Stock market and home buying

stock market
Real estate and the economy (infographic from nar.realtor)

It’s easy to understand why the recent stock market volatility triggered some into proclaiming that the sky is falling.  The potential for losing money can evoke some strong emotional responses.  Interestingly, some experts have speculated how the recent stock market activity would spill over to consumer spending, including the housing market.  Reporting such as Jacob Passy’s recent article titled “Could Stock Market Volatility Cause House Prices to Fall?” (Marketwatch.com; February 8, 2018) makes for good click-bait.  However, the details of the article would suggest otherwise.  The consensus is that the recent Wall Street activity is not likely to impact the housing market.

Passy is trying to make an argument that the housing market will suffer from the recent stock correction, and subsequent interest rate increases.  But Daren Blomquist, senior vice president of communications at Attom Data Solutions [formerly RealtyTrac], was quoted in Passy’s article saying “The strength of the housing market and economy in general is what’s spooking the stock market.”  However, the volatility may make some home buyers wary of making an investment in housing.

The stock correction and increased Wall Street volatility is not a new phenomenon.  The last market correction with lasting volatility occurred in June and August of 2015,through the fall.  The current stock market volatility is part of the cycle of a healthy economy.  Unlike the crash of 2008, current economic fundamentals are positive.

This stock market correction is not unusual, however it is extraordinary.

Seeking Alpha noted that the percentage drop for the two largest Dow losses this year are not even in the top 100 (10 Figures On Historic Dow Correction; seekingalpha.com; February 6, 2018).  And this correction is distinct, according to ZeroHedge, because most individual stocks were left intact (If This Correction Is Over, It Will Be Unique in Leaving Most Individual Stocks Unscathed; zerohedge.com; February 13, 2018).  Many individual stocks actually made gains while the Dow and the S&P stocks “took it on the chin.”  This phenomenon is unique and is said to demonstrate that the economic fundamentals are working.

As for rising interest rates, they are needed to moderate home prices.  If home prices aren’t controlled by market forces, such as interest rates, then homes will become unaffordable for many home buyers.  Mortgage interest are still historically low, even with recent increases.

Homeownership is out of reach for many home buyers because of increasing home prices.  David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, declared in the January 30th S&P CoreLogic Case-Shiller  Home Price Index release:

Home prices continue to rise three times faster than the rate of inflation.  The S&P CoreLogic Case-Shiller National Index year-over-year increases have been 5% or more for 16 months; the 20-City index has climbed at this pace for 28 months.”

Blitzer pointed out that these increases are not based on home buyer demand, stating, “Given slow population and income growth since the financial crisis, demand is not the primary factor in rising home prices.”  Instead, sharp home price increases are due to the lack of homes for sale and new construction.  And until housing inventory increases, “home prices may continue to substantially outpace inflation.

Lawrence Yun, chief economist for the National Association of Realtors, remarked that the recent stock market volatility should not impact the housing market.  He stated, “Underlying economic fundamentals remain strong.”  However, he cautioned that if the stock market retreats further, it could affect home buyers who plan to use funds from their 401k’s and other investment vehicles as down payment sources.

Copyright© Dan Krell
Google+

If you like this post, do not copy; instead please:
link to the article,
like it on facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector
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.

Rental search in a tight market

rental
Finding a rental (infographic from appfolio.com)

Some housing experts are excited about the recent one-half of one percent uptick in the homeownership rate, saying it’s at a three year high. But the Census’ most recent release of the Quarterly Residential Vacancies (Fourth Quarter 2017) and Homeownership described the move as “not statistically different” from the previous quarter or year (census.gov). Essentially, the homeownership rate remains historically low. This dovetails with the Census’ most recent renter moving data indicating that the percentage of renters who moved in 2017 was the lowest since 1988. So, it should not be a surprise that rents are on the rise, and it’s becoming even more difficult to find a rental.

How can you find a rental in a tight market?

Before you go off and sign a lease, you should create your own “rental guide.” First, make a housing budget of how much you can afford for rent and utilities. Then make a list of “must haves” for your new home. Think about the size, location, local amenities, commuter routes and public transportation, and anything else you deem important. This guide will help you stay focused on your needs, and help you decide on a rental that makes sense.

home ownershipOnce you begin looking for a rental, you may realize that finding a rental that “checks all the boxes” may be difficult. You may find that rent per square foot varies depending on the neighborhood, age of the building, and the amenities. This may force you to prioritize your needs. For example, you may find that a small condo near a metro station is the same rent as a three-bedroom single family home that has a longer commute. Or there may be a new apartment available with luxury amenities with a higher rent than the older apartment building with sparse amenities.

The internet is the medium of choice these days to look for a rental. There are numerous websites using state of the art applications to advertise rental listings. They also include vast amounts of information on each listing to help your search. There are a number of specialty sites focusing on niche rentals (such as apartments, luxury, etc.) that tout their exclusive listings. However, there are sites that are more comprehensive that include a mix MLS and private listings. And let’s forget there are online classifieds too.

Many renters search for their new home without an agent, and that’s ok. But consider that an experienced licensed real estate agent can help negotiate your lease, possibly getting better terms. While most agents will work rentals and sales, there are real estate agencies that specialize in rentals. Consider contacting legitimate property managers or rental management companies and ask about their upcoming rental listings.

If a rental listing sounds too good to be true, then be suspicious of a scam. To protect yourself from scammers, it can be helpful to understand how they operate. The Federal Trade Commission (ftc.gov) offers insight on how rental scams work, and how to report scams.  Scams are typically from hijacked ads or phantom rentals.  The FBI (fbi.gov) and USA.gov also offer tips on protecting yourself from rental scams.

Some basic cautions from the FBI:

-Only deal with landlords or renters who are local;
-Be suspicious if you’re asked to only use a wire transfer service;
-Beware of e-mail correspondence from the “landlord” that’s written in poor or broken English;
-Research the average rental rates in that area and be suspicious if the rate is significantly lower;
-Don’t give out personal information, like social security, bank account, or credit card numbers.

Regardless whether you go it alone or with a real estate agent, practice due diligence. Real estate scams have been part of the rental scene for decades. Scams have become more prevalent with the increased reliance on the internet for home searches. And in a tight housing market, it’s no coincidence that real estate scams are on the rise.

Copyright© Dan Krell
Google+

If you like this post, do not copy; instead please:
link to the article,
like it on facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector
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.

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
Google+

If you like this post, do not copy; instead please:
link to the article,
like it at facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector
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.

Quantitative easing housing legacy

quantitative easing
Fed Balance Sheet (infographic from raymondjames.com)

The Fed stopped purchasing mortgage backed securities and other assets through quantitative easing a few years ago.  But the  Fed still maintains the estimated $4.5 trillion of assets it has accumulated by extending asset maturity and reinvesting in the securities.  The result has been historically low interest rates, and bubble-esque home price spikes.  But that may change rapidly over the next six months.

Quantitative easing was a name for the Fed’s “large scale asset purchases” (LSAP) from mid-2008 to 2014.  The purpose of the LSAP was to keep boost the economy and housing markets by keeping interest rates low.  According to the Fed (federalreserve.gov):

In December 2008, as evidence of a dramatic slowdown in the U.S. economy mounted, the Federal Reserve reduced its target for the federal funds rate–the interest rate that depository institutions charge each other for borrowing funds overnight–to nearly zero, in order to provide stimulus to household and business spending and so support economic recovery. With short-term interest rates at nearly zero, the Federal Reserve made a series of large-scale asset purchases (LSAPs) between late 2008 and October 2014.

In conducting LSAPs, the Fed purchased longer-term securities issued by the U.S. government and longer-term securities issued or guaranteed by government-sponsored agencies such as Fannie Mae or Freddie Mac. The Fed purchased the securities in the private market through a competitive process; the Fed does not purchase government securities directly from the U.S. Treasury. The Fed’s purchases reduced the available supply of securities in the market, leading to an increase in the prices of those securities and a reduction in their yields. Lower yields on mortgage-backed securities reduced mortgage rates as well. Moreover, private investors responded to lower yields on U.S. Treasury securities and agency-guaranteed mortgage-backed securities by seeking to acquire assets with higher yields–assets such as corporate bonds and other privately issued securities. Investors’ purchases raised the prices of those securities and reduced their yields. Thus, the overall effect of the Fed’s LSAPs was to put downward pressure on yields of a wide range of longer-term securities, support mortgage markets, and promote a stronger economic recovery.

In the June Open Market Committee press release, the Fed signaled that it would begin unwinding quantitative easing later in 2017 through “balance sheet normalization.”  Of course, the proviso was that the economy would “evolve broadly.”  The normalizing the balance sheet would “gradually reduce the Federal Reserve’s securities holdings by decreasing reinvestment of principal payments from those securities.”

There is little doubt that the 3.1 percent real Second Quarter 2017 GDP (bea.gov), along with a record breaking housing market during the first half of 2017 was a large part in the decision to move forward with the balance sheet normalization program.  At the very end of September’s Open Market Committee press release, the Fed stated that balance sheet normalization will begin in October.

How will unwinding quantitative easing affect the housing market?

Since the Fed’s announcement last week to unwind quantitative easing, there has been a lot of speculation as to how the housing market will respond.  Lawrence Yun, chief economist for the National Association of Realtors, issued a statement saying that he believes the Fed’s unwinding pace will be “in slow motion” and “mortgage rates would rise up only modestly over time.”  He expects that the 30-year fixed rate would only reach about 4.7 percent by the end of 2018 (nar.realtor).

But a sober 2013 article written by Edward Pinto, a former Fannie Mae executive, pointed out the immediate impact and consequences of quantitative easing (Is the Fed blowing a new housing bubble? wsj.com, April 9, 2013).  Pinto asserted that the home price surge of 2013 was due to the Fed’s LSAP rather than the often cited “broad based improvements in the economy’s fundamentals.”  Pinto stated, “The average mortgage rate during the first nine years of the 2000s was 6.3% compared with today’s [2013] rate of less than 3.5%. If mortgage rates were to increase to a moderate 6% in three years, say, some combination of three things would have to happen to keep the same level of homeownership affordability. Incomes would need to increase by a third, house prices would need to decline by a quarter, or lending standards would need to be loosened even further.”

Maybe the unwinding of quantitative easing is past due.  Home sale prices have since surged past 2006 home prices in some areas, and has considerably reduced the affordability of homeownership for many Americans.  Average wages have not increased significantly (if at all) since quantitative easing began.  Lending has loosened some, but not enough to make up for missing home buyer sectors (such as the move-up home buyer).

Home sellers may be in for a shock in 2018.  Rising interest rates will certainly moderate home prices.  However, rising mortgage rates would likely mean a return to stable housing market.  Mortgage interest rates will rise as sharply as they were reduced when the LSAP began, most likely rising above 5 percent by the end of 2018.

Copyright© Dan Krell
Google+

If you like this post, do not copy; instead please:
link to the article,
like it at facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector
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.

Move-up home buyers still absent

move-up home buyers
Home sale prices July 2017 (Infographic from NAR.Realtor)

Could it be that the housing market is still recovering from the great recession?  Maybe, considering that the housing market has not fully returned to a stable cycle.  Consider the inconsistency of annual home sales that seem to surge every three years, the steep home price increases over the last four years, and the lack of move-up home buyers in the market.

Summer is typically the strongest time of year for the market.  However, the National Association of Realtors reported that existing home sales decreased during June and July of this year (a decrease of 1.8 percent and 1.3 percent respectively).  And July’s Pending Home Sale Index (projecting future sales) decreased 0.8 percent (nar.realtor).

Of course, the NAR’s take on this bump in the road is provided by their Chief Economist Lawrence Yun.  Yun described the discrepancy of wage growth to home price gains as a reason for this summer’s home sale slide.  He explained that the median home sale price increased 38 percent in the last five years, while hourly earnings only increase 12 percent.  He points out the obvious, that sharply increasing home prices are creating an affordability gap, which is pricing many home buyers out of the market.

Yet, according to the NAR, “Home buyer” traffic continues to grow, while the housing inventory continues to shrink (the national home sale inventory during July decreased 9.0 percent from the same time last year).

Yun stated:

The reality, therefore, is that sales in coming months will not break out unless supply miraculously improves. This seems unlikely given the inadequate pace of housing starts in recent months and the lack of interest from real estate investors looking to sell.

Home sale inventory has been an issue for the housing market since its slow recovery began four years ago.  Although many will explain away the dearth of homes for sale as a result of strong demand and quick home sales.  However, they do not take into consideration that currently for every three homes that sell, there is one that does not.  The 1 in 3 fallout is the expectation in a typical market, while there is only a 1 in 10 fallout in a market with strong demand (such as in 2005), so home buyer demand is not exceedingly strong.

Of course, the main reason for the low housing inventory is that home owners are staying in their homes much longer than in the past.

According to the NAR, between 1987 to 2008 home owners stayed in their home an average of six years before buying their next home.  However, since 2010, the average time grew to fifteen years!  The result is a lower number of move-up home buyers in the market, and a reduced number of homes to sell.

One of missing pieces to a stable housing market has been the move-up home buyer.  The move-up home buyer is the buyer who will sell their current house to move into another home.  The necessity of move-up home buyers was acknowledged as part of a healthy housing market way back in 1985, when the economy was recovering from the deepest modern recession at that time (Move-up Buyer Provides The Base For A Recovering Housing Market. chicagotribune.com. August 17, 1985). Part of the housing recovery of 1985 was the increased participation of the move-up home buyer. As move-up home buyers “upgraded” to larger home, more affordable modest homes become available to first time home buyers.

Low housing inventory combined with elevated first time home buyer activity has fueled home prices over the last four years.  Until move-up home buyers are fully participating in the market, we will continue to see continued lack of inventory, steeper home sale price increases, and unpredictable market cycles.

Copyright© Dan Krell
Google+

If you like this post, do not copy; instead please:
link to the article,
like it at facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector
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.