The changing housing market is still viable

There are a number of ways to determine a changing housing market.  An obvious indicator of a changing housing market is a swelling home sale inventory.  According to the National Association of Realtors July 20th press release, “inventory of unsold existing homes rose to 1.26 million by the end of June, or the equivalent of 3.0 months at the current monthly sales pace.”  As a matter of comparison, home sale inventory rose 9.6 percent from the previous month, and 2.4 percent from the same time last year.

changing housing market
what experts are saying

Another indicator of a changing housing market is remodeling activity.  Believe it or not, there is an index for this.  The Leading Indicator of Remodeling Activity (LIRA) is a product of the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. The LIRA projects that investments in home remodeling will “decelerate” from 2022’s 17.4 percent to 10.1 percent by the second quarter of 2023.

In a July 19th press release, Project Director of the Remodeling Futures Program at the Center, Carlos Martín, stated: “Slowing sales of existing homes, rising mortgage interest rates, and moderating house price appreciation are expected to dampen owners’ investments in home improvements and maintenance over the coming year. Steep slowdowns in homebuilding, retail sales of building materials, and renovation permits all also point to a cooling environment for residential remodeling”

Although a changing market sounds ominous, it’s still a viable market. Abbe Will, Associate Project Director of the Remodeling Futures Program, stated: “While beginning to soften, growth in spending for home improvements and repairs is expected to remain well above the market’s historical average of 5 percent. In the first half of 2023, annual remodeling expenditures are still set to expand to nearly $450 billion.”

Other signs the market is still viable, is that first time home buyers are still a large part of the market, and all-cash transactions continue to be a factor as well.  As indicated in NAR’s press release, first-time home buyers accounted for 30 percent of the home sales in June, which is an increase from May, but slightly down from the 31 percent the same time last year. Additionally, buyers paying all cash accounted for 25 percent of home sales, which is an increase from 23 percent the same time last year.

A final note on the health of the housing market, NAR reported that distressed, foreclosure and short sales accounted for less than 1 percent of home sales during June, which is basically unchanged from the previous year.

By Dan Krell
Copyright © 2022

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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.

Living with your HOA

If you’re buying a new home or a resale within a planned development (or already own is such a community), it’s very likely there is a home owners association, also known as HOA. The HOA has rules and covenants to live by, so to speak.  So, you’re not only living with your community, but living with your HOA as well.

Living with your HOA
Home buying process

Most residents and owners living under the umbrella of their HOA are interested staying within the lines of the rules and covenants. However, it’s difficult sometimes to be aware of all the rules as they sometimes change.  Getting an infraction notice isn’t the end of the world, as it’s just the HOA’s way of reminding you of the rules.  Most infractions are resolved without a fuss. 

It’s not unreasonable for you to want to live quietly in your own home.  Nonetheless, when you move into a community that has a HOA, you agreed to be living with your HOA rules and covenants.  

There may be occasions where the home owner feels that the HOA’s notice is a nuisance.  Sometimes home owners feel the HOA is unfair, they may feel singled out, and their voice is unheard.  It’s not uncommon that a home owner may feel as if the HOA is engaging in selective rule enforcement.  You may not agree with the HOA action or decisions, however seeking a resolution is mutually desirable.

Responsible community management is not a one-sided affair. It’s also the responsibility of the home owner to maintain the rules and covenants.  However, when there is a dispute, what can you do?  Fortunately in my area, there are neutral resources to assist in mediating disputes between community management companies, boards of directors and home owners. 

The Montgomery County Commission on Common Ownership Communities (housed within the Montgomery County Office of Consumer Protection) was established in 1991 and is committed to providing owners, tenants, residents, boards of directors, and community management companies with information, assistance, and impartial dispute resolution programs.  Statewide, the Consumer Protection Division of the Maryland Attorney General can receive complaints under the Maryland Condominium Act, as well as the Maryland Homeowners Association Act for resolution.

By Dan Krell
Copyright © 2022

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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.

Looking for a foreclosure discount

Over the last year and a half, some have talked about an impending foreclosure apocalypse.  Home price run up aside, some home buyers have decided to wait for foreclosure inventory to hit the market to get a property at a foreclosure discount.  

foreclosure discount
Homebuyers have opportunities

Although some expect something akin to 2007-2008 foreclosure crisis, they may be disappointed.  Experts don’t expect a repeat of the last foreclosure crisis for a number of reasons, including the fact that home equity positions of homeowners are much different today than they were the last time.  Additionally, although home sale prices may be moderating, it’s expected that future home price appreciation is still be positive. 

Let’s take a look at foreclosure data compiled by Attom Data. The July 22nd press release (Top 10 U.S. Counties with Highest Foreclosure Rates in June 2022; attomdata.com)  indicates that, “there were a total of 90,139 U.S. properties with foreclosure filings in Q2 2022. That figure was up 15 percent from the previous quarter and up 165 percent from a year ago. The report noted that national foreclosure activity total in Q2 2022 was 68 percent below the pre-recession average of 278,912 per quarter from Q1 2006 to Q3 2007 – making Q2 2022 the 23rd consecutive quarter with foreclosure activity below the pre-recession average.”

So basically, foreclosures have increased. However, the number of foreclosures is nowhere near the amount prior to the great recession.  Even though the number of foreclosures will likely not impact the overall housing market, there are buyers looking for the foreclosure discount. 

If you’re looking for a foreclosure discount, read the recent research by Ralph B. Siebert published in the Journal of Real Estate Research (2022, Vol. 44 Issue 1, p1-28).  The study revealed where deeper discounts may be found when buying a foreclosed property.  Siebert’s analysis indicated that discounted foreclosed property depends on the metro and/or regional housing market where the house is located, as well as the home’s value position relative to the market segment. 

Siebert’s study included transactions in Florida and Indiana from 2000 to 2020.  His results indicated that foreclosure discounts were higher in Indiana than Florida.  Also, Indiana foreclosed homes in the lesser value segment lost the most value, whereas similar value segments of foreclosed homes in Florida did not lose as much.  He also found other differences that resulted in higher discounts as well. 

If you’re looking for foreclose discounts, consider the comparing market locations and value segments.  Buyer beware, however, it’s likely that the home will likely need repair and/or renovation.  So, although the acquisition of the property may be at a discount, the cost of bringing it up to your standard may be costly.  Do due-diligence, and consult with licensed real estate professionals to assist in making home buying decisions.

By Dan Krell
Copyright © 2022

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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.

The thorough home inspection

Back in 2005, one of the first columns I wrote for the Montgomery County Sentinel was about getting a thorough home inspection.  The market was similar to the recent sellers’ market, where homes sold in hours after receiving multiple offers.  Home buyers were making non-contingent offers, foregoing a home inspection, and many times offering incentives to the seller (such as free rent back, cars, vacations, etc).  The point then, as it is now, is that inspections are important and helpful.

home inspection
Home improvements

Of course, the last year-and-a-half has been just as brutal to home buyers. Many buyers paid way over the list price.  And of course, many also had to forego an inspection just to be in the running with the competition. 

Although home sales have waned recently, it is likely that sales will rebound in the fall.  That said, the recent mini cycle allowed buyers and sellers to take a breather to figure out where the market is headed.  As an increasing number of homes are for sale, the market will become be more balanced.  A balanced market allows for mutual negotiation, including having a thorough home inspection.

It’s undeniable that home buyers have high expectations during the buying process.  And that includes the home inspection.  Buyers expect a thorough and exhaustive inspection.  They rely on the inspector to identify concealed and latent defects. Basically, buyers expect the inspection to help determine the condition of the home and its systems/components before they move forward with the purchase. 

Even though home buyers view the inspector as all-knowing, home inspections are not infallible.  Home inspectors are limited in their inspections and can miss items and/or make mistakes.  Additionally, according to the state’s home inspector state licensing, a home inspection is “not technically exhaustive,” and it may not identify a concealed condition or a latent defect.

Home inspections are for all types of homes.  Besides resale homes, inspections also are for new and recently renovated homes.  It is not uncommon to discover incomplete installation of a system in new or renovated homes. 

Overall, there is still a benefit of conducting a thorough home inspection. However, home buyers need to understand the limitations of their inspection.  They should also attend their inspection ready to take notes and ask questions. 

By Dan Krell
Copyright © 2022

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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.

Back to the future for residential real estate

If you consider the roots of brokerage in residential real estate, you can imagine how much the business of selling homes has changed.  Unlike today, the first real estate brokers were independent. Their “listings” were exclusive and proprietary.  Buyer agents didn’t exist until well over one hundred years later.  And at the beginning, there was no broker cooperation on listings and commissions. 

Real Estate
Real estate consistently voted as best investment

Of course, everything changes over time. Brokerage cooperation began with loose networks of brokers who agreed to help sell each other’s listings.  Early multiple listing services evolved out of those local networks.  And as the real estate industry adopted emerging technologies, the MLS concept evolved into the listing service we know today. 

The MLS framework promoted the evolution of real estate brokerage as well.  Centralizing and standardizing listed homes made home searching easier for brokers and their respective buyers. 

Brokerage cooperation allowed agents and brokers to sell others’ listings to buyers.  Up until the early 1990’s, all agents and brokers represented the home seller.  However, it’s likely technology and a robust MLS fostered buyer agency and dual agency. 

It seems as if it wasn’t until the advent of buyer agency when people began questioning agency and compensation.  Prior to buyer agency, the commission was negotiated between the listing broker and the home seller.  Selling agents (those who brought the buyer) were a subagent of the seller, so it made sense that the commission would be shared with subagents. 

The commission structure of today’s listing agreements seems to be an antiquated carryover, where commissions are “shared” with sub agents and exclusive buyer agents. 

As an aside, it’s common, if not required, for a buyer agent to disclose to their clients their compensation amount. If the coop commission is less, they will likely collect it from their client.

Currently, real estate agent and broker compensation is undergoing a meticulous and exacting scrutiny inside and outside of the industry.  During the last two decades, there have been legal challenges to the industry’s status quo on residential agent and broker compensation.  However, recent legal proceedings have gained traction such that a growing number of real estate brokers are embracing a possible future with “decoupled” commission.

When change is afoot in the housing industry, there is a lot at stake for real estate brokerages.  Although the outcome to the current challenges of real estate compensation is uncertain, the result may be that residential real estate brokerage comes full circle, where buyer and seller compensation are respectively exclusive.

By Dan Krell
Copyright © 2022

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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.