Could generational differences trigger deflation of housing

home sale
As the population ages, could generational differences trigger a housing deflation?

Many understand that there are numerous factors that affect the real estate market.  Those who are interested may track the daily ups and downs of the stock, bond, or commodities markets; some look forward to reading the minutes of the Federal Reserve’s Open Market Committee meetings, and others may peruse the Fed’s “Beige Book.”  But some economists are suggesting that many are overlooking the most obvious factor that could impact the real estate market for years – the aging population.

As the Baby Boomers make way for Generation X, the generational population size difference will be noticed in a number of ways.  There is increasing discussion about the affect of the aging population on assets, specifically real estate and housing.  As the population ages, some experts expect a deflationary market due to the shifting generational demographics.  And a few imply that the deflationary effects of the great recession might pale in comparison to those of the generational shift.

In an October 2012 Realtor Magazine article, the Counselors of Real Estate® (an affiliate of the National Association of Realtors®) listed the “aging population” as the number one matter affecting real estate.  Although an aging population impacts a number of real estate sectors (such as retail and medical); the demand for housing will certainly be affected.  They define the shift geographically, where some regions gain over others.

Mary Ludgin, of Heitman LLC, describes the geographic shifts that may be associated with an aging population.  In her article “Shifting Demographics: Real Estate Investment Implications,” Ludgin forecasts increasing demand for apartments and offices mostly in downtown areas.  However, a population migration is expected to favor the “mountain west,” southwest, and southeast.  She expects high amenity cities to do well.

A working paper published by the Bank for International Security (Aging and Asset Prices, August 2010;, presents the theory and data linking age demographics and asset prices.  The paper asserts that because the Baby Boom generation is substantially larger than the preceding Swing generation (the WWII generation) and the subsequent Generation X, asset prices rose substantially during Boomers’ “active years;” and are expected to decrease during the declining years. The data suggests that Baby Boomers home buying activity pressured home prices to increase by as much as 40% during active years; and as the population ages, home prices are expected to decrease by as much as 30% in the next forty years.  Yet, some economists and prognosticators are hyping such deflation to occur in the next ten years.

Although the result of an aging population on housing sounds daunting, aging demographics is not the only force active upon home prices.  Although Japan is often cited as the poster child of negative influences of generational effects on home value; there are some economies, such as the UK, where home prices have transcended generational effects and made positive gains.

Even though attention focused on an aging Baby Boom generation has been about retirement and/or relocating, some have begun to talk about the generational shift’s effect on real estate and resulting home buying trends by Generation Xer’s and Yer’s, and Millennials.  Besides geographical shifts, localized effects that are often experienced include the trend of transformation and/or tear down of older homes that once met the needs of previous generations, to build modern and efficient dwellings to meet the needs of those who are actively purchasing homes.

by Dan Krell
© 2014

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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.

What’s a home worth – Appraisals, market analyses, and price opinions

house valuesWhat’s the value of my home?” is a question that is often asked by many home owners at least once, usually before they decide to refinance or list their home for sale.  Although the question seems straight forward enough, the answer may not be – and can vary depending on whom you ask.

Market Value can have different meanings.  Some may view a home’s value in terms of an asset on a balance sheet, while others may consider a home’s value as a potential sales price.  And although these approaches to value may be similar, there is often significant disparity in their conclusions.

Mortgage lenders consider a home to be an asset, which is the basis for lending you money; as well as the basis for bundling and selling mortgages on Wall Street.  Additionally, a home is often considered an asset or liability when determining the disposition of legal proceedings, such as (but not limited to) probate and divorce.  A real estate appraisal is most likely used in determining market value for these situations.

According to the Appraisal Institute (Pamphlet “Some Commonly Asked Questions About Real Estate Appraisers and Appraisals”;, “An appraisal is a professional appraiser’s opinion of value. The preparation of an appraisal involves research into appropriate market areas; the assembly and analysis of information pertinent to a property; and the knowledge, experience and professional judgment of the appraiser.”  Additionally, Title 16 of the Business Occupations and Professions, Annotated Code of Maryland defines an “appraisal” as a “…means an analysis, conclusion, or opinion about the nature, quality, utility, or value of interests in or aspects of identified real estate” (§ 16-101. Definitions).

Not to be confused with an appraisal, a Comparative Market Analysis (CMA) can assist a home owner with deciding on a listing or sales price.  In fact, § 16-101 differentiates a CMA from an appraisal by stating, “’Appraisal’ does not include an opinion to a potential seller or third party by a person licensed under Title 17 of this article [referring to a real estate broker] about the recommended listing price or recommended purchase price of real estate, provided that the opinion is not referred to as an appraisal.”

If you are asking about the value of your home because you’re planning a home sale, consider consulting with a real estate and a CMA.  Although a thorough and professional CMA is not an appraisal, a CMA is a technical and methodical procedure that is typically limited to a specific neighborhood or subdivision so as to offer a rationale for a probable listing or sales price.  Unlike appraisal methodology, which is uniform; there is no standard approach to preparing a CMA; however, a comprehensive CMA can be technical and systematic, as well as offering a market trends analysis in one, three, and six month segments.

Many lenders have also turned to agent prepared CMA’s to assist in determining potential listing or sales prices for distressed assets (e.g., foreclosures and short sales).  Also known as broker price opinions, these CMA’s provide a market snapshot to assist with such disposition decisions.

The value of your home will vary depending on whom you ask; your neighbor may even have an opinion.  However, if you’re planning a home sale, an experienced agent and their detailed CMA may be your best source of information to decide on a listing price.

by Dan Krell © 2013
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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.  This article was originally published the week of December 16, 2013 (Montgomery County Sentinel). Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

Renovation considerations

If you’re considering giving your home a makeover, you’re not alone. Desires to modernize and renew your home may increase as the years go by and trends and styles change.

There are plenty of options to make your home feel fresh as well as increase your enjoyment while in your home. Before you begin, there are two considerations that might cross your mind: “how much of a budget do I have?” and “what upgrades recoup the highest percentage of the cost if I decide to sell my home after I make the improvements?”

First, have you been saving for renovations? It is very important to create a renovation budget to fit your financial picture, and then stick to it. Even modest improvements can meet your needs, so don’t be tempted to go beyond your initial plan or over budget.

When renovating/upgrading your home, consider the long term resale value. Today’s designer trends could become tomorrow’s designer don’ts. Whether you’re planning a minor kitchen upgrade or planning a major addition, design experts have often recommended that home owners consider substance and function over style.

Before working on your home, Mark Anderson (2011, The designer discount. MoneySense, 13(1), 63) discusses the need to consult with a professional designer to assist you in your renovations. He suggests that many home owners who design their own spaces tend to focus on what’s trendy at the time without consideration of the fact that most trends are short lived. The longevity of the freshness of your upgrades can depend on your improvement choices.

The most sought after home improvements have typically been in the kitchen. The kitchen tends to be of major focus because it is a room that many people use as the hub of their lives. You might observe that trends are increasingly transforming the kitchen from a meal center to a lifestyle center by centralizing one’s daily activities around the room (as can be observed by adding shelves, built-ins, and computer desks as well as removing walls between the kitchen and other rooms). When updating the kitchen, experts warn not to go overboard as modest upgrades are often enough to increase your enjoyment.

When selling a home, curb appeal is always a consideration. So it’s no wonder that home owners typically go for the facelift equivalent by updating the exterior by replacing exterior doors, windows and siding. Not only can new exterior doors, replacement windows and siding give your home a fresh and modern look, these items could possibly add to your home’s overall insulation efficiency.

So, now that you’ve spent your money, you’re probably wondering “how much can I get back if I decide to sell my home?” Remodeling Magazine ( publishes an annual “cost vs. value” report that provides regional estimates and averages of improvement costs and the estimated average amount that could be recouped if the home is sold at time of improvement. The magazine estimates that for our region, a minor kitchen upgrade could cost around $20,000 and might recoup about 74% of the cost at resale; while a major kitchen upgrade could cost about $55,000 and only recoup about 68.7% of the cost. Additional recoup estimates include: 102% for the cost of a front door; 72% for the cost of new siding; and about 71% for the average cost of replacement windows.

by Dan Krell
© 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.

Sustained economic growth is the solution to housing stagnation

If you haven’t yet heard the comparison of today’s housing market to depression era housing, the latest Zillow Home Value Index (ZHVI) has fallen 26% since its June 2006 peak. The June 10th ZHVI Report indicated an additional decline of national home values to an average of $177,412. Stan Humphries, Zillow Chief Economist, was keen to point out that the 53 month housing value decline of 26% has officially exceeded the housing value decline of the Great Depression (which is reported to be 25.9% from end-of-year 1928 to end-of-year 1933).

Although the ZHVI indicated that the Washington, DC regional data fared slightly better than the national data, foreclosures may not be a factor. The Zillow Home Value Index indicates that the national home value index declined 5.1% from the previous year, whereas the ZHVI for the Washington DC region declined 4.7%; while the national foreclosure rate for the same time was 0.094% compared to the Washington region’s foreclosure rate of 0.067%.

Zillow’s dramatic news was reported 11 days after the National Association of Realtors® release of the latest Pending Home Sale Index (PHSI) data ( Although the latest PHSI data indicated a 3.5% increase in pending home sales in November 2010 compared to October 2010, the data revealed a decrease in pending home sales compared to November 2009. Because the PHSI is a precursor measure of home sales, it is reasonable to conclude that the number of home sales also decreased from the same time last year.

Although past home value and home sale declines have been attributed to foreclosure and distressed property activity, the recent (albeit brief) decline in foreclosure activity may indicate that other factors are affecting the housing market. Foreclosure activity has recently decreased to resolve issues that arose from legal challenges to alleged lender procedural irregularities.

However, a recent article by Quinn Eddins entitled, “The Problem with Housing” (Mortgage Banking; Dec 2010; 71, 3) alleges that continued sale and value declines are due to excess foreclosure inventory and shadow inventory (homes in foreclosure but not yet foreclosed upon or released for sale). Eddins points out that slight increases in home buyer activity and slight home price increases in early 2010 were mostly due to short term interventions; he states “…The fundamental problem facing housing markets is one of supply. Even if the demand for homes… were to return to peak levels it would take years to absorb the current supply of homes for sale, in foreclosure and in the inventories of financial institutions. The longer it takes to reduce this supply, the longer home prices will languish.”

Eddins solution to the problem is to decrease the number of distressed home owners through equity sharing, which allows a lender to significantly reduce a home owner’s monthly mortgage payment by allowing a third party to invest in the loan in return for sharing in the home’s equity. The idea of equity sharing is not new; it has been incorporated in various home ownership programs and has even been introduced in the last two Congresses as a means to sustain FHA and support home ownership (most recently as H.R.6256: Strengthening FHA Through Shared Equity Homeownership Act of 2010 by Rep. Gary Mill [R-CA]).

Unfortunately, the reality is that regardless of interventions to sustain the housing market, stagnation will continue until there is sustained significant economic growth.

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.