Housing Inventory Shortage Causes

housing inventory shortage
Mover rates (infographic from census.gov)

A common complaint from home buyers is that there is lack of quality homes for sale.  A fact that most overlook is that home sale inventory has been relatively low since 2011.  The shortage has been attributed to many things including, home prices, economy, mortgage interest rates, jobs, etc.  However, a Freddie Mac report issued earlier this year pinpoints a major cause of the ongoing inventory shortage.  And according to the report, the housing shortage may get worse before it gets better.

A post-recession housing inventory shortage was actually predicted in 2010 by Brian Wesbury, chief economist for First Trust Advisers (Housing Shortage Coming In 2011; Forbes.com; February 15, 2010).  Wesbury’s industry startling prediction was based on statistics that require an average of 1.5 million homes to be added to the housing inventory each year just to be on par with population growth.  At that time, housing starts and completions were only a fraction of the 1.5 million target. 

Since then, housing market inventory has been low relative to the housing market prior to the great recession.  A lack of inventory has been attributed for inconsistent home sale stats this year, as well as previous years.  And although there have been a few years of post-recession record home sales, home sales have struggled for ten years to surpass pre-recession numbers. 

A study by Freddie Mac discusses one of the major causes of the recent housing shortage that has been impeding the real estate market, which is the growing trend of “aging in place.”  The study, published by Freddie Mac Insights earlier this year (While Seniors Age in Place, Millennials Wait Longer and May Pay More for their First Homes; freddiemac.com; February 6, 2019), is fueling an ongoing debate of the current housing inventory shortage. 

Aging in place is term given to aging home owners who stay on their homes as long as possible.  Rather than moving to retirement communities or other stereotypical older adult housing, seniors are staying put.  This trend is confirmed by a survey conducted by AARP that indicated “3 out of 4 adults age 50 and older want to stay in their homes and communities as they age” (2018 Home and Community Preferences: A National Survey of Adults Age 18-Plus; aarp.org; August 2018).

To highlight the impact of the current trend of aging in place, the Freddie Mac report pointed out that the home ownership rate for seniors aged 67 to 85 only dropped 3.6 percent, while the previous generation experienced a 11.6 percent drop in homeownership for the same age span.  A major revelation was that the current homeownership rate for seniors aged 81 to 85 is almost 15 times greater than the previous generation (for the same age span).

The Freddie Mac study looked at subdued millennial home buying trends and looked at who lived in the homes that millennials could have purchased.  The results indicated that seniors born after 1931 stayed in their homes longer, which resulted in higher homeownership rates compared to previous generations.  According to the study, “We estimate that this trend accounts for about 1.6 million houses held back from the market through 2018, representing about one year’s typical supply of new construction, or more than half of the current shortfall of 2.5 million housing units…This additional demand for homeownership from seniors will increase the relative price of owning versus renting, making renting more attractive to younger generations…

By Dan Krell
Copyright © 2019

Original located at https://dankrell.com/blog/2019/07/21/housing-inventory-shortage-causes/

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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.

Embrace millennials for prosperity

embrace millennials
Generational shifts (infpgraphic from nar.realtor)

Montgomery County Executive Marc Elrich’s recent remarks about millennials and housing doesn’t just speak volumes about politics and elected officials, but possibly reveals the future of housing and business in Montgomery County MD.  His “slip of the tongue” opposing building housing for millennials was not taken lightly and received plenty of pushback.  To be fair, Elrich has clarified his statement and is making amends (hamzakhan.me/blog/2019/1/26/mocowatch-elrich-meets-with-millennial-activists) by meeting with millennial activists who reside in the county.  Elrich should consider it a defining moment of his tenure and take the opportunity embrace millennials and the businesses that employ them to address the county’s housing and economic issues.

Millennials shouldn’t be pigeonholed just because their generation is misunderstood.  According to the National Association of Realtors, millennials are the largest segment of home buyers.  They account for more than one third of nationwide home buyers (Millennials Want the ‘Anti-Suburb Suburb’; magazine.realtor; February 26, 2016).  Jessica Lautz, NAR’s managing director of survey research stated, “Their buying power is huge…They are definitely a force in the market. They are overtaking the baby boomers.”

Affordable housing is an issue for every generation, including millennials.  According to the NAR, eighty-six percent of millennials “believe that buying a home is a good financial investment.”  However, like all home buyers, millennials are facing low home sale inventory, increasing home prices, and rising rents.  Additionally, many millennials have the heavy burden of student loan debt, which stifles their ability to rent, as well as save for a down payment to buy a home.  To put this into perspective, consider Zack Friedman’s report for Forbes indicating student loan debt approaches $1.5 trillion (Student Loan Debt Statistics In 2018: A $1.5 Trillion Crisis; forbes.com; June 13, 2018).  This makes student loan debt the “second highest consumer debt category” (mortgage debt is first). 

Embrace millennials to address housing issues

Millennials don’t expect cities to tear down older affordable housing to build new homes for them.  It’s quite the opposite.  As was reported by NAR research cited above (Millennials Want the ‘Anti-Suburb Suburb), many millennials are moving out of the city and opting to live in more affordable suburban neighborhoods. Instead of tearing down homes and disrupting communities, millennials are revitalizing older homes and invigorating forgotten neighborhoods. 

It has been established that millennials are currently driving the economy of housing, and they should not be dismissed.  According to the National Association of Realtors 2018 Home Buyer and Seller Generational Trends study (nar.realtor), millennials have been the most active generation buying homes for the past five years.  Millennials represented more than one-third of all home purchases in 2018.  It was pointed out that the number of millennials buying homes in urban areas is declining.  After peaking at 21 percent in 2015, only 15 percent of millennials purchased in an urban area during 2018 (only 2 percent buying a condo).

Embrace millennials to address economy

The millennial shift toward the suburbs is affecting business too.  Jim Fagan recently wrote about businesses chasing millennial talent (Millennials are re-migrating to the suburbs and their employers are following; westfaironlline.com; September 14, 2018).  He observed that as millennials are moving out of urban areas, their employers are following them.  Just as millennial migration is affecting residential real estate, it is also affecting commercial real estate and the urban landscape .

Demographics are not static and affect housing and the economy.  Millennials are a driving force in today’s housing and labor markets.  If Elrich is to address the county’s economy and housing issues, he should embrace millennials and the businesses that employ them.

By Dan Krell. Copyright © 2019.

Original published at https://dankrell.com/blog/2019/02/08/embrace-millennials-economic-prosperity/

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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.

Technology is the new real estate

I recently wrote about companies that are going through identity crises. Are they real estate companies or are they technology companies? Regardless, the big name real estate disruptors have changed the industry. They have given home buyers control of their home search. They have also given home sellers choices of real estate services and commissions. But the recent trend of real estate companies touting themselves as technology companies may be a signal that large real estate brokerages want more change. But are they mistaking the map for the territory?

Are real estate brokers still interested in selling homes?

technology and real estate
Technology (infographic from nar.realtor)

Last November, the real estate brokerage Compass made headlines because of its ability to raise massive capital investments. In a Compass press release, the company announced raising $100 million in capital (Compass Raises $100 Million in New Investment Round; prnewswire.com; November 8, 2017). The colossal investment comes one year after raising $75 million in capital. The capital is to be used for expanding brokerage offices in new markets as well as “building new technology.”

Compass’ vision is to be “the world’s largest real estate platform.” The press release quoted an investor saying:

“Compass has proven that its technologically advanced platform is incredibly attractive to the industry’s top agents…Their position at the intersection of technology and real estate gives them the unique opportunity to be the single largest holder of real estate data, ushering in a new realm of possibilities for agents and clients alike.”

In a similar move, RE/MAX announced this week of its purchase of booj, a technology company. In a February 26th RE/MAX press release, the acquisition is touted as means to “…deliver core technology solutions designed for and with RE/MAX affiliates. The objective: technology platforms that create a distinct competitive edge for RE/MAX brokerages and agents…” (RE/MAX Takes Bold Step to Provide Best-in-Class Technology; remax.com).

Is the shift to  being a technology company about revenue?

It would seem that recent industry moves may indicate that real estate brokers would prefer to be technology companies. However, the latest trend may be more about generating revenue, raising capital and investor relations than it is about selling homes.

Lizette Chapman’s report on the matter is revealing (Tech Startup or Real-Estate Broker? Fidelity Values Compass at $2 Billion; bloomberg.com; November 8, 2017). Chapman likens Compass to Redfin saying that the company “is almost certainly unprofitable,” although generating massive revenue. In her reporting, Chapman quoted a seasoned real estate agent who was briefly with Compass, “The technology was mostly marketing tools…It was sleek, but I can’t say it was different from anything else out there.”

Although many home buyers and sellers turn to the internet for housing information, they don’t wholly rely on technology when choosing real estate services. According to the National Association of Realtors 2017 Profile of Home Buyers and Sellers (nar.realtor), a majority of home buyers and sellers hired agents with whom they worked in the past, or were referred by friends and family.

The problem with technology is that humans are the ghosts in the machine. The human element, contrary to technology, is erratic, messy, and highly subjective. The human element remains at the core of home buying and selling.

Many consumers recognize that tech and the internet are tools that are often used as gimmicks to get their business. Technology is not a substitute for an experienced real estate professional who can also empathize along the home buying/selling process. The turn to tech only underscores that residential real estate is still a personal business.

Choosing a real estate agent

Choosing a real estate agent is much like searching for a home.  It is an objective and subjective process.

The real estate agent is supposed to be a fiduciary that is supposed to protect your rights and assets.   A real estate agent is supposed to be honest and act with integrity.  They should act in your best interest.

The quality of an agent is not dependent on the firm. Quality agents are affiliated with almost all brokers. If you haven’t already, ask friends and family for their recommendations.

Prepare questions to interview several agents.  The purpose of the interview is to learn about the agent’s professionalism, training, and knowledge base.  You get to hear about their experience, and get a feel how they interact with you.  Besides asking about their experiences, ask how many years they have been selling homes, and if they full time agents.

If you live in an area where agents are licensed in multiple jurisdictions, ask about their experience in the area you plan to buy/sell. Just because they have a license to sell homes doesn’t mean they have extensive experience in that jurisdiction.

Original published at https://dankrell.com/blog/2018/03/02/technology-new-real-estate/

By Dan Krell
Copyright © 2018

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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.

Prime housing move by Amazon

Amazon is about to make a decision on their “HQ2.”  The highly anticipate decision can be a prime housing move not just for the chosen city, but the region.  As you now know, Montgomery County is on the short list.  Some even have it pegged to be in the top five.  Although many local residents are excited at the prospect of increasing home values, many others are anxious how a Montgomery County Amazon HQ2 will affect their quality of life.

If Amazon chooses Montgomery County, the county will likely see a similar impact that Seattle experienced.  However, rather than be purely speculative, let’s look how Amazon has shaped Seattle.  Stephen Cohen offers interesting statistics looking at how Seattle has changed after Amazon (How Seattle Changed After Amazon Came to Town; seattlepi.com; September 22, 2017).  Cohen points out that Amazon has been based in Seattle since the mid 1990’s, and that the major impact on the town happened when the company moved to the South Lake Union campus (SLU) in 2010.  Since the move, Amazon’s stock price skyrocketed and its market cap exceeded (and has since doubled) that of Walmart.

Cohen’s data goes beyond the pros and cons of having the business giant in the community and compares statistics that span from 2010 to 2017.  During that time, Seattle’s population grew 17.3 percent.  However, it remained as the 18th most populous US city.  Although Seattle followed the national trend of becoming more diverse, its African American population slightly decreased (which was counter the national trend).  Cohen describes Seattle’s population as “skews male,” probably because Amazon’s “workforce is 63 percent male.”

housing
Seattle Case-Shiller home price index (graph from businessinsider.com)

But the home values…Seattle has had one of the hottest and prime housing markets in the country. Seattle’s average home price increases are almost double the national average.  Finding housing in Seattle is very difficult, as the town’s vacancy rate significantly decreased to about half that of the national average.  The city’s median gross rent is 47.6 percent higher than the national average.

Other interesting facts from Cohen’s data…one-person households decreased from about 15 percent to slightly more than 10 percent.  There was a 25.2 percent increase in commuters.  And, the city’s mean household income increased 41.3 percent, which is more than double the national average.

Prime housing is not for everyone.  Cohen cites the sharply increased cost of housing and high cost of living for negatively affected the poor, as well as the middle class.  And although Seattle is the 18th largest US city, it has the third largest homeless population (according to a December 7, 2017 Seattle Times expose “King County homeless population third-largest in U.S.”).

But, Lisa Stiffler reported that Amazon’s philanthropic corporate culture has noticeably changed (What gives? Tech giant Amazon finally boosts its philanthropic rep in its hometown; geekwire.com; December 14, 2016).  She notes that it is evident that employees are volunteering and getting involved with such activities as the Amazon “Non-Profit Expo.”

Seattle’s SLU is described by Stephen Cohen as an “Innovation District,” which is a Brookings Institute term for a “geographic areas where leading-edge anchor institutions and companies cluster and connect with start-ups, business incubators, and accelerators.”  SLU is similar to Montgomery County’s Technology Corridor.  An Amazon move to MoCo’s Tech Corridor would likely dovetail with a $100 million plan to improve I-270 (the infrastructure plan was reported by the Washington Post last April).  Such infrastructure improvements would open up Maryland’s western real estate market, which would ease some of the upward pressure to MoCo’s already tight prime housing market and already increasing home prices.

By Dan Krell
Copyright© 2018

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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.

Marijuana’s high home values

high home values
Weed makes home values high? (infographic from gobankingrates.com)

Did you know that the licensing of medical marijuana dispensaries in Maryland has begun?  There are only a handful of licensed dispensaries at this time, including one in Montgomery County.  Besides dispensaries, Maryland’s budding medical marijuana industry includes growers and processors.  Even though the industry is just taking off, there is growing support for legalizing marijuana for recreational use.  This is evidenced by recent bills introduced in the Maryland General Assembly that focused on establishing a tax for cannabis sales.  Besides increasing tax revenue for states where marijuana is decriminalized, there also seems to be a phenomenon of high home values.

If Maryland does decriminalize marijuana, it could be a potential source of tax.  The San Francisco Chronicle (6 lessons from legal pot in Washington and Colorado; sfchronicle.com; September 30, 2016)   pointed out that the state of Washington has had a windfall since legalizing pot.  It was reported that Washington collected $135 million for the fiscal year 2015 and $186 million for the fiscal year 2016.  They were expected a fifty percent for the fiscal year 2017.  And that is just on the excise tax on pot products, and doesn’t include the collected sales tax.

About those high home values…

Colorado and Washington state have realized a significant housing boom since decriminalizing marijuana.  Washington DC’s housing market has been buzzing along quite nicely as well.  While the surrounding suburbs’ housing market has slowed, GCAAR’s October stats (gcarr.com) reveal that Washington DC’s home sales have surged about ten percent year-to-date and average home sale prices grew about four percent!  Recent empirical studies have validated the housing-marijuana relationship.

One recent paper that provides such evidence was presented at the 2017 Annual Meeting of the Allied Social Sciences Associations held by the American Economic Association.  Cheng, Mayer and Mayer (The Effect of Legalizing Retail Marijuana on Housing Values: Evidence from Colorado; working paper, 2016) measured the “benefits and costs” of legalizing marijuana expressed in home prices.  They concede that although marijuana legalization is controversial, there are some benefits.  They determined that there is a causal effect such that Colorado’s retail marijuana law implementation was instrumental in its recent housing boom.  They concluded that implementing a retail marijuana law will give home prices a bump of about six percent.  They also found that high home values and inventory are mutually exclusive, such that the increase in housing demand did not affect housing supply.

Are high home values worth the affects of decriminalizing pot?  High home values is not everything.

Regardless of high home values, decriminalizing marijuana is not all peaches and cream.  Not to be a buzzkill, marijuana can also negatively impact real estate too.  Amy Hoak’s reporting lists a number of issues where legalizing marijuana has adverse effects to housing (5 ways marijuana legalization affects real estate; MarketWatch.com; November 25, 2014).

A major issue Hoak points out concerns federal law.  Regardless of any state or local retail marijuana law, the Feds still consider marijuana verboten.  Properties (commercial or residential) that are associated with marijuana related activities and can be subjected to civil asset forfeiture.  Another issue is financing properties related to the marijuana industry.  Federally chartered banks conform to federal law and won’t lend on these properties.

Hoak also points out issues with properties where marijuana is processed, sold or used (commercial or residential).  There has been a significant increase in property explosions in states where marijuana has been decriminalized.  The explosions are likely due to processing marijuana into hash oil, a process that involves butane.  Mold is an issue where marijuana is grown, because of the large amounts of water used in the process.  Much like cigarette smoke, marijuana odors can permeate walls and be very difficult to remove.  Even if a lease forbids it, residential landlords can have problems when tenants grow, process, and smoke marijuana in the home.

Regardless of the increased home value phenomenon associated with retail marijuana laws, some homes can be difficult to sell.  High home values aside, homes that have been “tainted” with odors or mold can languish on the market, even if they are in prime locations.  Finally, Hoak pointed out that people are not keen living next to properties involved in the marijuana industry.

Original published at https://dankrell.com/blog/2017/11/17/marijuanas-high-home-values/

Copyright© Dan Krell
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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.