About Dan Krell

March 4, 2015July 6, 2019

How to price your home in 2015

In case you haven’t been following along closely, the March 3^rd release of CoreLogic’s Home Price Index (corelogic.com) indicated that nationwide home prices increased 5.7% during January compared to the same period last year; and there was a 1.1% increase during January compared to December. And believe it or not, CoreLogic stated that nationwide home prices including distressed sales are only 12.7% below the peak; and only 8.6% below peak if you exclude distressed sales.

Of course, national home price data are an average of regions that vary economically, reflected in their respective housing market. CoreLogic Chief Economist Dr. Frank Nothaft stated, “House price appreciation has generally been stronger in the western half of the nation and weakest in the mid-Atlantic and northeast states…In part, these trends reflect the strength of regional economies. Colorado and Texas have had stronger job creation and have seen 8 to 9 percent price gains over the past 12 months in our combined indexes. In contrast, values were flat or down in Connecticut, Delaware and Maryland in our overall index, including distressed sales.” The only 2 states that realized negative price appreciation year over year (including distressed sales) during January were Maryland and Connecticut, where home prices appreciated (–0.3%) and (-0.6%) respectively.

If you include distressed sales, Maryland’s January home prices appreciated (–0.3%) year over year, (-0.1%) month over month, and is (-25.3%) from the peak. Regional differences, of course, exist: DC home prices including distressed sales appreciated 3.3.% year over year, (-0.4%) month over month, and is only (-1.4%) from the peak; Virginia home prices appreciated 1.4% year over year, (-0.2%) month over month, and is (-15.6%) from the peak.

The CoreLogic HPI Forecast projects nationwide home prices, including distressed sales, to appreciate 0.4% from January to February, with an annual appreciation of 5.3%.

CoreLogic expects consistent home price appreciation through 2015 and into 2016, due in part to a current shortage in housing inventory. Anand Nallathambi, president and CEO of CoreLogic, stated that “Many homeowners have taken advantage of low rates to refinance their homes, and until we see sustained increases in income levels and employment they could be hunkered down so supplies may remain tight. Demand has picked up as low mortgage rates and the cut in the FHA annual insurance premium reduce monthly payments for prospective homebuyers.”

According to the Greater Capital Area Association of Realtors® (gcaar.com) January Montgomery County single family home statistics, home inventory and home buyer activity increased compared to last January. Although total housing inventory increased 26.5% year over year, contracts (pending sales) increased 16.6%, and settlements (sales) increased 4.8%.

If you’re wondering how these statistics might affect your sale, you’re not alone; many home sellers are trying to shape a sensible marketing plan this spring, which includes deciding on a listing price. Consider that although listing inventory is currently relatively low, it is likely to spike within the next two months adding competition to a market competing for discerning home buyers.

Typical home buyers have been increasingly demanding value; besides looking for a “turnkey” (updated and ready to move in) home, they have also been sensitive to home prices. Since cash buyers are not as prevalent as they were two years ago, and many buyers are concerned about their monthly obligations and budgets; pricing your home correctly will be more important this year than it has in the past.

By Dan Krell
© 2015

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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.

February 25, 2015July 6, 2019

Stumbling housing market reignites housing policy debate

Surely 2015 is to be the year when the housing market would bounce back from its recent disappointing performance; at least that’s what I wrote back in November. But as January’s news from the National Association of Realtors® (NAR) is not as rosy as we expected; a housing policy debate, that has been subdued since 2010, gets heated.

The NAR revealed in a February 23^rd press release (nar.realtor) that although the pace of home sales increased compared to the same time last year, existing homes sales have declined to the lowest rate in nine months. The typically optimistic Lawrence Yun (NAR Chief Economist) was cited as saying “the housing market got off to a somewhat disappointing start to begin the year with January closings down throughout the country.” Adding that “seasonal influences” can make January data erratic, the combination of low inventory and home price gains over the pace of inflation seems to have slowed home sales – notwithstanding low mortgage interest rates.

Keeping mortgage interest rates low is not the sole solution; however, if it was, the housing market may have bounced back several years ago. Although a myriad of causes have been blamed for a lackluster housing market that has been trying to make a comeback for six years, most are correlational and incidental.

However, Richard X. Bove (Equity Research Analyst at Rafferty Capital Markets) recently made a case for a sole cause in his February 23^rd commentary (There’s a new mortgage crisis brewing; cnbc.com/id/102447414). Bove described how mortgage markets are in trouble; rules and regulations put into place to strengthen the market by increasing borrower standards have dried up a lot of the funding. And not necessarily in the way you might expect; besides shrinking the pool of qualified buyers, Bove suggested that the rules and regulations have made mortgage lending unprofitable and unpalatable for some lenders (leading them to walk away from the business).

As a response, it would seem as if the Federal Housing Finance Agency (FHFA) took steps to make mortgages increasingly available (returning to 3% down payment loans, and increasing the number of loans on Fannie and Freddie’s balance sheets). These actions, along with recorded losses in Q4 2014, Bove described, is making some nervous.

If you don’t remember, the FHFA was created in 2008 as a temporary conservator to Fannie Mae and Freddie Mac; whose original goals included: ensuring a positive net worth for Fannie and Freddie; reducing Fannie and Freddie’s mortgage portfolios; and facilitating a streamlined and profitable model for Fannie and Freddie.

Bove’s catch-22 conclusion, of either hindering the housing market by stopping Fannie and Freddie’s growth or increasing Fannie and Freddie’s debt obligations with continued growth, is not a new dilemma. The debate has been ongoing since 2008.

Having faded somewhat since 2010, the housing policy debate heated up during testimony given by FHFA Director Mel Watt on January 27^th during the congressional hearing, “Sustainable Housing Finance: An Update from the Director of the Federal Housing Finance Agency.” Trey Garrison of HousingWire succinctly portrayed opposing views (January 27, 2014; FHFA hearing: GOP fear housing policy headed for Crash 2.0; housingwire.com): “Democrats said policies in the past year are necessary to expand housing opportunities to lower income and challenged borrowers…” while, “…Republicans…said the administration is adopting dangerous policies that risk another housing crash that will put taxpayers on the hook for billions.”

By Dan Krell
© 2015

February 18, 2015October 5, 2019

New rules in Real Estate

Real estate canon used to be straight forward and for the most part consistent. For instance, if you planned a sale, you would target spring time because that was generally accepted as the time when home buyer activity was the greatest; or buying a home was a rite of passage. But since 2008, what was generally accepted has been persistently challenged; home buyers and sellers have shifted into a new paradigm with new rules.

It is no coincidence that Zillow Talk: The New Rules of Real Estate (by Zillow CEO Spencer Rascoff and Chief Economist Stan Humphries, Ph.D.) comes at a time when significant changes in consumer beliefs and expectations about real estate have become widely recognized. The book is described by Zillow as “…poised to be the real estate almanac for the next generation.” And looking at the table of contents, you might think that the highly acclaimed tome is just another book about the buying and selling process; yet it seems to discuss practical aspects about buying and selling a home, as well as possibly confronting real estate myths.

It will remain to be seen how influential the work will become, as research has indicated that home buyers are typically well informed and out in front of housing trends.

A 2012 study by Karl Case, Robert Shiller, & Anne Thompson (What have they been thinking? homebuyer behavior in hot and cold markets. Brookings Papers on Economic Activity, 265-315) revealed perceptions and expectations of homebuyers from four metropolitan markets over a 25 year period. The authors concluded that the surveyed home buyers were well informed and very much aware of home price trends prior to their purchase. Data suggested that home buyer opinions (beliefs) fluctuated over time; there was more agreement among respondents during strong markets, and increased doubt during times of market uncertainty. There was also a strong correlation between price perceptions and actual movement in prices. Although home buyers were “out in front” of short term market movements, their short term expectations “underreacted” to actual home price changes; while long term expectations were persistently “more optimistic.”

Suggesting a set of “guidelines” for real estate is a trap that implies that the housing market is straightforward and static; where personal and regional differences don’t matter and the market doesn’t change. However, David Wyman, Elaine Worzala, and Maury Seldin raise the question about becoming complacent with trends and models. In a 2013 exploratory paper (Hidden complexity in housing markets: a case for alternative models and techniques, International Journal of Housing Markets and Analysis, 6:4, 383 – 404) they discuss how rigid market models may lead to rules where buyers and sellers could make poor decisions.

The authors’ discussion of “complexity theory” in real estate in not unlike the application of “chaos theory,” which focuses on letting go of assumptions upon which rules are definitive; and view housing as a dynamic and changing environment. Citing incidents leading up to the financial crisis, the authors make a case for understanding the market as complex and using common sense before making (buying and selling) decisions.

So as we begin to understand the new real estate dogma, it is likely that the new rules will most likely change along with the market. And much like the housing market, consumer beliefs are also dynamic – which seem to be ahead of the industry experts.

Dan Krell
© 2015

February 11, 2015September 21, 2019

Protect your identity when buying a home

Last year, hackers targeted a number of retailers to compromise shoppers’ financial and personal information. A recent hack of a health insurer possibly jeopardized policy holder data. And Krebbs Security (krebsonsecurity.com) reported on February 15th about an investigation being conducted by the Defense Contract Management Agency of a possible hacking.

Surely the reports of stolen data by hackers have made you more aware of protecting your credit cards when shopping. But how protective are you about handing over personal information to mortgage lenders, real estate brokers/agents, and title companies? If not managed or disposed of properly, your sensitive personal information could be at risk of being stolen – an identity thief only needs a few pieces of personal information to access bank accounts, credit card accounts, health record/insurance, etc.

When buying a home, your information is “out there;” and you are trusting those who have it to protect it. If you want to obtain a mortgage, you must complete a mortgage application; which requires a social security number, date of birth, address, employment, and other information. Mortgage lenders also collect financial documents (such as w-2’s, tax returns, and bank statements) to verify income and asset information on your application.

Additionally, your real estate agent may ask you to complete a financial information sheet to demonstrate to the seller your ability to purchase the home. And as a means of record keeping, transaction files maintained by brokers and agents may also contain copies of deposit checks, credit card information, and other financial instruments.

Renters may be required to submit personal information too. A rental application is a lot like a mortgage application, asking social security number, date of birth, address, employment, and other information.

The National Association of Realtors® (nar.realtor) Data Security and Privacy Toolkit states that although there is no federal law specifically applicable to real estate brokers, the Gramm-Leach-Bliley Financial Modernization Act applies to businesses that qualify as financial institutions; which may subject brokers to comply with “Red Flag Rules” (and other rules), and require policies and procedures to protect against identity theft.

States have also implemented laws to protect consumers from identity theft. For example, the Maryland Personal Information Protection Act (MD Code Commercial Law § 14-3501) describes personal information as an individual’s first name or first initial and last name in combination with any one or more of the following: Social Security number; driver’s license number; financial account number (including credit cards); and/or an Individual Taxpayer Identification Number. Additionally, the law requires a business to take reasonable steps to protect against unauthorized access to or use of the personal information when destroying a customer’s records that contain personal information.

When choosing a mortgage lender and real estate agent, you might consider asking about the company policy on protecting personal information. Some questions about personal data might be: what types of information will be collected; what is it used for; who has access; when transmitted, is it encrypted; how long will the information be retained; and how will the information be disposed? Besides the management of your personal data, you should ask about procedures in case there is a suspected data breach.

To learn more about protecting your personal information and protecting yourself from identity theft, visit these consumer websites: FTC (consumer.ftc.gov/features/feature-0014-identity-theft) and the FDIC (fdic.gov/consumers/privacy).

By Dan Krell
© 2015

February 4, 2015November 23, 2021

Coming this summer – A new real estate settlement experience

For many, August 1^st will be like any other summer day. However for those in the lending and real estate industries, August 1^st is when the Consumer Financial Protection Bureau’s (CFPB) new lending, closing disclosures and rules go into effect.

“Know Before You Owe” is a project that began before the official opening of the CFPB (which officially opened July 21^st 2011), and undertook the remaking of mortgage disclosures to make them more consumer friendly. You might say the project started with the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which mandated the creation of the CFPB as well as amends the Real Estate Settlement Procedures Act (RESPA). Sec 1098 of Dodd-Frank states that the Bureau “shall publish a single, integrated disclosure for mortgage loan transactions” in a “readily understandable language” so as to help borrowers understand the financial aspects of their loan clearly and to be nontechnical.

A change in industry disclosure and compliance to enhance consumer protection is not new. RESPA and the Truth in Lending Act (TILA) were both devised as consumer protections, and amended over the years. RESPA was enacted in 1974 as a protection for consumers from abusive and predatory lending practices to help home buyers better shop for services related to the home buying process. Enacted in 1968, TILA provided guidelines for which lenders are required to inform consumers about the cost of their loan; which includes the disclosing the Annual Percentage Rate (APR), finance charges, amount financed, and the total amount paid as scheduled. The new integrated disclosure forms replace the Good Faith Estimate (GFE) and Settlement Statement (HUD1) required by RESPA and the Truth and Lending Disclosure Statement required by TILA with a Loan Estimate and a Closing Disclosure.

RESPA and TILA require disclosures to be provided to you within three days upon making your mortgage application, as well as not having changed prior to your closing of the transaction. Changes to these regulations and disclosures have often been made to keep up with the industry as well as to enhance consumer disclosure and education; the most recent revisions being made immediately after the financial crisis. Although redesigned to be more efficient and accurate, the most recent revision of the GFE and the Truth in Lending Disclosure Statement remained technical in nature. Many claimed the forms remained confusing making it difficult to compare mortgage costs between lenders; costs were not always labeled consistently and sometimes changed prior to closing.

By combining these disclosures into two forms in a clear and understandable language, the forms present important information conspicuously to help consumers decide if the mortgage is affordable and warn about loan features that they may want to avoid. The new forms seek to standardize fee and cost disclosures so as to make shopping easier; with standard cost and fee disclosures, comparisons will be more like comparing two apples rather than an apple to an orange.

One of the more important aspects of the new rules is that the new Closing Disclosure be given to the borrower three days prior to settlement. During the three days prior to closing, changes to the Closing Disclosure that increase charges are prohibited (unless allowed by exception). You can find more information about the CFPB and view the new disclosures at the CFPB website Know Before You Owe (consumerfinance.gov/knowbeforeyouowe).