here’s why this Seattle realty company just ditched the MLS; bizjournals.com, May 18, 2015).

Instead of MLS placement, Quill intends to place listings on a number of websites, including Zillow, Redfin, and Realtor.com. The rationale is that sellers will save money from the 1% commission that is charged by Quill; while buyers of Quill’s listings “… will become responsible for working out a financial arrangement with their own broker.”

Of course, this is not an entirely new idea. There have been a number of seller oriented business models that have been devised over the years; with new variations popping up during hot markets. Many discount brokers and MLS placement services, which have survived the housing downturn, have continued to market their business model successfully.

Innovative or not, hot markets tend to make brokers become more protective of their listings by seeking ways to make them proprietary. Low housing inventory in some markets, along with increasing home prices and buyer competition can make a home listing a hot commodity. I will remind of the recent report indicating that pocket listings are on the rise. Pocket listings are listings kept out of the MLS and shown only to a select network of contacts and clients. And although pocket listings are often associated with luxury real estate, pocket listings in hot markets can occur across all price ranges because of the increased home buyer competition.

In response to recent trends, several regional Realtor® groups and brokers have been formulating a nationwide consumer MLS to provide the consumer with up to date relevant information (brokerpublicportal.com). Board member of the Broker Public Portal, Robert Moline (Home Services America) stated, “There is a tremendous amount of support and momentum throughout the MLS and brokerage communities to create a new choice for how and where to display their listings…”

And even though many home sellers are taking advantage of a seller’s market in their respective markets, home buyers are becoming increasingly resourceful as well. Many buyers are learning how to find home for sale in places other the MLS. Besides alternative listing websites, many buyers are also relying on neighborhood listservs (internet email lists) and internet groups for home sale notifications.

By Dan Krell
Copyright © 2015

February 18, 2015October 5, 2019

New rules in Real Estate

Real estate canon used to be straight forward and for the most part consistent. For instance, if you planned a sale, you would target spring time because that was generally accepted as the time when home buyer activity was the greatest; or buying a home was a rite of passage. But since 2008, what was generally accepted has been persistently challenged; home buyers and sellers have shifted into a new paradigm with new rules.

It is no coincidence that Zillow Talk: The New Rules of Real Estate (by Zillow CEO Spencer Rascoff and Chief Economist Stan Humphries, Ph.D.) comes at a time when significant changes in consumer beliefs and expectations about real estate have become widely recognized. The book is described by Zillow as “…poised to be the real estate almanac for the next generation.” And looking at the table of contents, you might think that the highly acclaimed tome is just another book about the buying and selling process; yet it seems to discuss practical aspects about buying and selling a home, as well as possibly confronting real estate myths.

It will remain to be seen how influential the work will become, as research has indicated that home buyers are typically well informed and out in front of housing trends.

A 2012 study by Karl Case, Robert Shiller, & Anne Thompson (What have they been thinking? homebuyer behavior in hot and cold markets. Brookings Papers on Economic Activity, 265-315) revealed perceptions and expectations of homebuyers from four metropolitan markets over a 25 year period. The authors concluded that the surveyed home buyers were well informed and very much aware of home price trends prior to their purchase. Data suggested that home buyer opinions (beliefs) fluctuated over time; there was more agreement among respondents during strong markets, and increased doubt during times of market uncertainty. There was also a strong correlation between price perceptions and actual movement in prices. Although home buyers were “out in front” of short term market movements, their short term expectations “underreacted” to actual home price changes; while long term expectations were persistently “more optimistic.”

Suggesting a set of “guidelines” for real estate is a trap that implies that the housing market is straightforward and static; where personal and regional differences don’t matter and the market doesn’t change. However, David Wyman, Elaine Worzala, and Maury Seldin raise the question about becoming complacent with trends and models. In a 2013 exploratory paper (Hidden complexity in housing markets: a case for alternative models and techniques, International Journal of Housing Markets and Analysis, 6:4, 383 – 404) they discuss how rigid market models may lead to rules where buyers and sellers could make poor decisions.

The authors’ discussion of “complexity theory” in real estate in not unlike the application of “chaos theory,” which focuses on letting go of assumptions upon which rules are definitive; and view housing as a dynamic and changing environment. Citing incidents leading up to the financial crisis, the authors make a case for understanding the market as complex and using common sense before making (buying and selling) decisions.

So as we begin to understand the new real estate dogma, it is likely that the new rules will most likely change along with the market. And much like the housing market, consumer beliefs are also dynamic – which seem to be ahead of the industry experts.

August 21, 2014July 5, 2019

Will home prices depreciate second half of 2014?

It’s no secret that the pace of home sales has slowed during 2014. So what’s ahead for real estate and the housing market? If you really want to know, Irwin Kellner, Chief Economist for MarketWatch, has some advice. In his August 19^th MarketWatch.com piece (Opinion: Don’t count on U.S. consumer to save economy) he eloquently and succinctly stated, “If you are trying to discern where the economy is heading, look at the consumer.” And this applies directly to real estate too.

July housing figures from the National Association of Realtors® are due to be released this week (July housing press release August 21st); and although good news may be suggested, the numbers may be revealing of where the market is heading – and it may not be good. The NAR July 22^nd (realtor.org) press release indicated that June’s existing home sales increased (compared to May 2014), however it stated that existing home sales were down 2.3% compared to the same time last year. In the area where I list and sell homes, Montgomery County single family home closings (sales), reported by the Greater Capital Area Association of Realtor® (gcaar.com) also dropped off in June (decreased 1.5%); and particularly telling is July’s decrease of 16.2% compared to the same time last year, as well as the 7.4% decrease year to date (compared to last year)!

The silver lining is that NAR reported that median home prices have increased in 71% of the “measured markets.” However, 27% of the measured markets showed a decline in median home prices from last year. Montgomery County median home sale prices are moderating (according to GCAAR stats): increases were about 3% during June and about 2% during July compared to the same periods last year.

Taking Irwin Kellner’s suggestion of “looking to the consumer,” let’s look at home buyer behavior trends; which may be understood through home absorption rate (the number of homes sold compared to the number of available listings during a given time period). It should be no surprise that the home absorption rate decreases compared to recent years due to the steady growth of home inventories and the reduced number of closings. Surprising is the rate of decrease in the absorption rate (calculated from MLS data) during June and July compared to the same periods last year (a decrease of 15% and 39% respectively).

Like the average consumer, it seems that home buyers may have become a bit skittish. Kellner points out that contrary to economist’s expectations, the August report of the Thomson Reuters/University of Michigan survey of consumer sentiment has dropped to a 10 month low. Additionally, he reported that although there has been some good news about employment, he argues that wages are not keeping up with inflation due to the nature of many newly created jobs, which are temp or part-time. Furthermore, he states that consumer savings are either low or “depleted.” Rounded out by the usual concern about job security, geopolitics, and the general economy: Kellner gives us a glimpse of today’s consumer.

As for real estate, the statistics suggest that the housing market may be at another crossroads. Homes sales have already dropped off during the busiest time of year, and it may be reasonable to expect that sales for the remaining year may also be subdued. The mediating factor will be home prices; which may eventually decline as home sellers try to be competitive with other listings, as well as entice home buyers to buy their homes.

By Dan Krell
© 2014