home value Archives - Real Estate News and Commentary

December 5, 2020December 7, 2020

Home Prices 2021

It’s almost inconceivable to think that the housing market will undergo a foreclosure crisis similar to what we went through back in 2008. How will home prices 2021 be affected by an impending wave of foreclosures?

If you remember, the 2007 housing market peaked as home prices skyrocketed. Homes were a hot commodity as home buyers and speculators seemingly could not get enough. But by the fall 2007, as if someone flipped a switch, inventory piled up. There was a reckoning in 2008 as the market was flooded with foreclosures. Home prices dropped to the lowest levels in a decade and days-on-market averaged in months. It took five years for home prices to stabilize and maintain solid gains.

Fast forward to the 2020 lockdowns. The housing market took off like a rocket during the summer and fall, after taking several months off. Pent-up demand was the catalyst for record home sales leaving inventory depleted and forced upward pressure on home prices. Housing is again economy’s workhorse.

A November 19^th NAR press release (nar.realtor) touting October home sales indicated that existing-home sales increased 26.6 percent year-over-year! Additionally, the median existing-home sale price increased 16 percent year-over-year. All this occurred as home sale inventory levels are historically low. Interestingly, it was noted that about 70% of homes sold during October, which means not all homes sold.

Additionally, October’s pending home sales point to a strong market into 2021. The NAR’s October Pending Home Sale Index indicated that although new contracts declined a slight 1.1 percent from September to October, the year-over-year new contracts increased about 20 percent!

With stats like this, many industry experts are expecting a strong housing market and increased home prices 2021. The high expectations for the housing market is demonstrated by a December 3^rd HousingWire report (housingwire.com) titled, “Even with low inventory, expect a strong 2021 housing market.”

And as many celebrate this hot housing market during a global pan-demic, some are raising concerns about the many home owners who are delinquent on their mortgages. Unfortunately, delinquent mortgages haven’t received as much coverage as it probably should have. Many home owners are unable to stay current on their mortgages due to lock-down job cutbacks. As a result, some are expecting a surge in foreclosure notices.

An October 13^th CoreLogic press release indicated that the July mortgage delinquency rate (30 days or more late) was 6.6 percent. Although the rate slightly dropped from June’s 7.1 percent, serious delinquencies (90 days or more past due) jumped to 4.1 percent (compared to 1.3 percent a year earlier). Serious delinquencies are the highest since April 2014. Troubling is that mortgages which are 120 days or more late surged to 1.4 percent – which is a 21-year high, eclipsing the 2009 peak! The metropolitan areas experiencing the highest delinquency rates are those where home price increases made the most gains (such as New York, Miami, Las Vegas, and Houston).

So, what does this mean?

An August 27th CoreLogic report made a case for declining home prices in 2021. There’s no denying it, there is a foreclosure wave waiting in the wings. It’s unclear when the foreclosures will occur because of the current pan-demic moratorium. However, if foreclosures are as numerous as they were in 2008, home prices 2021 will likely decline when these homes come to market.

By Dan Krell
Copyright © 2020

Original located at https://dankrell.com/blog/2020/12/05/home-prices-2021/

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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.

July 4, 2019July 4, 2019

Swimming Pool and Home Value

Wouldn’t it be nice to beat the summer time heat in a swimming pool? Besides cooling off, the idea of having a swimming pool is attractive to many home owners for many reasons, including entertaining guests and exercise (if large enough). Pool company advertisements suggest a swimming pool can make your yard more attractive, and add value to your home. But is a swimming pool really worth it? It all depends on the local housing market and your lifestyle.

Statistics and information compiled by The Spruce (thespruce.com), an online lifestyle magazine, reveals swimming pool popularity from sources such as the Association of Pool & Spa Professionals and the US Census. Incredibly, there are 10.4 million residential and 309,000 public swimming pools in the United States. Swimming is the fourth most popular activity, and is the most popular among children and teens. The top five states with inground pools are California, Florida, Texas, Arizona, and New York. Swimming statistics in the US indicate that thirty-six percent of children and fifteen percent of adults swim annually.

Before you start digging, there’s a lot to consider. Besides liability and health concerns, let’s discuss a pool’s added value on your home. The question whether adding a swimming pool is a good investment depends on a number of factors. Real estate research typically validates such questions, unfortunately, studies are lacking. However, there is such an analysis from 1981 by Benedict J. Frederick (Effect of a Swimming Pool on Single-Family Home Value; Appraisal Journal; July 1981, Vol. 49 Issue 3, p376). Even Frederick confessed he was hard pressed to find academic interest in the topic, citing a previous study from 1961. Nonetheless, the study conducted in suburban Baltimore yielded these conclusions: A pool can add about 7 percent to the price of a home; a pool’s market value may be 50-75 percent of the pool’s replacement cost; having pool amenities, such as a heater, can boost value; 40 percent of the market believe having a pool is a liability.

A swimming pool’s added value may be tricky, especially if other neighborhood homes don’t have a pool. If you’re the only residential pool in the neighborhood, the added value to your home may be minimal. In fact, having a swimming pool may be a disincentive for many home buyers, and could negatively affect the value.

There’s also the expense of maintaining a pool. Melissa Dittmann Tracey, writing for Realtor Magazine (Are Pools Worth the Expense?; nar.realtor), points out that typical swimming pool maintenance can have an annual cost of about $3,000-$5,000. And that’s if everything works properly. If components need replacing, then the cost can rise quickly. Older pools require updates and component replacements. Resurfacing or redecking expenses can vary, but Tracey estimates a typical cost to be $5,000 to $10,000 (depending on size of pool). Renovating a pool can cost upwards of $20,000. If you’re tired of the pool and want to reclaim your back yard, removing a pool can also be expensive. Depending on the pool and yard size, a pool removal typically ranges from $3,000 to $15,000.

Given the research and industry statistics, the decision to build a back-yard swimming pool is more likely a lifestyle choice rather than for home improvement. However, for those who enjoy the pool but don’t want the expense or liability of ownership, joining a club or swimming at the public pool are common alternatives.

By Dan Krell
Copyright © 2019

Original located at https://dankrell.com/blog/2019/07/04/swimming-pool-and-home-value/

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May 13, 2019June 3, 2019

iBuyers are Just House Flippers

Disruption in the marketplace seems to be the standard these days. So, it should not come as a surprise that the iBuyer phenomenon has taken hold of the real estate industry and is expanding. What started out as an experiment in limited markets has grown into the internet version of “I Buy Houses.” (You’ve probably seen the “I Buy Houses” bandit signs around town.) Nonetheless, iBuyers have become the trendy and acceptable version of house flippers.

According to Zillow, an iBuyer is “…a real estate investor that uses an automated valuation model (known as an AVM) and other technology to make cash offers on homes quickly.” And although Zillow’s explanation of the iBuyer model describes that the home gets sold to the investor sight unseen, many will actually visit your home before finalizing the deal.

Automated valuations are helpful but not always accurate. Additionally, investors typically apply their AVM derived value into a formula to produce their offer price. Because they are akin to the Pawn Shop of the real estate industry, where they have to build in a profit for them, house flippers usually offer 70-75% of retail value (after repairs).

House flipping by any other name is still house flipping. But the iBuyer trend has put a shiny veneer to the business. The model allows for anonymity, at least initially, by giving you an offer to buy your home just by completing a form. However, just like traditional real estate investors, iBuyer representatives will visit the home to confirm the accuracy of the reported home’s condition and other vital facts.

If you’re looking to get top dollar on your home, you’re probably going to be disappointed with the iBuyer offer (or any real estate investor offer for that matter). However, you might be willing to accept a lower offer on your home for a quick closing and selling “as-is.” The desire of convenience of selling to real estate investors is confirmed by ATTOM Data Solutions 2018 Year-End Home Flipping report that indicated “207,957 U.S. single family homes and condos were flipped in 2018” (attomdata.com). Although house flipping is down four percent from 2017, the numbers indicate a continued willingness by home owners to deal with house flippers.

Don’t think you’re escaping the 6 percent commission when selling to iBuyers.

Patricia Mertz Esswein wrote recently that the iBuyer convenience comes at a cost (Kiplinger’s Personal Finance. April 2019, Vol. 73 Issue 4, p12). She explained that iBuyer service fees range from 6 to 13 percent, which exceed Realtor commissions that typically range in today’s market from 3.5 to 5 percent!

Currently, most iBuyers are exclusive to specific markets that make the model financially sound. However, new iBuyer companies are throwing their hats into the ring and expanding the model in new markets nationwide. An article from the California Association of Realtors’ magazine (The Era of iBUYERS?; California Real Estate. September 2018, Vol. 98 Issue 6, p22-25) discusses the pros and cons of iBuyers and explains that the phenomenon is still in its “infancy.” Meaning that iBuyer companies are still cautiously expanding in hot markets. Furthermore, you should be wary of real estate brokers who engage in making iBuyer (or similar) offers as part of their listing service because it could be in conflict of their fiduciary duties to you.

If you’re wanting to get top dollar on your home, you probably will go the traditional route and list on the MLS. But, if you’re looking for a quick sale, explore all of your options. Solicit and compare iBuyer offers to local real estate investor offers. Also, consult with several real estate agents to not only get a picture of your home’s value, but they may have buyers for your home too.

Original published at https://dankrell.com/blog/2019/05/13/ibuyers-are-just-house-flippers

By Dan Krell
Copyright © 2019

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January 25, 2019July 23, 2019

Buy vs rent market

After last year’s active spring, the housing market’s fall home sale decline shocked many. Although home sales were on target to outpace the previous year’s activity, the slowdown diminished the spring’s impact. In fact, the National Association of Realtors (nar.realtor) January 22^nd press release indicated a sharp decline of home sales during December. The 6.4 percent month over month nationwide decline should not have been a surprise because of the season. However, December’s nationwide 10.3 percent sales decline from the previous year is significant. The Greater Capital Area Association of Realtors (gcaar.com) indicated that Montgomery County single family home sales decreased 12.2 percent during December. Is this an indication of another buy vs rent market?

Back in August, I predicted and discussed the causes for the fall’s sales slowdown. Among the issues that contributed to the slowdown include increasing mortgage rates and the continued home sale inventory shortage. However, it’s important to note that although home sales seemed to go to sleep during the early winter, home sale prices continue to increase. It’s not the 4-5 percent price gain that home owners have become accustomed. But the 2.9 percent nationwide price increase (2.7 percent increase in Montgomery County) during December is indicative that home ownership is still valued.

Although there are many who are saying it’s now a buyer’s market, it’s not entirely true. The current housing environment has home buyers under pressure. Increasing mortgage interest rates are making buying a home more expensive, and there are not many homes from which to choose. Consequently, motivated home buyers who are eager to buy a home during the winter are pushing back against high home prices. The reality is that home sellers will remain in the driver’s seat as long as they price their homes correctly.

There is a lot of promise for the spring, but it still depends on many factors (such as inventory). But the push back on increasing home prices will likely continue, as home buyers are increasingly sensitive to housing costs. “Buy vs rent” and housing affordability will once again become hot topics this spring.

Buy vs rent is on the mind of home buyers. Although buyers are in the market to buy, there is no urgency. However, it’s clear that this market is about value.

If you’re a home buyer trying to figure out the market, consulting with a professional Realtor can help you decide if it’s the right time to buy a home. Trulia’s Rent vs. Buy Calculator (trulia.com/rent_vs_buy/) is a tool that compares the cost of buying to renting a home over time in a specific area. It can estimate the point at which home buying is better than renting. However, depending on your budget and area, renting may be a better financial option. Montgomery County Department of Housing and Community Affairs (montgomerycountymd.gov/DHCA) and the Housing Opportunities Commission (hocmc.org) offers affordable housing programs for first time home buyers and renters.

If you’re a home seller, think back to the 2014 spring housing market when home buyers pushed back at the sharp home price gains of 2013. It’s recommended that you don’t take home buyers for granted, buyers are just as savvy as you. Keep in mind that buyers are thinking about “buy vs rent.” Don’t over-price your home, however expect to negotiate the price. Make your home show its best through preparation and staging. Stay away from cheap renovations meant to look expensive, this can actually decrease your home’s value. If you’re selling “by owner,” consider consulting a staging professional to help prepare and stage your home. If you’re listing your home with a Realtor, your agent should have a strategy to sell for top dollar in this market.

Original published at https://dankrell.com/blog/2019/01/25/buy-vs-rent-housing-market

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December 13, 2018April 23, 2019

Home market value

It’s normal for homeowners to wonder about their home market value. After all, home sales and prices have been making headlines for well over a decade. But you certainly can’t get a home market value from a headline, nor can you assume it from a neighbor’s sale. The reality is that your home market value could vary depending on whom and when you ask.

A timely and important review article by Michael Sanders recently published in the Appraisal Journal asks the question “what does Market Value Mean?” (Market Value: What Does It Really Mean?; Appraisal Journal. Summer2018, 86:3, p206-218). The article correctly points out that determining “market value” can realize different results depending on the scope and purpose of the appraisal. You can see how this might be problematic if you’re trying to determine a home’s value when divorcing or trying to sell an estate property. Some mortgage lenders even have different value criteria depending on the loan product and purpose.

Sanders suggests that “market value” undergoes scrutiny when valuations are difficult and appraisals are questioned (e.g., during a recession). However, having a discussion about the meaning of “market value” now, when there is relative market stability, is probably meaningful for the industry and consumers. Interestingly, the semantics of “market value” have changed through the years, and ultimately depends on the application. He points out at least twelve similar but different legal definitions of “market value.”

Sanders suggests that Richard Radcliff, an appraisal pioneer of the 1960’s, was ahead of his time by advocated for most probable price valuations. An ongoing debate in appraisal circles is whether “market value” is the highest price or probable price. However, it wasn’t until the 1980’s when appraisal articles academically contemplated the association of “probable sale price” and “market value.”

Sanders quotes Richard Ratcliff saying, “appraisal is largely the predicting of human behavior under given market conditions.” Sanders quips about an “ideal world”, where “appraisers would apply market value definitions using a relatively consistent and objective standard, and reflect conditions in the market as they exist, rather than how others might wish them to be.”

Although the accepted dictionary definition of “market value” is the price a buyer is willing to pay for your home, market value and sale price could be different (and often is). And according to Sanders, an appraised “market value” isn’t necessarily the price for which your home may sell.

At this point you may be asking yourself, “how much is my home really worth?” For the answer, you may have to ask a Realtor.

Realtors use market data to prepare comparative market analyses (CMA) that can help buyers and sellers decide on a sale price. Although a CMA is not an appraisal, it is a technical and methodical professional analysis that provides a snapshot of the market. The CMA is typically more refined in scope than an appraisal, such that it is usually limited to a neighborhood and home criteria. Additionally, depending on the location and availability of comparable sales, it can provide a 30, 60, and 90-day probable sale price range based on market trends.

If you’re planning a home sale, a Realtor’s CMA may be your best source of information to decide on a listing price. Even mortgage lenders have relied on Realtor CMA’s, in the form of Broker Price Opinions, to help decide on sale prices for short sales and bank owned homes.

Original published at https://dankrell.com/blog/2018/12/13/home-market-value/(opens in a new tab)

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