About Dan Krell

December 16, 2010July 8, 2019

Optimistic about housing in 2011

Would you have ever imagined that home prices could depreciate one third since the market peak? 33.5% is the overall decrease of the Standard and Poor’s/Case-Shiller Home Price Index 10 city composite from June/July 2006 through April 2009. If the index is expanded to the 20 city composite the decrease is only 32.6%; the peak to date decrease (through September 2010) is just under 29% (standardandpoors.com).

Although the latest index indicates another decrease in home prices, the Washington, DC metropolitan area was one of two metro areas that had a slight increase (the other metro area was Las Vegas, NV). DC metro area home prices increased 0.3% in the third quarter of 2010, preceded by a 0.2% increase during the second quarter.

Similarly, the Federal Housing Finance Agency’s seasonally adjusted House Price Index (HPI) also indicated an overall drop in home prices (a 3.2% decrease from Q3 2009 to Q3 2010). However, Washington, DC is one of ten cities that experienced price increases over the past four quarters (FHFA.gov).

If you haven’t yet become indifferent, some industry experts are expressing optimism for 2011 – for a change of pace.

Fannie Mae Vice President and Chief Economist, Doug Duncan, expressed cautioned optimism in Fannie Mae’s November Economic Outlook podcast (fanniemae.com). Dr. Duncan expects slight improvements in home sales and other economic factors in 2011. These slight improvements, along with expected low mortgage rates through 2011 will assist a slight recovery.

Freddie Mac Chief Economist Frank Nothaft shared some optimism in his December 6th commentary in the Freddie Mac’s “Executive Perspectives Blog, Insights on Housing Finance” (freddiemac.com). Dr. Nothaft expects that foreclosure inventories will continue to affect local markets and home prices. However, home affordability (which is at the lowest point in years) combined with low mortgage rates should give the housing market a boost in the second half of the year.

The National Association of Realtor’s Chief Economist, Lawrence Yun, expects that the biggest push for the housing market will be through the extension of the Bush tax cuts. In a November 16th NAR press release, Dr. Yun explains that the recovery of the housing market depends on jobs. He expects about 1.5 million jobs to be created if the Bush tax cuts are extended for those earning up to $250,000, and an additional 400,000 jobs to be created “if the Bush tax cuts are extended for everyone” (Realtor.org).

Of course, many factors can influence our presently impressionable economy. For example, recent Congressional testimony by two Governors of the Federal Reserve Board (Elizabeth Duke on November 18th and Daniel Tarullo on December 1st) discussed the impact of foreclosures going into 2011 (federalreserve.gov). Governor Tarullo concluded his testimony to the Committee on Banking, Housing, and Urban Affairs by stating, “…I regret to say that the hangover from the housing bubble of this past decade is still very much with us…”

The bottom line is that although most expect foreclosure inventories to continue to drag home prices, there is optimism – for the second half of 2011. As job numbers begin to improve, employment will be the big news. A slightly better employment picture combined with low mortgage interest rates and the most affordable housing market in decades will provide the spark that the housing market and economy have been seeking for over two years.

By Dan Krell
Copyright © 2010

Comments are welcome. This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

December 8, 2010July 7, 2019

The mortgage interest tax deduction: Arguments to save and eliminate it

When I wrote about the demise of the mortgage interest tax deduction (MID) just over a year ago, many people found the idea intolerable. As budget deficits continue to be an issue, the MID seems to be on the chopping block again. And for some people, that’s just fine.

You see, the MID has been under attack for many years by those who have argued that the MID is poor economic policy. Critics of the MID claim that it not only entices consumers to purchase homes that they can’t afford; it does nothing to increase home ownership, it inflates home prices and is mostly used by the wealthy.

Conversely, arguments are made by proponents that the MID makes housing more affordable and encourages home ownership; of course, one of the more vocal advocates is the National Association of Realtors® (NAR). In a December 1, 2010 press release, NAR president Ron Phipps stated “The tax deductibility of interest paid on mortgages is a powerful incentive for home ownership and has been one of the simplest provisions in the federal tax code for more than 80 years. In a new survey commissioned by NAR and conducted online in October 2010 by Harris Interactive of nearly 3,000 homeowners and renters, nearly three-fourths of homeowners and two-thirds of renters said the mortgage interest deduction was extremely or very important to them.” (Realtor.org)

If you’re wondering how the MID began, its origination is not extraordinary (although its preservation could be described as remarkable). An article written by Roger Lowenstein (“Who Needs the Mortgage-Interest Deduction?”; The New York Times, March 5, 2006) offers a fact/fiction history of the MID. Although written as a critique of the MID (Lowenstein calls the MID “patently regressive”), the article is referenced by many on both sides of the issue as a source of historical information.

According to Lowenstein, the MID, like all loan interest, was deductable when income tax was first collected. As consumer credit ballooned (credit cards, auto loans, etc), people took advantage of the tax “loop hole” to deduct the interest paid on their consumer loans. It was not until the 1980’s, (during a different recession) that Congress acted to reduce deficits by eliminating interest deductions from some consumer loans (such as credit cards); however, the MID survived (albeit in a limited form).

Is it Déjà vu, or just unavoidable? It was just last year when the Congressional Budget Office made recommendations to eliminate the MID. However, the most recent attack on the MID, also as a means to reduce budget deficits, came earlier this month from the National Commission on Fiscal Responsibility and Reform (also known as the President’s Deficit Reduction Commission). The Commission’s report, “The Moment of Truth: Report Of The National Commission On Fiscal Responsibility And Reform, December 2010” recommends that the MID be further limited by capping the mortgage limit from $1M to $500,000 and eliminate the MID from second homes and home equity lines.

Advocates of the MID say that proposed changes will hurt an already suffering housing market, while critics say that elimination of the MID can help stabilize the housing market; regardless, both sides agree that further limitations on the MID will depreciate housing prices. Where do you stand on the issue? Get involved and voice your opinion to your Congressperson.

by Dan Krell
© 2010

Comments are welcome. This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

December 2, 2010October 5, 2019

Are Mice Seeking Shelter in Your Home?

by Dan Krell © 2010
www.DanKrell.com

If you’ve owned a home, chances are you’ve encountered a critter or two that did not belong inside. Every Season seems to have its pests: during spring you might be battling bugs that are associated with gardens; ants seem to rule during summer; spiders and other outdoor bugs try to migrate indoors as the temperature starts to change in the fall; and of course as fall turns to winter, rodents- mostly mice – seek shelter and food within our homes.

Although mice live outdoors, they will try to enter our homes when the temperature begins to change; because like you and me, mice are not typically comfortable in very cold weather. Of course, mice can enter your home anytime; however, as the weather drops, their attempts to go inside may increase. Mice can easily find their way into your home through the smallest cracks and crevices, and can quickly scoot into an open door or window. Because of their skeletal-muscular structure, mice are known for squeezing through cracks the size of a pencil; it’s important to be wary because even the smallest crevice could be an entry point for a mouse. Common entry points may include basement windows, dryer vents, pipes, cracks in foundations and garage doors.

Although mouse proofing can be done any time of year, why not before winter begins? You can begin your “mouse proofing” by inspecting the exterior of your home: check all windows and doors to ensure there is a good seal when closed (especially in the basement) and there are no gaps around the frames; any holes in the foundation or around conduits should be professionally sealed; remove any debris from the home foundation (including firewood, building materials, and trash bags) that may allow mice (and other rodents) to nest. Mice are very good climbers and have been known to enter a home through entry points several feet off of the ground.

Just because you do not see a mouse inside your home, it may not mean they have not infiltrated your asylum. Signs that mice may be in your home may include droppings (in and around the pantry) as well as gnawed boxes and food. Unfortunately, some homeowners rebuff these signs as something other than a mouse. If you suspect there is a mouse in your house, some experts recommend “testing” for rodents; the test may include placing some peanut butter in suspected areas overnight to see if it is eaten.

Once inside your home, mice will make themselves at home. They will nest and breed in some of the most unsuspecting places; between floorboards, in walls, inside storage boxes, and believe it or not – inside couches!

Traps and baits are most often used to reduce mouse activity from a home. The most common traps are snap and glue traps. Because baits are toxic and can dangerous to humans and pets, a licensed professional pest control company should be hired to apply bait to ensure it is applied safely. Many experts recommend taking precautions (such as using a breathing apparatus and/or sanitizers) because mice can carry disease (including the Hantavirus) as well as other pests (e.g., ticks).

To reclaim your home from mice, hire a licensed professional pest control company to remove them and advise you on the cleanup of droppings and carcasses.

Comments are welcome. 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 November 29, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

November 23, 2010October 5, 2019

FSBO is changing along with the housing market

by Dan Krell © 2010
www.DanKrell.com

It is often said that “if you want it done right, do it yourself.” Like most idioms, this saying probably originated in a simpler time when most people could actually do it all by themselves. In a society where most people don’t cook for themselves anymore, no one really expects that they would or could do everything on their own- except when it comes to real estate.

“Doing it right” does not usually top the home owner’s list for selling their home by owner. Even though half of “for sale by owner” (FSBO) sellers knew the home buyer, the National Association of Realtors® Profile of Homebuyers and Sellers 2010 (NAR; 2010) indicates that the top reason for selling by owner is not having to pay a broker commission.

The NAR has claimed that as the housing market declined the number of FSBOs have also declined, which might be due to market conditions. As market conditions changed, selling a home required more than just a sign in the yard; this can be observed by the many agents who have resorted to wide ranging and comprehensive sales tactics (do you remember when you could sell a home with just a sign in the yard?).

Characteristics of home owners who sell on their own have also changed dramatically from just a few years ago. Besides increasingly occurring in suburban areas, NAR’s 2010 edition of Profile of Homebuyers and Sellers describes the FSBO to be more likely single and have a below median income. This has changed from the 2008 edition where FSBOs were older and had a high income. One reason for the change may be due to changing financial conditions; home owners who are facing financial challenges may be looking to increase their net by cutting out real estate agent commissions. This could be supported by the data indicating that many FSBOs have had a high sense of urgency in their sale.

It’s not surprising that a majority of FSBO sellers claimed that the most difficult task in selling their home was getting the price right. Pricing the home correctly is important because it can not only affect your bottom line, but can determine if your home languishes on the market or sells. Even though real estate agents are typically better at pricing a home (which is supported by the 2003 National Association of Realtors® Profile of Buyers and Sellers statistic that FSBO sales net less for sellers compared to agent assisted home sales), FSBO sellers have caught up with the times and are now seeking assistance from flat fee brokers.

Another change is seen in how the internet is used. Slightly over one-quarter of FSBOs used the internet several years ago, while recent surveys indicate about 41% of FSBOs now advertise on the internet. This may be due to more FSBO sellers seeking flat fee broker services; consequently, the number of flat fee MLS brokers has dramatically increased in recent years too. Some of these flat fee brokers also offer a-la-carte services, which assist sellers in many aspects of the home sale.

As the housing market has changed, it appears the FSBO has changed too. In addition to changing characteristics, the average FSBO seller behavior has changed to include professional assistance they need to sell their home “on their own.”

Comments are welcome. 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 November 22, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

November 17, 2010October 5, 2019

National Flood Insurance Program; extension and reform

On September 30th, the National Flood Insurance Program was extended for one year, as President Obama signed S.3814; the “National Flood Insurance Program Re-extension Act of 2010”. The one year extension is the longest over the last two years, when the program has been extended for multiple brief periods. Delays in program funding have mostly been due to debates over the program’s financial status

After hurricane Betsy ravaged the gulf coast in 1965, Congress realized that there was a need for affordable, widely available flood insurance. Since 1968, the National Flood Insurance Program (NFIP) has been offering insurance coverage for home owners, renters and businesses. The NFIP offers coverage for floods that are associated with hurricanes, tropical storms and heavy rains, which is often not included in a standard home owner’s insurance policy.

Although not every home owner chooses to purchase flood insurance, mortgage lenders will require home owners to be covered if their home is located in a flood plain. Insurance experts recommend all home owners to be prepared by assessing risk and consider purchasing flood insurance; affordable coverage can help reduce the heartache and financial loss in the event of a flood.

Unfortunately, many area home owners wouldn’t think twice about flood insurance because flooding is not often seen as a threat. However, some home owners will often seek to purchase coverage when it is too late – when a weather emergency is imminent. For many Rockville residents, memories are still fresh of evacuations due the danger of Lake Needwood’s Dam breaking.

Without the NFIP, many home owners who live in flood plains would be exposed to additional risk while home purchases in those areas would be significantly curtailed. The debate over the beleaguered program’s financial viability is at the heart of the reform debate. The NFIP has been financially stressed since the hurricane season of 2005. The last reform of the NFIP was undertaken in 2006 at the heels of Hurricane Katrina and Rita’s devastation of the Gulf Coast, when NFIP combined claims from Katrina and Rita exceeded the total NFIP claims prior to those hurricanes.

Industry groups such as the National Association of Realtors (NAR) and the Property Casualty Insurers Association of America (PCIAA) have been calling for reforms to the NFIP. While both the NAR and the PCIAA are calling for increased coverage (to increase home owner involvement and contribution to the program), the PCIAA is also calling for modern flood maps, subsidy phase outs, sensible rates, among other program modifications.

FEMA, the federal agency that administers the NFIP, has been undergoing a three phase plan to reform the program. To involve concerned groups such as NAR and PCIAA, FEMA announced public meetings to be held on December 2nd in Washington, DC and December 9th in Denver, CO. The meetings will provide an opportunity for interested parties to hear reform policy and updates, as well as ask questions and offer feedback.

Since its inception, the NFIP has not only provided home owners and businesses with an alternative to disaster relief; it has also engaged communities across the country (including many local communities, towns, and cities) in flood plain management and flood awareness and preparation. You can visit smartflood.gov for more information about your flood risk and preparation recommendations.

Comments are welcome. 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 November 15, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.