Category: housing market

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Is there a best way to predict the housing market

predicting the real estate marketIf you’re like most home sellers and buyers – you want an edge over your competition.  What better way to get the edge than having a way to predict the market.  If you don’t have a working crystal ball, there are a few methods to forecast and measure housing (some of which have been used in empirical research).

Various studies demonstrate that you can assess and somewhat predict activity in a housing market; which, albeit in hindsight, can assist home sellers and buyers in determining whether it is a good time to sell or buy a home.  For example, I recently wrote about gauging real estate through divorce and premarital agreements; which discussed the implications of these life events to the housing market.  The increase in prenups could indicate an increased perception in the value of home ownership and possibly the overall housing market.

Another recent study indicated that it may be possible to determine home pricing through internet search data.  Beracha and Wintoki (Forecasting Residential Real Estate Price Changes from Online Search Activity; The Journal of Real Estate Research 35.3 (2013): 283-312.) set out to find out if keyword search engine data from Google could determine price shifts in various cities.  They concluded that this may be the first study that directly links “aggregated” search engine data to “abnormal crosssectional home price changes.”

Essentially, the research established that you can figure out metro housing market activity through Google Trends and Google Insights, which provide keyword volume measurement in internet searches.  The study examined the keywords “real estate [city]” from 2004 through 2011, and concluded that “…cities associated with abnormally high real estate search intensity consistently outperform cities with abnormally low real estate search volume by as much as 8.5% over a two-year period.”

And although the study’s authors discussed prior research linking internet keyword searches and consumer behavior, they caution that there are a number of keywords related to real estate that may be more relevant than the keywords used in their study.  Regardless, the authors assume that their results may be useful in home sales and purchases.  More importantly, it may seem as if their results may strengthen the link between specific search engine keywords (e.g, “real estate Rockville” or “real estate Bethesda”) and the ability to predict a housing bubble, or possibly home price peaks.

Generalized, “global” data, such as those described in Beracha and Wintoki’s study, and their meaning may be interesting; however, limiting yourself to such indiscriminate analysis for your home sale or purchase could be disadvantageous.  Global data does not distinguish the many factors that impact regional markets; nor can it sort out differences within a local market (neighborhood data within a region can vary significantly).

Using “global” tools may be useful; however, if you are planning a home sale or purchase – seek out the assistance of a local Realtor®.  Your real estate agent has access to local specific data that is reported through the MLS.  Using MLS data, your agent can prepare a market analysis that compares your home to recent neighborhood sales; the breakdown can put your home in perspective and can give you a price range to assist you in listing or purchasing the home.  Additionally, your agent can provide a hyper-local trend analysis so as to help you understand what to expect from the local housing market.

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by Dan Krell © 2013

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. Copyright © 2013 Dan Krell.

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Amazon and real estate – will Bezos’ vision change marketing of home listings

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homesThe big news this week is of course Jeff Bezos’ purchase of the Washington Post. Why would the man who predicted the demise print media pay $250 million for a regional newspaper and a handful of associated local papers?

If the real estate business is a window into how media plays a role in the daily lives of the average American, then Bezos’ purchase might be a head scratcher. Over the last five years, the National Association of Realtors® annual Profile of Home Buyers and Sellers (realtor.org) has demonstrated how the internet has increasingly played a role in how home buyers actively searched for homes. In 2007, the Profile of Home Buyers and Sellers indicated that about 60% of home buyers completely relied on the internet to search for their home, while about 21% did not use the internet at all in their search. Compare those statistics to the 2012 Profile, which reported that 90% of home buyers used the internet to search for homes; and home buyers who were younger than 44 years of age, the use of the internet is reported to be 96%!

It seems as if home buyers relied on the weekend real estate sections of the paper for a leg up on new home listings and open houses. Real estate agents and brokers happily paid to have their listings included in what seemed to be the weekly catalog of homes for sale. In addition to the home listings, print real estate sections also included other related information (such as decorating, renovation, and buying/selling tips).

However, as the NAR’s Profile of Home Buyers and Sellers indicated, there was a sharp increase in the reliance of the internet to search for homes from 2007 -2012. The time frame is no coincidence; besides the exponential increase in technology and computing power during this period, it also covers the housing bust and subsequent foreclosure crisis. This was a time of tight advertising budgets and the search for efficient advertising modes; the internet offered a bigger bang for the advertising dollar, offering a more robust real estate platform than print could ever offer.

And although there was a colossal increase in the reliance of the internet for real estate listing information in the last five years, there was a consolidation and reorganization of online real estate content during that time frame as well. As the housing market declined in 2007, many sites stopped syndicating their own content and instead partnered with one of the high profile, well organized real estate portals.

It might seem as if the purchase of the Washington Post by an internet visionary who had once foretold the death of printed news might be confusing. But if you understand the Amazon.com business model and how it revolutionized the purchase and delivery of print and recorded media, you would not speculate that the purchase of the venerable news organization was to expand an internet empire to the newsstand – but rather you might believe that the purchase was to acquire a widely recognized brand that generates a considerable amount of content that can be packaged and sold through Bezos’ established model.

Just as the internet revolutionized real estate content and home listings, you might imagine how Bezos’ novel news paradigm could increase the robustness of content and distribution of home and open house listings.

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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 © 2013

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When is best time to sell a home

Housing Market

Buyers aren’t the only ones looking for a deal.  Home sellers are also looking for a good deal – which means they want to sell their home for the most money.  As it seemed as if the housing market had strong sales this year, some sellers are still trying to decide the best time to sell.  But unfortunately, timing the market may not be as easy as it seems.

Some say that spring is the best time of year to list and sell a home, while others believe that summer is better.  Old time real estate agents will tell you about a time when there was a traditional selling season, which basically started in March and ran through June.  In recent history, it seems as if the boom/bust market from 2005-2008 rewrote those rules.  During the “go-go” market, the spring selling season couldn’t start early enough; home buyers made their New Year’s resolutions and shook off the winter fog in early January to begin their home search.  For several years, it seemed as if home buyers started their real estate searching earlier each year to stake their claims on real estate before other buyers got wind of the listing.

However, once the bubble busted, home buyer activity significantly slowed, those who wanted to buy a home became increasingly methodical about their purchase as well as starting their search later in the year.  It seemed as if the best time to list and sell shifted from the spring time to summer months.

Since the downturn of the housing market, sales activity peaked in the summer months.  June has been a consistent contender for year high sale totals – until this year.  The July 22nd news release from the National Association of Realtors® (realtor.org) indicated that June sales “slipped” about 1.9% from May.  Granted, June’s sales are significantly higher than June of 2012, but the slowdown may just be a fluke or an indication of something else.

Maybe the combination of increased inventory (NAR reported that housing inventory was slightly elevated from May to about a 5.2 month supply) along with rising mortgage rates (Freddie Mac’s June national average commitment rate for a 30-year fixed rate mortgage rose to 4.07%) is making home buyers pause.

And surely home prices are making buyers have second thoughts; bargain hunters are having difficulty finding bargains.  June’s national median existing home sale price increased 13.5% compared to last June.  Distressed home sales, foreclosures and short sales that typically sell at lower prices, accounted for 15% of June’s figures (compared to last June’s 26%) and are at the lowest levels since 2008.  And although it may sound like great news, the double-digit jumps in the average home sale price may be a statistical artifact due to declining distressed home sales.

If you’re waiting to list your home for sale this year, you may have mistimed this year’s market.

Research has demonstrated that attempting to time the market may not always yield the best results – timing the market is much easier in hind sight.  Market timing appears to be much more than looking at selling activity cycles.  You should rely on the expertise of your real estate professional for neighborhood sales data and trends to assist you in deciding the price and the timing of listing and selling your home.

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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 © 2013

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Rising mortgage interest rates – what that means for housing market

by Dan Krell © 2013
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Mortgage lendingOver the last few weeks, the 30 year fixed rate mortgage has slowly climbed from the historical low we have become accustomed over the last few years to well above 4%, as reported by Freddie Mac’s Monthly Average Commitment Rate as of July 3rd. And although it’s still relatively low and not bad as interest rates go; keep in mind that the mortgage rate averaged over the last 40 years is much higher – some report it to be 8.75%.

If you haven’t noticed, average mortgage rates have been below 7% for about ten years. And even when the housing market was bubbling, rates were not as low as where rates are today. After the financial crisis, mortgage rates were kept low by the Federal Reserve’s commitment to purchasing mortgage backed securities; which was an attempt to stimulate interest in real estate purchases at a time when the housing market all but screeched to a halt. Shortly after the Fed ended the mortgage backed securities purchase program, a broader securities buying program began with the intent to stimulate the overall economy; commonly called quantitative easing, this was considered the second round, which targeted the purchase of U.S. Treasury Bonds. The Quantitative Easing program was extended into a third phase (QE3) through 2013, which many are speculating will begin tapering off by end of the year.

Recent Fed comments may have hinted to tapering off the QE program, which could have been the source of some Wall Street panic earlier this month that resulted in a volatile market; besides affecting your 401k, the result has been a jump in mortgage interest rates.

Of course, many experts are worried about mortgage rate increases and the effect on home buyers, citing a decreased home buying ability as well as the possibility of suppressing existing homes sales. For some home buyers, it might be true that increased interest rates could be a wrench in their home buying plans; however, the reality may be that increasing mortgage rates are a sign that the housing market is healthier than some think.

Although mortgage interest rates are just one aspect of a multi-factor dynamic housing market; housing demand is not necessarily gauged by mortgage interest rates alone. For instance, the height of the housing bubble, mortgage interest rates were much higher than they are today. One sign that slightly increased mortgage rates have not negatively affected the overall market is a recent report by the National Association of Realtors (realtor.org) that May 2013 existing home sales (completed sales) increased about 11.4% compared to May 2012. Additionally, the NAR reported that existing home sales are the highest since 2009.

There has been criticism that the “artificially” low interest rates have helped home sale prices jump, especially during a time when there has been little housing inventory; some are concerned that increases in mortgage rates will pressure home sale prices lower. But just like the housing demand concern, these factors alone are not in a vacuum; factors today may warrant mortgage rate increases to thwart abnormal housing price spikes (which are common in bubble markets).

Of course, rising mortgage rates and the thought of paying more for a mortgage is not always good news to home buyers. However, given the circumstances and looking at the broader perspective, the result may be much better than anyone could imagine – a stable housing market.  But that is yet to be seen.

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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 the week of July 8, 2013 (Montgomery County Sentinel). Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

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A balanced real estate market emerges despite fears of a housing bubble

real estate bubbleAs talk of a housing recovery is gaining traction, some experts are saying the recovery may be artificial and short lived. Warnings from economists and a former mortgage executive paint a picture of a possible housing bubble being caused by the source they claim is cause for increasing home prices.

Steve Cook, of Real Estate Economy Watch, revealed a recent survey of 105 economists, real estate experts and investment and market strategists. Although respondents predicted positive home price appreciation through 2014; the experts expect that home prices won’t fare as well during ensuing years through 2017. Furthermore, 48% of the respondents felt that current Federal Reserve monetary policy might be the reason for recent home price spikes; which may be creating a future housing bubble.

A majority of the expert panel suggested that requiring a minimum down payment in the Qualified Residential Mortgage (a provision to allow lenders to bypass credit risk retention rules) would create a long-term sustainable housing market. However, only about a third of respondents believe that a minimum down payment should be 20% or more.

An April 9th online article for The Wall Street Journal titled “Is the Fed Blowing a New Housing Bubble?” written by former Fannie Mae executive, Edward Pinto, explores the source for of the housing recovery. Pinto pointed out that although recent home price surges are the highest since 2006, data released by the Federal Housing Finance Agency (FHFA) indicate that home price increases may not be due to “broad based improvements in the economy’s fundamentals.” But rather, home price increases are being driven by low interest rates due to the Fed’s Quantitative Easing program.

Pinto compares current market conditions to those of 2006, when government policies also likely contributed to a housing bubble. During that period, like today, income is not keeping pace with home price increases. As an example, he cited FHFA’s conventional home-financing data that indicated new home purchase prices increased 9% during February 2013 and 15% during February 2013; while income barely increased 2% (keeping relative pace with inflation).

Pinto and his assessment of recent home price spikes are getting some attention. John Aidan Byrne of the NY Post wrote on May 6th (“Next Home Crisis”) about Pinto and his concerns. Because suppressed interest rates are pushing home sale prices up, Pinto surmises that when the Fed’s QE program ends, interest rates will rise creating an “inevitable housing disaster.” However, he concludes that to avoid a housing disaster: income must increase 33%, home sale prices will drop about 25%, or lending standards must loosen significantly. He points out that loose lending policies did not end well in the last housing bubble (http://www.nypost.com/).

Regardless of murmurs of another housing bubble, current market conditions might indicate a balanced market. The trend of monthly local absorption rates compiled from the local multiple list service has consistently shown to be in recent months between a buyer’s market and a seller’s market (absorption during a buyer’s market tends to be below 50%, while a seller’s market tends to be above 60%).

Even though there is little inventory, supply and demand may be in overall balance. However, that being said; supply and demand seems to be out of balance for well priced updated homes, which appear to the source of bidding wars and escalation clauses. Homes priced above the market and/or needing repairs/updates take longer to sell.

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By Dan Krell
Copyright © 2013

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.

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