The economy, stupid

Is the housing bust over, or is it about the economy (stupid)?

by Dan Krell ©2012
DanKrell.com

Last week’s Wall Street Journal report that the housing bust is over has grabbed everyone’s attention (Housing Passes a Milestone; wsj.com). The WSJ reported that of forty-seven “forecasters” surveyed, forty-four believe that the housing market has bottomed out. There are several factors cited by these “experts” as rationale for the stating the bust is over, as well as asserting that the housing market will not be a further drag on the economy. However, many experts may be missing some data points; as well as not recognizing causality.

Although the U.S. housing bust may be over (for now), as experts proclaim; other regions of the world are struggling. Two of the most influential economic regions, Europe and China, are experiencing real estate slumps.

According to a May 31st report in The Economist (Downdraft: European house prices are finding it harder to defy gravity), global house-price indicators point to increased volatility. Although, Europe’s housing markets experienced similar declines we experienced during the financial crisis; individual countries differed in their housing outcomes. Troubled economies, such as Ireland and Spain, continue to have lagging housing markets. Ireland’s already depreciated home prices are reportedly continuing to drop; while Spain’s home prices are reportedly over valued while prices also continue to drop. However, Germany, France, and Belgium’s housing bounced back relatively quickly and reportedly appreciated through last year.

However, as recession looms and unemployment increases in the Eurozone; The Economist reported that the pace of housing depreciation increased in weaker countries, while housing appreciation stalled in Germany and France.

The other big economy that may also show signs of stalling is China. China’s recent GDP growth was reported to be 7.9%. From a bustling economy that reported GDP growth over 10% in 2010, and GDP growth over 9% in 2011, the shrinking GDP may be a signal. Although overall Chinese housing prices are reportedly flat, some have reported that some provinces have experienced as much as a 30% drop.

Although the Chinese housing market is a bit different than the U.S., (private property ownership is a relatively recent development); albeit volatile, housing is a component of the Chinese economy. A December 2011 report by Patrick Chovanec in Foreign Affairs (China’s Real Estate Bubble May Have Just Popped) indicated that Beijing new home prices dropped 35% in November 2011. Property agencies reported that new home inventories are building and buyers are hard to find.

Additionally, The China Perspective reported in January that re-sale home sales volume dropped about 23%. As a result, real estate agencies are closing offices. It was reported that an average 3.8 offices closed daily in Beijing; while the number of real estate agency offices in Shanghai has been reduced 40% since their housing peak.

As other global housing markets stall, there may be a silver lining. The devaluation of residential real estate abroad has attracted foreign investors to U.S. housing. Although international buyers have bought homes at all price levels, the luxury real estate market seems to be attracting most attention.

But back to what the experts proclaim as the bottom of the market – yes there are some positive signs, but it’s too early to tell if the bust is over. And although these experts proclaim that housing will no longer drag the economy; the reality may be that it’s the economy that’s dragging the housing market.

Homebuyers looking to home builders to fill inventory void

by Dan Krell ©2012
DanKrell.com

Home buyers are looking to home builders to fill the void in low home inventory; new home builders seizing opportunity to capitalize on housing market conditions.

If you’re a frustrated home buyer actively looking to for a house, you may have realized that the pickings are slim. You’re not alone if you feel exasperated after months of looking for your dream home; you may have also lost out in a multi-offer scenario. If you feel you’re ready to give up for and rent, take heart; home builders are jumping in to fill the void.

Even the National Association of Realtors® (June 21st) reported that the limited housing inventory has held back sales of existing homes. Chief NAR Economist, Lawrence Yun stated in the press release, “The slight pullback in monthly home sales is more likely due to supply constraints rather than softening demand. The normal seasonal upturn in inventory did not occur this spring… (realtor.org).

According to the NAR, total housing inventory decreased 0.4%, which resulted in about 2.49 million existing homes for sale (or about a 6.6 month supply). Furthermore, housing inventory is 20.4% less than the same time last year; when there was a 9.1 month supply of homes for sale.

Local inventory numbers reported by the Greater Capital Area Association of Realtors® (gcaar.com) is consistent with the national decrease in housing inventory. GCAAR reported that year to date listings through May of single family homes in Montgomery County is about 18.7% lower than listings from the prior year through the same period.

Although the shortage of home listings seems to be holding back the re-sale market, home builders appear to be seizing on an opportunity; new single family home sales are at a two year high, according to Reuters (New home sales race to two-year high in May; June 25, 2012). Many home buyers, dissatisfied with existing homes listed for sale, are opting to purchase new.

The National Association of Home Builders (nahb.com) reported on June 18th that home builder confidence is at its highest since May 2007. And why not? Home builders are capitalizing on what seems to be a stagnant re-sale market. Increased sales are coming from those disappointed home buyers who cannot find a re-sale home but want to take advantage of the combined low prices and mortgage interest rates.

Clients of new home builders are also finding there are additional benefits to owning a brand new home: In addition to having new systems, many components are energy efficient; floor plans tend to be contemporary; and exterior designs are trendy. Another benefit of buying “new” is that, unless the home is not spec (already built, often a model home), you may have an opportunity to choose finishes and upgrades; everything will be ready for you to move in. What’s more is that you typically get warranties on the appliances and systems in a new home, so if something doesn’t work properly you can usually get it fixed – as long as it is covered and within the warranty period.

If you’ve not yet looked into purchasing a new home, ask your real estate agent for ideas of what’s available in new home communities, custom homes, or through spec builders. Home builders often list their inventory in the local MLS as well as advertising on various websites. When you visit a home builder, take your agent along with you; they may have knowledge of buyer incentives and closeout models that builders are trying to sell first.

This is not your father’s housing recession or recovery

by Dan Krell ©2012
DanKrell.com

When the housing market began its decent into uncharted territory in 2007, people talked of a “V” shaped housing market recovery, meaning that they braced for a market bottom followed by an upturn of increasing activity. What many experts are now talking about is an “L” shaped market recovery, where the housing market will hit bottom and not begin its ascent for a number of years. In retrospect, we have experienced the market’s bouncing along the bottom for at least 2 years (seeing inconsistent activity from month to month); although some still think that the market has yet to bottom out.

Two reasons why the housing market may continue to drag along the bottom include the dramatic loss of net worth in recent years and the recent increase in foreclosure activity.

The fact that the mean (average) income fell 7.7% is nothing compared to the 38.8% drop of mean net worth, as reported by a recent Federal Reserve Bulletin, “Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances” (fed.gov). The report stated, “Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices.” The report further clarifies, “…The decline in median net worth was especially large for families in groups where housing was a larger share of assets, such as families headed by someone 35 to 44 years old (median net worth fell 54.4 percent)…”

This report underscores what many in the industry have known, but have not fully admitted about the weak move-up market; the dramatic loss of home equity in recent years has not only made it difficult for many to sell their homes, but also has taken away the means to purchase another [home]. Additionally, the combination of diminished net worth and reduced income has forced many would-be first time home buyers to wait on the sidelines.

Additionally, foreclosures have not been news for some time, but the reduced foreclosure activity in the past year was said to be temporary in response to legal challenges and the robo-signing fiasco. As the shadow inventory (homes in foreclosure or bank owned) has been building up, many speculate the impact when foreclosure activity picks up.

A recent RealtyTrac (realtytrac.com) press release reveals that foreclosure filings have picked up and discusses the possible outcome. Besides a 9% increase in nationwide default notices was reported in May; RealtyTrack reported, “Foreclosure starts nationwide increased on an annual basis after 27 consecutive months of year-over-year declines.”

Lenders are becoming increasingly aware of the benefits of selling distressed homes as short sales over repossessing them. Brandon Moore, CEO of RealtyTrac, was reported to say that the increase of pre-foreclosure sales is an indication that many recent foreclosure filings may end up as short sales or auctioned to third parties, rather than becoming REO (bank owned).

The dramatic loss of net worth along with continued foreclosure activity only contributes to the changing perception of home ownership. This housing recovery will certainly be recorded in the history books as one of the most protracted and having a lasting impact; this is not your father’s housing recovery.

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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 June 25, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

June 20, 2012

Perceptions of U.S. housing boosted by international investors

by Dan Krell ©2012
DanKrell.com

A June 11th report by the National Association of Realtors® discussed how international home buyers are an increasingly important segment of the U.S. housing market (realtor.org). The NAR release, “International Sales Continue to Climb in U.S. Market, Realtors® Report,” indicated that the dollar volume of U.S. homes bought by foreign home buyers increased about $16.1 billion over the last year. As encouraging as this may sound, there’s more to the story than you might imagine.

Interestingly, the report stated that average price paid for a U.S. home by an international home buyer is $400,000; and 30% of the homes purchased were priced between $250,000 and $500,000. Because foreign home buyers typically find it difficult to obtain a mortgage, it was reported that 62% of the purchases were cash deals. The NAR report stated that although many of these home purchases were for primary residences, a majority of international home buyer purchases were for vacation and investment uses.

Would you believe that 55% of international home buyers originated from Canada, China, United Kingdom, Mexico, and India? Canada accounted for the largest number of foreign home buyers (24%), followed by China (11%), the U.K. and Mexico (6% each).

But before you decide to learn a new language, you should note that four states have received the most attention from these home buyers; Florida, Arizona, California, and Texas “accounted for 51% of the purchases.” Of these sales, Florida accounted for 26% of all foreign home purchases, and California coming in second with 11% of foreign purchaser sales.

This market segment is not a new phenomenon; international home buyers have participated in the U.S. housing market for a long time. It just seems as if this segment of home buyers has been stronger during economic turmoil (Are you old enough to remember the influx of Middle East investors during the 1970’s and Japanese investors during the 1980’s?). The increasing number of international home buyers investing in the housing market is a tribute to the perceived value of U.S. real estate.

By the way, the influence of international sales has not gone unnoticed by Congress either. In an effort to help stimulate this sector of the housing market, S. 1746: Visa Improvements to Stimulate International Tourism to the United States of America Act was introduced in October 2011, by Senators Charles Schumer [D., N.Y.] and Mike Lee [R., Utah], and H.R. 3341: Visa Improvements to Stimulate International Tourism to the United States of America Act, was introduced in November 2011 by Rep. Mazie Hirono [D-HI2] and Rep. David Dreier [R-CA26]). These bills offered resident visas to foreign investors who invested at least $500,000 in U.S. real estate. However, some have criticized such stimulus as an empty gesture because international home buyers may not need additional incentive to purchase homes in the U.S.

Will foreign home buyers save the housing market, as a U.S. News and Report piece suggested (October 28, 2011)? Unlike the clichéd climax of a dramatic film noire, when the foreign investor saves the day, the answer may be “yes” and “no”. Although housing is receiving an increased amount of attention from foreign investors, it is unlikely that the increased activity itself would save the U.S. housing market. However, the increased foreign investment in U.S. housing may boost the perceived value of housing and the perception of home ownership.

More news and articles on “the Blog”
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 18, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

May 31, 2012

Skepticism increases 1.3% on conflicting housing data

by Dan Krell © 2012
DanKrell.com

When the National Association of Realtors® announced last week that April’s existing home sales increased 3.4% to an annually adjusted rate of 4.62 million compared to a downwardly revised 4.47 million in March (http://www.realtor.org/news-releases/2012/05/april-existing-home-sales-up-prices-rise-again), I have to admit I was a bit skeptical. The local market is not exactly humming along, so as I read in the above referenced NAR release that April’s existing home sales rose 10% over the figure from April 2011, I thought some perspective is needed.

Let me quote you some housing statistics. The number of Montgomery County single family homes that sold increased 5.1% in February, 14.7% in March, 33.9% in April and 27.9% in May (MRIS data reported by the Greater Capital Area Association of Realtors®; gcaar.com). These numbers are not from 2012; but rather, these are the local stats from 2010 compared to closings from 2009. Yes, as you remember – 2010 was a spectacular year for local real estate!

Sarcasm aside, the number of Montgomery County single family home closings increased 5.8% during April 2012 (compared to 2011); and the number of Montgomery County condo closings also increased 8.1% during the same time. But, Montgomery County year-to-date settlements are still below the number of settlements that occurred during the same time in 2011 (-1.4% for single family homes; and -2.8% for condos). Although the 690 single family home settlements that occurred in April 2012 is higher than 652 that occurred in April 2011, the 2,034 single family home settlements that occurred year-to-date through April 2012 is lower than the 2,062 settlements that occurred the same period in 2011. Regardless, the number of settlements is far lower than what we have seen in past “normal” markets (for example, GCAAR reported that there were 849 settlements of Montgomery County single family homes in April 2001).

It must be noted that although the first half of 2010 seemed to be on a role, the number of 2010 Montgomery County single family home closings actually ended the year slightly lower than 2009. So, even though we have a month of some positive news, let’s be cautious about making assumptions.

Ok, I know you’re going to ask about NAR’s statements about rising home sales. Sure, NAR chief economist, Lawrence Yun, was reported to say that “the housing recovery was underway.” He was also quoted to say, “A return of normal home buying for occupancy is helping home sales across all price points, and now the recovery appears to be extending to home prices…”

However, the latest release of the S&P/Case-Shiller Home Price Indices (May 29th; standardandpoors.com) states “that all three headline composites ended the first quarter of 2012 at new post-crisis lows.” Although there was a 1.6% decrease in home prices in the Washington DC metropolitan area in February compared to January, there was a 1% increase in March compared to February; however, prices have decreased 0.6% for the year.

Although media headlines shout that housing has turned a corner, it’s a little premature to assume that the housing market has normalized with only one month’s data. The housing market has turned so many corners in recent years that I think we’ve made several circles! Just as in 2010, let’s see the final tally. There’s still some data to collect; let’s see how the housing market fares through the remainder of the summer.

More news and articles on “the Blog”
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 May 28, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

Is the housing bust over, or is it about the economy (stupid)?

by Dan Krell ©2012 DanKrell.com

by Dan Krell ©2012 DanKrell.com

Home buyers are looking to home builders to fill the void in low home inventory; new home builders seizing opportunity to capitalize on housing market conditions.

According to the NAR, total housing inventory decreased 0.4%, which resulted in about 2.49 million existing homes for sale (or about a 6.6 month supply). Furthermore, housing inventory is 20.4% less than the same time last year; when there was a 9.1 month supply of homes for sale.

by Dan Krell ©2012
DanKrell.com

by Dan Krell ©2012
DanKrell.com