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Missing pieces to a housing recovery

by Dan Krell
DanKrell.com
© 2012
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Home salesAs the housing market expectantly slows for the winter months, we can start reflecting on this year’s housing statistics.  Home sale figures appear to point to a year ending slightly better than last.  But it may be that local home sale stats may not best those posted during the 2009-2010 period.  It appears that there are missing pieces to the housing market, which if not put into place, could result in a new real estate norm.  Let’s take a look at the puzzle…

First, the National Association of Realtors® (Realtor.org) reported that national pending home sales have been elevated most of the year; and although national existing home sales have increased during October, the numbers fluctuated throughout the year.  Of course, trying to determine the local state of housing through the national market snapshot may be like trying to see a local road map by looking at the solar system; but there is truth to what NAR Chief Economist Lawrence Yun described as “…rising consumer confidence about home buying…”

Second, New home sales have increased compared to last year.  Although the existing home sales statistics reported by the NAR may have co-mingled some new home figures in the data (due to the methodology), the U.S. Census Bureau (census.gov/construction/nrs/) reports new home sales.  Not surprisingly, October new home sales increased about 17% compared to October 2011, and 2012 year to date new home sales increased about 20% compared to 2011.

A forthcoming piece to the puzzle, which may likely be reported in the latter weeks of December, is that November was another positive month for real estate.  And more importantly – November may have been a brilliant month locally.  A preliminary analysis of Montgomery County MLS (Metropolitan Regional Information Systems, Inc.) home sale figures (all inclusive) point to a marked sales volume increase in November compared to November 2011, as well as an increase in the average monthly home sale price (dankrell.com/realestate).

AnotNew Home Salesher piece to the local real estate puzzle is home buyer behavior.  Home buyers in the market are increasingly demanding about what they are getting for their money.  Given the lack of home listings in the resale market (down about 27% from 2011 year to date through October for Montgomery County single family homes: gcaar.com), combined with variances in home sale prices and the cost for renovations and updates on many homes; home buyers perceive value in purchasing new homes compared to buying a resale in today’s market.  This is an unacknowledged reason for the surge of new home sales this year, and why new home builders have rebounded before the resale market.

The missing pieces to improving the resale market are inventory and home prices.  As mentioned, a lack of home inventory continues.  If resale inventory were to match those of previous years, it stands to reason that resale inventory would also increase.  Inventories are lackluster most likely because many home owners have put their selling plans on hold until they are convinced that home prices have stabilized.

It’s welcome news that the 2012 housing market is slightly better than the 2011.  And although the landscape of the local market has improved, home sale figures are not much better than those posted during 2009-2010.  If resale inventory does not increase, the resale market of 2013 will probably be much like that of 2012.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of December 3, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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Real estate pent up demand or pent up optimism

by Dan Krell © 2012
DanKrell.com

housing marketThe National Association of Realtors® latest news release of April 26th stated that March’s increased pending home sales figures is an indication that the housing market is recovering. The NAR reported that March’s Pending Home Sale Index (the PHSI is a “forward looking number indicating contracts signed”) increased from February’s PHSI and is much higher than the PHSI a year ago. Lawrence Yun, NAR Chief Economist, claimed; “The housing market has clearly turned the corner. Rising sales are bringing down inventory and creating much more balanced conditions around the county, which means home prices, will be rising in more areas as the year progresses…” (realtor.org).

Regardless of the newly sparked optimism for the housing market, a news release of one week prior (April 19th) indicated although March’s existing home sales were better than the previous year, the number of home sales declined from February’s totals. Dr. Yun cautioned that, “We were expecting a seasonal increase in home listings, but a lack of inventory has suddenly become an issue in several markets with not enough homes for sale in relation to buyer interest”…“Home sales could be held back because of supply factors and not by demand…”

My local market (Montgomery County MD, which includes Bethesda, MD, Chevy Chase MD, and Rockville MD) is part of the one of the stronger housing markets in the country, and pending sales are strong. The April 2012 Montgomery County Single Family Home Housing Report released by the Greater Capital Area Association of Realtors (gcaar.com) indicated that the number of contracts increased 12.4% compared to the same time last year, as well as increasing 8.5% year-to-date compared to the same time last year.

However, when looking at closing sales, pending sales may not be converting. Although the number of settlements of single family homes in Montgomery County is reported to have increased 5.8% in April 2012 from April 2011, the number of settlements year-to-date has decreased 1.6% from the same time last year.

Additionally, housing inventory continues to pose a problem for the market. Montgomery County single family home new listings decreased 14.6% in April 2012 from April 2011; while total actives reported for year-to-date through April 2012 decreased 15.1% for the same time last year. A diminished housing inventory is not so much an issue of meeting an increased buyer demand, as Dr. Yun has stated; but rather the issue may be that the declining housing supply may be lowering to meet buyer demand.

housing statsHowever, if housing inventories were not meeting an increased buyer demand, then we might be experiencing something akin to what occurred 2005 through 2006 (when homes sold relatively quickly, the average time on market was less than 30 days, and home prices were increasing). But we’re not experiencing the activity of 2005-2006. Additionally, the average single family home sale price for Montgomery County as reported by GCAAR is $496,144 for the month of April 2012 (compared to $515,161 for the same time last year).

I remember (and reported) similar optimisms declared in recent years; for example, an October 2009 report indicated that the PHSI was proclaimed to be at the highest level since March 2007. Enthusiasm for a market turning point would surely be welcome; but the data is inconsistent. And in fact, maybe current reports of pent up home buyer demand may be indicative of something else- a projection of pent up optimism.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of May 7, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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The Market Forecast for 2007 and Beyond

by Dan Krell © 2007

The first quarter of 2007 is almost at an end. Tax returns are due in a few weeks. Spring Training has begun. And the spring real estate market is in full swing. Or is it?

Yes and no. Home buyers are looking. However, many of the homes that have languished on the market through the winter are still unsold, or have gone under contract at greatly reduced prices. If this is happening now, what are we to expect in the future?

Looking back to 2006 we all agree the market slowed down a bit and almost to a stand still by winter. Although it was a sluggish year, the National Association of Realtors considered 2006 to be a respectable year. Looking at the numbers nationwide, it was indeed a respectable year. Although existing home sales decreased 8.4% last year, it was the third best year on record for such sales. Additionally, new home sales decreased 17.3% and recorded the fourth best year on record for new home sales. Believe it or not, the NAR reports that homes prices increased nationally 1.1% for 2006, which is a record thirty-nine consecutive years of home price gains.

For 2007, the NAR forecasts a year much like last. Existing home sales will be consistent, but not as strong as last year, while there will be a slight increase in home prices. It is uncertain, however, how new home sales will manage (Realtor.org).

Fortune’s picture for the immediate area isn’t as rosy. Their December 21, 2006 forecast of home prices for the Washington area predicts a decrease of 3.8% in 2007 and 3.2% decrease in 2008. The forecast for the Bethesda-Gaithersburg region predicts a 2.7% decrease in 2007 and 4.3% decrease in 2008.

As a whole, economic forecasts point to a stable economy with stable employment and minimal to moderate growth. As you can imagine, many reports indicate that housing will continue to be a burden on the national economy. Reports predict that the burden will continue, however, through mid year 2007 and remain stable through 2008.

Prognosticators projected that the spring market for 2006 would be business as usual. Locally, the market preformed inconsistently. The spring market for 2007 will be inconsistent as well. As the local real estate market attempts to find its balance the market will continue to be slow through spring. Unless there is a major disaster, the sales pace will pick up in May as the market levels off.

Contributing to the continued lethargy is the fallout in the sub-prime mortgage industry. The tightening of credit guidelines due to over zealous speculators in the secondary mortgage markets has recently reduced the already shrunken pool of home buyers. Like most market commodities, investors will one day again find their appetite for sub-prime mortgages.

Home prices will continue to adjust, having an effect of tightening the available housing inventory. As many home sellers are already offering their homes at a break-even price, some home sellers will find that they cannot afford to sell as they would lose money on the sale effectively taking them out of the market.

By the end of the summer 2007, the effect of a tightening market will bring about the balance that we have been waiting for – hopefully.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of March 19, 2007. Copyright (c) 2007 Dan Krell.

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Expectations for the 2007 Market

The past year’s real estate market was not what people expected. With much speculation and pessimistic media reports many expected the worst. The worst never happened and the numbers for 2006 were respectable, as home sales go. What’s expected for the 2007 market?

It was interesting to see the inventory grow as the number of active listings increased through the year. In fact, 2006 has had the most active listings at one time since before 1999! Many home sellers were taken aback by the amount of competition they faced for potential home buyers; while at the same time home buyers were overwhelmed with the amount of choice.

Now that we are heading towards the end of the year, many home sellers are taking their homes of the market after a disappointing fall and many days on the market. These home sellers are anticipating re-listing their homes in the spring. In fact the number of active single family homes listed in Montgomery County has hovered around the 4000 unit mark since June, however recently dropped to about 3000 units in November (which is still more than last year at the same time) (GCAAR.com). While some of those homes did sell, most did not.

Although the average home price has steadily increased in the county, many neighborhoods are seeing depreciation in the form of lowered sales prices. The home price average in Montgomery County is more likely skewed due to the increase of home sales in the million dollar or more range. November showed a decrease in sales in all price ranges except $1.5M or higher. There was an increase of almost twelve percent in sales in November as compared to the same time last year for this price range; there were 296 sales of homes priced $1.5M and higher in November 2006 in Montgomery County.

Many are anticipating a brisker market this upcoming spring. Many forecasters are predicting a nationwide recovery in the real estate market place. While perusing the optimistic reports about the 2007 real estate market don’t expect a huge appreciation in home values. Many forecasters predict a balanced market across the nation. Economists for the National Association of Realtors predict that the number of existing home sales will maintain at the roughly the same level as 2006, however new home sales will continue to slide into 2007 (Realtor.org).

Locally, the outlook is also positive due to a strong economy, relatively low unemployment, and relatively low interest rates. Another positive sign for the market in 2007 is the foreclosure rate. A recent article in the Baltimore Examiner (examiner.com) reported about a 12% drop in Maryland foreclosures from 2005, while the rest of the country realized a 27% increase during the same time!

As the spring market arrives, we will see many homes returning to market along with new listings of existing homes. Adding to the many options available will be the high builder inventory, which has been accumulating through the fall.

Spring will also bring many home buyers to explore the market as well. However, with many choices to consider, the average days on market for listed homes will remain high. Let’s face the truth that the market has slowed; however, the good news is that we are not heading into oblivion.

By Dan Krell
Copyright © 2006

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Real estate market report 2005

Many experts are not only talking about the real estate bubble, but how it’s about to burst. I was interested in finding out how many articles and proclamations exist about the bursting bubble, so I googled “housing bubble Washington, DC.” There were over 800,000 links to people and articles (some going back to 2002), talking about how the bubble is about to burst. Many talk about concerns of financial impact and others talk about a doomsday scenario when the bubble bursts. Here’s the real estate market report 2005.

Real estate market report 2005

If you look at the mid year statistics, it seems that the Washington D.C. real estate market is still in full swing. You can decide for yourself based on the statistics for single family homes in Montgomery County. So, here is the mid-year report card, based on the statistics compiled by the Greater Capital Area Association of Realtors (GCAAR). Homes listed for sale for June 2005 totaled 2,004, up from the 1,971 homes listed in June 2004, an increase of 1.7 percent. The fact that more homes are coming on the market sounds encouraging, however, the total active listings in June 2005 (homes listed for sale but not under contract) are down 4.5percent from the same time last year. So, although the supply of homes being listed for sale rose, the actual amount of homes available on the market has reduced because there are home buyers ready to gobble these homes up as they come onto market.

It seems as if the home buyers’ appetites for homes are insatiable so far this year. The number of contracts and settlements are up for the period of January to June 2005 as compared to the same time period in 2004. The number of houses where status changed from active to contract during the first six months of 2005 increased 1.3percent compared the first six months of 2004. Additionally, the number of homes that were settled during the first six months of 2005 increased 2.5percent compared to the same six month period in 2004.

Interestingly, I would like to note the sales of homes that sold for $1,000,000 or more increased from last year. There were 389 of these million dollar plus homes that sold in the first six moths of 2005, compared to the 265 sold in the same time period in 2004, that is a 46percent increase! So far, for 2005, the average sale price in Montgomery is $544,719. Compared to $477,937 for the same time period in 2004, it is an increase of $66,782! (stats from gcaar.com).

Will there be a correction or a full blown crises?

Looking at the statistics above, you may ask yourself, “can prices continue to climb and record numbers of sales continue year after year?” The market can’t continue double digit appreciation forever.  Will there be a correction or a full blown crises? Whatever happens, there will always be a real estate market.

by Dan Krell © 2005

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