New real estate economics

A new economic paradigm for housing markets. The new real estate economics are about recovery trends and bubble fears.

real estate bubble

Lawrence Yun, chief economist of the National Association of Realtors®, stated in a November 8th news release, “…existing-home sales have shown a 20 percent cumulative increase over the past two years, while prices have gained 18 percent, but incomes have risen only 2 to 4 percent in the same timeframe.” Additionally, it is expected that existing home sales to maintain 2013 gains through 2014; and home prices to continue and upward trend (realtor.org).

The 2014 prediction for U.S. housing sounds great. But does this mean we are expecting increased multiple offer situations with further plummeting of average days on market? In a post housing bubble world, some wonder if this year’s real estate activity is sustainable – maybe it was no coincidence that some descriptions of hot housing markets sounded like the go-go market that occurred during the housing bubble years. And yet with hindsight, should we be concerned about “priming the pumps” for another housing bubble?

Sentiment about over-valued markets around the world was expressed by none other than Robert Shiller. Shiller, of the S&P/Case-Shiller Home Price Index, won the Nobel Prize in Economic Sciences this year for the “empirical analysis of asset prices.” And if Robert Shiller is talking about over-valued markets, maybe we should listen.

Shiller’s book, “Irrational Exuberance” is said to have made the argument for the dot-come (2000 edition) and housing (2005 edition) bubbles, as well as predicting the subsequent market crashes. (Interestingly, the book title is said to be taken from an Allan Greenspan speech described the rapid cycling stock market activity of the mid 1990’s.)

Two weeks after Janet Yellen’s confirmation hearings to become Chairperson of the Fed, Robert Shiller was interviewed by the German magazine Der Spiegel. Yellen’s responses to Senators during the hearing suggested that there were no bubbles in equities and housing, although she conceded that bubbles are hard to predict; while Shiller expressed concern about over-valued equities in many markets throughout the world, as well as a sharp rise in home prices in some global real estate markets (including some U.S. real estate markets such as Las Vegas). Shiller made specific mention of the U.S. Stock market saying that data is suggesting an equities bubble. However, as he cautioned that it might be too early to sound the alarm, there is an expectation that the market will go even higher.

Is this the new real estate economics?

Are bubbles such a bad thing? Economist Matthew Klein (Is the Only Choice Bubbles or Recession?; Bloomberg; Nov 19, 2013) speculates that bubbles may actually be an important part of a modern economic cycle that allows for growth in various sectors. He states “…bubbles can transform wealth that would otherwise be stashed in government bonds and other safe assets into income for those who work in the expanding parts of the economy.” However, many economists assert that eroding wealth and savings to artificially grow an economy is dangerous and unsustainable.

How will real estate economics play out? Getting back to the NAR press release, Yun credited the current sales and price trends to a lack of housing inventory and buyer demand. Unfortunately, housing inventory is at about a thirteen year low; and unless inventory increases we can expect an interesting year ahead.

by Dan Krell
© 2013

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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. Copyright © 2013 Dan Krell.

High end real estate and hot markets

Luxury Homes

High end real estate is hot and is pushing home price limits to new levels. And although many luxury home buyers are seeking homes that are in vogue, other high net worth home buyers are looking for other things in their homes.

Many high end home buyers want their homes to be a piece of art; and it seems as if there is a market for pairing art and real estate. What seems to pair luxury real estate and art is Art Basel (the annual premier art show) in Miami, where luxury real estate agents are flocking to make sales.

According to The Miami Herald, South Florida developers have paired “exceptional art” with high end real estate to create something special. And there is a market for it.

However, while many luxury home buyers are looking for exquisite art, other buyers of high end real estate are looking for “safe havens.” These home buyers are looking for established markets that are performing well and have a history of stability.

Not sure where the hot high end real estate markets are located? According to Zillow some of the top luxury real estate markets are New York, Los Angeles, San Francisco Bay Area, Miami, and Washington DC. The metro DC area includes Maryland and Virginia, and is not only the seat of power – but is also culturally significant offering a wide variety of art and music. The superlative selection of high end homes in the DC metro area offer a multitude of home styles and locations for most any life style; many high end home inquiries in the Maryland area include Bethesda, Potomac and Chevy Chase.

by Dan Krell © 2013

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Increasing anger about real estate issues

real estate bullyWhat’s behind the increasing anger about real estate issues?

Did you know there is an anger epidemic in the U.S.? Dan Bowens of Fox 5 (New York) cited a USA Today study indicating that 60% of American adults polled reported they had angry or irritable feelings – which is a 50% increase from a 2011 poll. And if you are in a service industry, such as a real estate, you not only encounter the occasional obstinate client; but you can also find yourself engaged with bullies.

by Dan Krell © 2013

According to the American Psychological Association (apa.org), “Anger is an emotion characterized by antagonism toward someone or something you feel has deliberately done you wrong.” Anger can be used constructively to solve problems, but it can also cause problems that can interfere with thinking and “…harm your physical and mental health…”

Anger was common when the market declined: Many home owners were irate about deflated home values; many other home owners were outraged about their underwater mortgages, while others were furious about lenders foreclosing on homes. In fact, it was common to see foreclosures that were trashed by the owners as a way to express their anger.

Anger was also common as the market strengthened: Home sellers were irritated by buyer push back on price. Many home buyers were frustrated about multiple offer situations on some homes; while a few buyers were aggravated by the notion that they were no longer able to purchase foreclosures at steep discounts.

Regardless of the reasons for America’s reported increase in anger, the issue really isn’t the anger per se; anger is a useful emotion that can be productive. But rather, anger seems to be increasingly manifesting in irrational and aggressive means – even in the real estate industry.

A recent edition of Realtor® Magazine (Daily Real Estate News; October 20, 2013) reported that there are increasing incidents of physical assaults of real estate agents; attacks have been reported in model homes, open houses, as well as in their offices. Although these acts of physical aggression are increasing; the article did not report or discuss the more common verbal aggression, which includes threats and intimidation.

Anyone can get caught up in their anger and cross a line; agents, clients, neighbors, and even those who are engaged in a seemingly noble neighborhood cause are not immune. Fortunately, anger can be short lived and resolved; however, if the anger becomes all consuming – it may be time for mental health intervention.

The anger statistics didn’t surprise me. It seems as if we can find something to be angry about if we want to. However, it may be worthwhile, especially those who have been chronically angry and have lashed out at those who do not acquiesce or comply, to let go and be thankful for the good in our lives.

Goal Auzeen Saedi, Ph.D. sums it well (Why Are We Americans So Angry? Psychology Today; Millennial Media; April 30, 2013): “But what do we do with all of this anger? We let go. We forgive. We meditate and pray. We surround ourselves with loved ones…There are parts of all of us that could be made softer and kinder. We can learn to see the good in each of us that exists and teach our children to do so. Or we can continue to get angry, bully each other, make threats and demands. It is our choice.

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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.  This article was originally published the week of November 25, 2013 (Montgomery County Sentinel). Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

Is there a best way to predict the housing market

predicting the real estate marketIf you’re like most home sellers and buyers – you want an edge over your competition.  What better way to get the edge than having a way to predict the market.  If you don’t have a working crystal ball, there are a few methods to forecast and measure housing (some of which have been used in empirical research).

Various studies demonstrate that you can assess and somewhat predict activity in a housing market; which, albeit in hindsight, can assist home sellers and buyers in determining whether it is a good time to sell or buy a home.  For example, I recently wrote about gauging real estate through divorce and premarital agreements; which discussed the implications of these life events to the housing market.  The increase in prenups could indicate an increased perception in the value of home ownership and possibly the overall housing market.

Another recent study indicated that it may be possible to determine home pricing through internet search data.  Beracha and Wintoki (Forecasting Residential Real Estate Price Changes from Online Search Activity; The Journal of Real Estate Research 35.3 (2013): 283-312.) set out to find out if keyword search engine data from Google could determine price shifts in various cities.  They concluded that this may be the first study that directly links “aggregated” search engine data to “abnormal crosssectional home price changes.”

Essentially, the research established that you can figure out metro housing market activity through Google Trends and Google Insights, which provide keyword volume measurement in internet searches.  The study examined the keywords “real estate [city]” from 2004 through 2011, and concluded that “…cities associated with abnormally high real estate search intensity consistently outperform cities with abnormally low real estate search volume by as much as 8.5% over a two-year period.”

And although the study’s authors discussed prior research linking internet keyword searches and consumer behavior, they caution that there are a number of keywords related to real estate that may be more relevant than the keywords used in their study.  Regardless, the authors assume that their results may be useful in home sales and purchases.  More importantly, it may seem as if their results may strengthen the link between specific search engine keywords (e.g, “real estate Rockville” or “real estate Bethesda”) and the ability to predict a housing bubble, or possibly home price peaks.

Generalized, “global” data, such as those described in Beracha and Wintoki’s study, and their meaning may be interesting; however, limiting yourself to such indiscriminate analysis for your home sale or purchase could be disadvantageous.  Global data does not distinguish the many factors that impact regional markets; nor can it sort out differences within a local market (neighborhood data within a region can vary significantly).

Using “global” tools may be useful; however, if you are planning a home sale or purchase – seek out the assistance of a local Realtor®.  Your real estate agent has access to local specific data that is reported through the MLS.  Using MLS data, your agent can prepare a market analysis that compares your home to recent neighborhood sales; the breakdown can put your home in perspective and can give you a price range to assist you in listing or purchasing the home.  Additionally, your agent can provide a hyper-local trend analysis so as to help you understand what to expect from the local housing market.

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by Dan Krell © 2013

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. Copyright © 2013 Dan Krell.

Gauging real estate market through divorce and premarital agreements

divorce and real estateCan we gauge the real estate market through divorce and premarital agreements?

A recent news item (prnewswire.com) from the American Academy of Matrimonial Lawyer (AAML.org) appears to be good news for real estate.  The October 16th press release proclaimed that a majority of AAML members surveyed indicated that there was an increase in prenuptial agreements over the last three years.  Among the top reasons cited for a premarital agreement included “the protection of separate assets” and “the division of assets.”

According to the AAML, the increase in premarital agreements correlates to an improving housing market and overall economy.  Alton Abramowitz, president of the AAML was quoted to say, “As the financial and real estate markets continue to improve, there is a greater awareness of risk to possibly sharing these gains in a divorce…”   Mr. Ambramowitz further stated, “…The trend of divorcing spouses fighting over which one has to take possession of a devalued home and other depreciated assets appears to be coming to an end.”

Although this was an anecdotal survey that does not provide empirical evidence linking the increase of prenuptial agreements to an increasingly healthy housing market and strengthening economy; Mr. Abramowitz’s logic makes sense, and you might think his reasoning as intuitive.

However, the increase in premarital agreements is not necessarily an indication of a growing economy and housing market – but rather, there may be other anecdotal evidence explaining the prenuptial increase may be due to the increasing number of couples delaying marriage to a time when some wealth has been amassed.  The results of a 2010 AAML survey indicated a rise in premarital agreements was also attributed to couples marrying later in life.

Additionally, the link between the concept of delayed family formation and an enduring sluggish housing market was cited by Ben Bernanke, in a February 2012 speech given to the National Association of Homebuilders.  The speech identified economic concerns and a decline in family formation as reasons for the decreased commitment to home ownership.

Furthermore, counter-intuitive results from a recent study found that divorce rates drop during housing slumps and recession; but the notion that divorce rates are higher during prosperous times may support the most recent AAML survey that premarital agreements could be an indication of a healthy housing market.  Abdur Chowdhury’s 2013 study (’Til recession do us part: booms, busts and divorce in the United States, Applied Economics Letters, 2013, vol. 20, issue 3, pages 255-261) analyzed data from 45 states between 1978 and 2009 to find that “divorce is pro-cyclical.”   During a recession, Chowdhury believes that there is a “new appreciation for the economic and social support that marriage can provide during tough times.”

Supporting Chowdhury’s results, Melanie Lawder (Divorce Rates Lower During Recession, The Marquette Tribune, 2012) reported that divorce rates dropped to 16.9 per 1,000 married women (from 17.5 per 1,000 married women in 2007) during the Great Recession.  Lawder also quoted a study by the National Marriage Project at the University of Virginia indicating “29 percent of Americans aged 18 to 45 believe the recession has deepened their commitment to marriage.”

Although there may be numerous reasons for divorce rates to drop during difficult economic times, the recent increase in prenuptial agreements can certainly be viewed as a positive sign for housing; it may be that there is an increasing perception of the value of real estate, which people seek to protect.

by Dan Krell
© 2013

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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.