Post-crisis real estate: What’s in store for the housing market?

by Dan Krell
© 2011

It is often said that history repeats itself. If we want a glimpse of our future, we should look to the past; if we want to see how a post-crisis housing market looks like, we should look to see how a previous housing crisis ended.

According to the Census Bureau (, the last time homeownership rates declined was 1980-1990. Recent seasonally adjusted homeownership rates have been declining slowly from the all time high of 69.2% reached in the first quarter of 2005. The current seasonally adjusted homeownership rate (for the third quarter of 2011) is 66.1%, which is similar to the homeownership rate of 66.2% reported by the 2000 Census.

Although the country is dealing with some of the same economic issues that was problematic during the early 1980’s; the current real estate market is more akin to like the post S&L crisis of the late 1980’s and early 1990’s, when the market was flooded with foreclosures and a coinciding recession impeded an already difficult housing market. Some may remember that during that time home prices decreased and, not unlike recent events, many home owners walked away from their homes (some lenders were sent the keys of recently purchased homes).

Then like today, resulting legislation changed the lending landscape in an effort to ensure such systemic abuse and failure would not happen again. The Census reported that the homeownership rate in 1990 was 64.2%, just shy of the 64.4% homeownership rate reported in 1980.

Additionally, mortgage interest rates were “normalized” post the S&L crisis, making homeownership more affordable than the previous decade. Then, like today, low mortgage rates are touted to make owning a home more attractive than renting.

Also, like that time, the real estate business was changing. Besides changing business models (buyer agency was becoming recognized across the country), large real estate brokers downsized and/or absorbed brokers wanting to get out of the business. Today’s real estate business models have changed to accommodate technology and a vast array of information; additionally, national and regional brokers may begin to see their market share change with the marketplace.

Demographics are always changing. Current demographics indicate a shrinking pool of willing home buyers and sellers. As home prices have dropped over the last several years, many baby boomers who planned to downsize cannot afford to sell their home; additionally, “move-up” home buyers have also decided to make do with their current home longer than they planned as they find that their home’s equity has diminished. Many renters are choosing to continue renting as homeownership is viewed as an anchor; they prefer to be more mobile and not tied down by homeownership until they become more established in their careers.

Before home prices can stabilize, many expect average home prices to drop another 20%. Home prices have (more or less) historically returned to an established “norm” after a housing boom. Home prices are about 26% higher than the “norm” adjusted price, which was established in 1890 as reported by Robert Shiller (Irrational Exuberance; Broadway Books 2nd edition, 2005).

As we move forward, economic and industry related barriers continue to prevent a recovery in the real estate sector. It may be several years before these issues may be managed; however once addressed, confidence in homeownership may begin to increase once again instilling pride and sense of community.

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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 December 12, 2011. Using this article without permission is a violation of copyright laws. Copyright © 2011 Dan Krell.

It’s time to buy a new home

new homes for sale

The time may be right for you to buy a new home this spring. Low interest rates and reduced prices, combined with builder incentives may make a new home a viable option that many home buyers have forgotten about.

Home builders that survived the culling of the market decline have sought out ways to make homes more affordable. Going with the new trend, some home builders are offering more efficient floor plans, as well as more cost efficient building processes.

Modular homes seem to be more prevalent these days as custom home builders seek to reduce costs to the buyers as well as increasing floor plan flexibility and construction quality. The reason why many home builders are turning to modular designs may be that the modules are built in a controlled environment, which increases quality while reducing weather related delays and damage. In a typical plant, manufactured and modular housing fabrication quality specialists constantly monitor fabrication to ensure the final product meets or exceeds all codes, which is unlike on-site construction where inspections can be random and inconsistent.

One attraction to buying a new home is that everything is new! Along with the new, one expects warranties. Make sure you discuss the warranties that are provided with your purchase with your builder and Realtor®. It is typical for new appliances, fixtures and flooring to have limited manufactures warranties, so make sure you receive all paperwork related to those items.

Additionally, most builders offer a warranty as well; the warranty is most likely guaranteed by a third party. According to a homebuyer’s booklet offered by the Maryland Attorney General’s Office Consumer Protection Division, a home builder warranty in Maryland must include at a minimum: “any defects in materials or workmanship for one year; any defects in the electrical, plumbing, heating, cooling and ventilating systems for two years (not to exceed the period of the manufacturer’s warranty); and defects to any load-bearing structural elements for five years.” The booklet recommends that you contact the third party guaranteeing the warranty, to check if the builder is in good standing.

Although a home may be new, it does not guarantee that it is perfect when delivered to you. It is common to conduct a “final walkthrough” with a builder representative to check the systems and to identify any defects that may need repair or correction. Builders will ask for a “punch list” of items that need correction.

Former president of the American Society of Home Inspectors, Frank Lesh, was on record as saying that “Even new homes have defects that only a professional can detect…” He stated that a home inspector can help ensure that a new home’s major systems (roof, foundation, electrical, plumbing) “are functioning properly and safely before moving in”… “Because many items can’t be inspected after a house has been built, homeowners should consider having a series of phased inspections conducted at key milestone markers. ASHI encourages homebuyers to consider an inspection at the following times: prior to foundation pour; prior to insulation and drywall; prior to the final walkthrough.” (

If you’re considering buying a new home, consider visiting new home resources offered by the National Association of Home Builders ( and the American Society of Home Inspectors (, as well as the homebuyer’s booklet offered by the Maryland Attorney General’s Office Consumer Protection Division (

By Dan Krell
Copyright © 2011

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.

Attitudes towards business and the housing market

Everyone seems to be fixated on resolving the housing market through direct intervention. However, it is increasingly apparent that people are forgetting the symbiotic economic system that housing belongs. Even local attitudes towards business may affect local housing markets.

First let’s consider housing data reported for October 2011 by Real Estate Business Intelligence, LLC and Metropolitan Regional Information Systems (MRIS), which indicates that sold prices for homes in Montgomery County decreased 3.2% compared to September 2011 and decreased 6.5% compared to October 2010 (the same time last year). And although sold prices for homes in Loudon and Fairfax counties decreased from October 2011 compared to the previous month, the median sold price for these two Virginia counties increased compared to October 2010 (an increase of 2.5% and 2.3% respectively).

Maybe Donald Trump knows something we don’t; the high profile real estate investor purchased a Loudon County golf course in 2009, and more recently a Charlottesville winery.

Next consider that some high profile companies have been making their preferences clear, as they choose Virginia over Maryland. Anita Kumar reported in her October 27th Washington Post blog (McDonnell, pursuing Lockheed Martin, says Maryland is less friendly to business) that Maryland has lost two defense contractors to Virginia. And recently, Virginia is trying to persuade Lockheed Martin (one of Montgomery County’s largest employers) to move there too; this courtship became widely publicized after a brouhaha erupted when the Montgomery County Council considered passing a resolution asking Congress to cut defense spending in favor of social spending. Additionally, Steve Contorno of the Washington Examiner reported just last week (McDonnell woos Bechtel Corp. away from Maryland; 11/17/2011) that the “International construction and engineering giant Bechtel Corporation” will move its global operations headquarters from Frederick to Reston.

Another consideration is the demographic change in Montgomery County, which may be one of the main reasons for big-box retailer Wal-Mart wanting to expand within the county. Reported by Carol Morello and Ted Mellnik of the Washington Post (Incomes fall in Montgomery and Fairfax counties; September 22, 2011), the once considered “posh” county now has a lower median income than Prince William County, VA, which is home to Potomac Mills Outlet Mall.

As the housing solution continues to elude many, along comes the National Association of Realtors ( publicizing a “2011 Five Point Housing Solutions Plan.” The plan is a result of a policy meeting (New Solutions for America’s Housing Crisis ) conducted by the Progressive Policy Institute ( and Economic Policies for the 21st Century (

Looking more like a “five point housing suggestion,” NAR’s plan offers these recommendations: 1) Not to weaken housing any further; 2) Support communities by reducing foreclosures; 3) Open mortgage markets to “foster new demand among responsible homebuyers”; 4) Support for a secondary mortgage market with government participation; and 5) A call for a national housing summit to “articulate a new housing policy.”

Much like a doctor’s patient seeking pain relief caused by a systemic problem, housing relief through direct intervention may only be temporary. Although some have found the solution to a faltering housing market and other economic ailments tied to jobs, others continue to be confounded by the issue.

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.

by Dan Krell. Copyright © 2011

Buying vs. Renting

by Dan Krell

Is buying a home right for you?

A home owner recently told me that he had no idea that he would be able to sell his home for more than double his purchase price. When he purchased his home eighteen years ago, he recalls having kept to a strict budget so he could afford his mortgage payments and other related housing costs. Now, he will have a sizeable profit from the sale to purchase his dream home. This home owner’s story is like many other home owners’ stories of wealth building through home ownership.

Unfortunately, due to recent market fluctuations, some home buyers have questioned the value of home ownership. Decreased consumer confidence along with almost daily stories of foreclosure might make you wonder if any homes are selling.

Additionally, some renters feel that home prices continue to be too expensive for them to make the jump into home ownership. Economic commentator, Barry Ritholtz (, believes that too; although the rent to buy cost ratio for the Washington area has dropped significantly from an all time high of 21.4 to around 16.6 (according to Moody’s, he feels that home prices are still too high nationwide as compared to the rent to buy cost ratios of the 1980’s and 1990’s (when the average ratio ranged from 10-14). However, even with a decreased consumer confidence, many understand the benefits to home ownership.

Many analysts and commentators agree that owning a home is typically better than renting. For example, Suze Orman has stated in a Yahoo Finance exclusive ( that “there’s no better investment.” Although Ms. Orman does strongly suggest having your financial matters in order as well as making certain that you can afford all the housing related costs before you make a move, she does state that “home ownership is a great achievement and a terrific investment.”

Although the benefits of home ownership are touted by many in the industry, owning a home is not for everyone. Renting does offer limited maintenance and the flexibility if you need to move, but home ownership offers tax incentives (tax breaks and deductions) as well as a chance to build equity.

Before you buy your first home, you might consider how long you intend to live in it before selling. For example, the National Association of Realtors reports that the typical home owner intends to stay in their home for ten years (although the actual time of ownership varies). Financial and affordability factors to consider before buying a home include interest rates and market conditions. However, some considerations are not financial but emotional; for example, some renters are concerned about their security deposit as well as dealing with an obnoxious landlord or management company.

Freddie Mac ( offers the following benefits to homeownership: Owning a home can facilitate your participation within a community, the home can be passed through many generations as a source of security, the tax benefits typically offset the amount you might otherwise pay for rent, your monthly payment won’t increase if you have a fixed rate mortgage, and building equity through home ownership “is the single greatest source of financial security and independence for the majority of people who’ve taken this step.”

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 June 16, 2008. Copyright © 2008 Dan Krell.

Todays Luxury Home Trends are Tomorrow’s Home Standards

by Dan Krell

What comes to mind when you think of a luxury home? When asked, many people first think a luxury home is a very large and expensive home. However, a luxury home does not have to be the largest or the most expensive home in the area; in fact a luxury home could be a townhome or condominium.

Although price alone does not signify a luxury home, luxury homes are more expensive than the average home. Regardless of price, luxury home ownership is on the rise. Consider the Joint Center for Housing Studies (Harvard University) report from 2004 indicating that homes costing over one million dollars are the fastest growing market segment in the country such that the United States Census Bureau had to change the top census category of home value from “$500,000 or more” in 1990 census to “$1,000,000 or more” in the 2000 census.

So what makes a home a “luxury home?” It is mostly about the home owner’s lifestyle, which is typically a combination of: personal expression, house amenities, construction quality, and physical location. A typical luxury home buyer will pay the price to create their perfect home and to make it express their lifestyle.

Lifestyles and homes have changed a lot over the years; consider that in the United States, the average home in the 1950’s was about 980 square feet while today the average home is over 2,400 square feet! As lifestyles change, trends in luxury home building will change to fit the luxury home buyers’ personality and routine. Most luxury home buyers are willing to pay more for a home in the perfect location with customized amenities.

Luxury homes usually have many state of the art amenities including the latest in appliances and recreation facilities. State of the art kitchens are usually standard in a luxury home. Current trends in high end kitchens include prep-kitchens inside the main kitchen so as to keep the main kitchen clean, as well as high tech appliances connected to the internet so you can either order groceries from your fridge or cook a turkey while at work (via phone commands). Additional luxury amenities include walk in closets (closet sizes rival the average bedroom) that are well appointed with center islands and dressing areas. Other amenities depend on the owner’s personal interests and hobbies. You might find these indoor facilities in a luxury home: theatre, basketball court, bowling alley, or swimming pool.

Luxury home construction is distinct from other construction because of the customization and materials used (such as exotic woods, imported marble, and custom fixtures). Luxury homes are now being designed for room flexibility and continuous room flow. The price of a luxury home is higher than the average home because of these design and construction features.

Do you like what you see in some of today’s “dream homes?” Today’s luxury home trends tend to become tomorrow’s norm. For example, the washer/dryer, dishwasher, air conditioning, microwave oven, granite counters, and stainless steel appliances (the list goes on) were once considered to be a luxury- but are now the norm in many homes: So, who knows? Maybe your next home will have that indoor basketball court!

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 April 21, 2008. Copyright © 2008 Dan Krell.