Market report Archives - Real Estate News and Commentary

June 24, 2022June 24, 2022

Housing Market Pause, Slowdown, or Collapse?

Is the housing market in a pause, going into a slowdown, or worse – headed for a collapse? Looking back to an article I wrote an article in the summer of 2018 asking the same question, we were at a similar point then and asking the same questions. Just like today, the summer of 2018 saw decreasing home sales after a sellers’ and sharply rising home sale prices. Instead of being in full swing, the housing market of the summer of 2018 was cooling down.

During that time, it was common place to hear about the impending doom and gloom in a housing collapse from the media. In hindsight, what occurred that summer was a normal reaction to an overheated market where stressed home buyers basically took a break. Even with the short pause, the housing remained an active and viable aspect of the US economy.

Housing, like other facets of the economy, go through cycles of boom and bust. Most are familiar with the extreme boom and bust cycles, such as what occurred during 2005-2007. However, many are unfamiliar with the concept of the mini-cycle. The mini cycle is a period of short-term growth and slowdown, modulating to maintain a relative balance. Instead going through a protracted cycle of expansion, hyper-supply, and recession, the housing market could be correcting itself via mini cycles.

Prior to the lockdowns of 2020, the housing market was in the process of correcting itself from sharp home price increases during a hot 2017-2018 market. At that time, home sale inventory was already at historic lows (which began in 2013). As you can understand, the lockdowns further exacerbated the home sale inventory shortage and pushing the housing market and home buyers into an unprecedented situation. The double-digit multiple offers and six-figure escalations pushed home buyers to the edge, exhausting and discouraging many.

After a year and a half of sensational activity and home price gains, it’s not unthinkable that home sales would correct itself. As reported in the June 21^st National Association of Realtors press release (https://www.nar.realtor/newsroom/existing-home-sales-fell-3-4-in-may-median-sales-price-surpasses-400000-for-the-first-time), May 2022 home sales decreased 3.4 percent from April, and decreased 8.6 percent from May 2021. Home sale inventory continues to increase, and was reported to be about 2.6 months of supply, which gives home buyers more opportunities.

Home prices, on the other hand, continue to increase. As reported in the NAR press release, median home prices are 14.8 percent higher than a year ago! The $407,600 median home sale price is the first time the median sale price exceeded $400,000.

Of course, housing is also affected by outside economic factors, which are concerning to everyone. If you are in the market to buy or sell a home, look at the facts and make decisions that make sense for your situation. Finally, work with a seasoned professional to assist you to understand and navigate your local market.

By Dan Krell
Copyright © 2022

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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.

May 20, 2019June 3, 2020

Mixed housing stats

This week’s National Association of Realtors press release (nar.realtor) sends mixed signals about the housing market. Reports of sluggish home sales and slowing home price appreciation is not what you would expect when the spring market should be humming along. But then again, mixed housing stats may be a vital sign of a healthy market in motion.

First, let’s talk about home sale prices. The NAR’s report on metro home prices and affordability indicate that the average home sale price for the first quarter of the year was $254,800. This is a 3.9 percent increase compared to the same time last year. Average home sale prices in the Baltimore metro area were slightly higher than the rest of nation at $275,300. Not surprisingly, Washington metro prices were significantly higher at $420,000 (a 6.5 increase from the same time last year).

The latest S&P CoreLogic Case-Shiller U.S. National Home Price Index (spindices.com) is almost spot on with the NAR, indicating a 4 percent increase in home sale prices nationwide.

Affordability is always a concern when mixed housing stats confound the market. So, how much income do you need to qualify for a home? The National Association of Realtors Qualifying Income report indicates the average qualifying income for a 5 percent down conventional mortgage is $60,143 nationwide. The average qualifying income in the Baltimore metro area is slightly higher at $64,982. However, because of significantly higher home sale prices, the average qualifying income in the Washington metro area is $99,137.

The neighboring Baltimore and Washington metro areas highlight home pricing extremes in competing markets. Many home buyers who work in the Washington metro area are opting for longer commutes to make homeownership affordable. Others are opting for alternative work to not only lower their housing cost, but eliminate the commute as well. Commenting on affordability, NAR’s chief economist Lawrence Yun stated, “There are vast home price differences among metro markets. The condition of extremely high home prices may not be sustainable in light of many alternative metro markets that are much more affordable. Therefore, a shift in job search and residential relocations into more affordable regions of the country is likely in the future.”

Although home sale prices continue to climb, the national home sale picture is another story. The 1.2 percent increase in spring home sales compared to winter sales should be expected. However, the 5.4 percent decrease from last spring is a disappointment. According to MarketStats by ShowingTime (getsmartcharts.com), the number of homes sold in the Mid-Atlantic region decreased 4.77 percent year-to-date. There was a larger decline in Montgomery County, where there was a 7.25 percent decrease in home sales year-to-date!

Days-on-market is another fundamental indicator of the housing market. And, like home prices and units sold, days-on-market can vary depending on the local market. Homes in the Mid-Atlantic region are taking a bit longer to sell, as days-on-market increased 7.04 percent to 76 days. However, houses in Montgomery County are selling quicker, where days-on-market decreased about 13 percent to 65 days.

Mixed housing stats can confound home buyers, sellers, and their agents. But consider the analysis of David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. He stated that that home sale prices gains have been slowing down until recently. And although mortgage rates are lower, home sales have “drifted down” from their peak during February 2018. Even new home sales and residential investment have shown weakness since last year.

Original published at https://dankrell.com/blog/2019/05/20/mixed-housing-stats/

By Dan Krell
Copyright © 2019

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July 23, 2017October 5, 2018

Vacation homes declining

According to the National Association of Realtors 2017 Investment and Vacation Home Buyers Survey (nar.realtor), last year’s vacation home purchases plunged 21.6 percent! Last year’s decline in vacation homes sales comes at the heels of a huge drop in 2015, and has tumbled about 36 percent since the post-recession high marked in 2014. Are the statistics telling us it’s a good time to buy that vacation home you have been thinking about? Or is it that Americans are rethinking their view about vacations and retirement?

Of course, Lawrence Yun, NAR chief economist, feels that the decline is due a very tight vacation homes market that may likely make a comeback in the ensuing years. In an April 11^th NAR press release he stated that “In several markets in the South and West – the two most popular destinations for vacation buyers – home prices have soared in recent years because substantial buyer demand from strong job growth continues to outstrip the supply of homes for sale. With fewer bargain-priced properties to choose from and a growing number of traditional buyers, finding a home for vacation purposes became more difficult and less affordable last year.” He added, “The volatility seen in the financial markets in late 2015 through the early part of last year also put a dent in sales as some affluent households with money in stocks likely refrained from buying or delayed plans until after the [2016] election.”

However, another explanation given by the NAR is short term rentals, including airbnb. Short term rentals allow people to visit vacation and resort towns without committing to buy a home.

To give perspective about the tight vacation homes market, NAR stated that vacation home sales were only 12 percent of all transactions in 2016, a decrease from 16 percent in 2015 (and close to the recent low of 11 percent in 2012). Additionally, low vacation home inventory pushed sale prices higher. The 2016 median vacation home price increased 4.2 percent, which is a decade high of vacation home price growth.

A lack of inventory and rising home prices are sure to put a damper on the vacation homes market. But the slump could be a manifestation of something else.

Bloggers and columnists have reported a shift in the younger generation’s home buying habits for about a decade. The trend seems to be a rejection of the accepted industry standard home buying cycle set by older generations. For decades, the Baby-Boom generation has set the bar for home sales. Their views on home ownership and vacation homes have guided the experts. However, millennials have a different perspective, having a more conservative take on home buying and exhibiting a strong sense of value.

The NAR’s 2017 Investment and Vacation Home Buyers Survey pointed out that that the top two reasons to purchase a vacation home are for a family retreat and for retirement. However, just like the trend in home buying, millennials are redefining their retirement and vacation needs.

Expecting to work longer, Millennials’ idea of retirement is not perceived the same as the Baby-Boomer’s vision of retirement. Staying relevant and engaged is now more important than leisure.

Having a regular spot for the family to congregate and vacation is no longer highly desired. Millennials want the option to travel rather than visiting the same vacation spot every year. Millennials are also savers. They may view vacation homes as exorbitant and expensive. Even though the vacation is only a small portion of the year, there are regular expenses that may include a mortgage, property taxes, HOA fees, and maintenance.

Original published at https://dankrell.com/blog/2017/07/23/vacation-homes-declining/

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March 3, 2017February 8, 2020

Housing market 2017

There’s no doubt that 2016 was an outstanding year for real estate and the housing market. In fact, National Association of Realtors chief economist Lawrence Yun was reported to say in a January NAR press release (www.nar.realtor) that the 2016 housing market was the best since the Great Recession. There were 5.45 million total existing home sales in 2016, which exceeded 5.25 million during 2015. What is necessary for a great housing market 2017, and how will it finish the year?

January’s sales were strong and Dr Yun stated in the press release that there is “resilience” in a “rising interest rate environment:”

“Much of the country saw robust sales activity last month as strong hiring and improved consumer confidence at the end of last year appear to have sparked considerable interest in buying a home…

Market challenges remain, but the housing market is off to a prosperous start as home buyers staved off inventory levels that are far from adequate and deteriorating affordability conditions.”

Home prices also surged during 2016. A February 28^th S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index press release (spindices.com) indicated a 30-month index high, increasing 5.8 percent during December. The Seattle, Portland and Denver regions were at the top during this period, posting gains of 10.8 percent, 10.0 percent and 8.9 percent respectively (the Washington DC region gained a respectable 4.2 percent). David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices stated:

“Home prices continue to advance, with the national average rising faster than at any time in the last two-and-a-half years…One factor behind rising home prices is low inventory. While sales of existing single family homes passed five million units at annual rates in January, the highest since 2007, the inventory of homes for sales remains quite low with a 3.6 month supply. New home sales at 555,000 in 2016 are up from recent years but remain below the average pace of 700,000 per year since 1990. Another factor supporting rising home prices is mortgage rates. A 30-year fixed rate mortgage today is 4.2% compared to the 6.4% average since 1990. Another indicator that home price levels are normal can be seen in the charts of Seattle and Portland OR. In the boom-bust of 2005-2009, prices of low, medium, and high-tier homes moved together, while in other periods, including now, the tiers experienced different patterns.”

Of course, the record year was nowhere near the peak market pace of 6.48 million existing home sales during 2006. However, the economics of the market during that time was different; being influenced by outside forces such as uber-easy money policies and overzealous speculation in the housing market.

The peak market sales records may be a benchmark of a sort. But in retrospect, those numbers are a reflection of a distorted market where speculators bought and sold homes in record numbers taking advantage of the easy money and a seemingly guaranteed big money payoff (which was a factor in the steep home appreciation spike at that time). It was a crazy time for housing, when homes were flipped in a matter of days. Many investors were even making money on homes they never owned by selling their interest in their purchase contracts. The result was that home buyers found themselves either priced out of the market, or borrowing more than they could realistically afford because of the fierce buyer competition.

After posting impressive housing stats for 2016, the expectations for housing market 2017 are high. And not surprisingly home sales started the year on the same pace, as the NAR reported January’s existing home sales (homes that settled during January) increased 3.3 percent. However, the pending home sale index (homes under contract and described by NAR as a forward looking number) showed a different picture with 2.8 percent decrease during January. Of course in the absence of bad weather, some economists explain that the decrease in pending home sales are due to low inventory and rising interest rates.

Housing Market 2017

Some are concerned about the decreased prospects of future home sales, suggesting that there won’t be a repeat performance of record home sales during 2017. The recent pending home sale index release is reminiscent of the index reported for January 2014, where the NAR reported that the pending home sale index dropped 9 percent following post-recession record year of home sales during 2013. At the end of 2014, it was revealed that existing home sales dropped 3 percent from the previous year. Reasons given for the decrease were low inventory and tight lending.

Many, like myself, remain optimistic for housing market 2017 because interest rates remain historically low, even with recent rate hikes; and mortgage lending has been the easiest since the financial crisis. The sentiment for housing market 2017 is also shared by consumers; who conveyed increased optimism about the housing market in Fannie Mae’s 2017 Home Purchase Sentiment Index (HPSI). The February 17^th News release (fanniemae.com) indicated that the January’s HPSI increased 2 percent, which is 1.2 percent higher than the same time last year. Doug Duncan, senior vice president and chief economist at Fannie Mae, stated:

“Three months after the presidential election, measures of consumer optimism regarding personal financial prospects and the economy are at or near the highest levels we’ve seen in the nearly seven-year history of the National Housing Survey…However, any significant acceleration in housing activity will depend on whether consumers’ favorable expectations are realized in the form of income gains sufficient to offset constrained housing affordability. If consumers’ anticipation of further increases in home prices and mortgage rates materialize over the next 12 months, then we may see housing affordability tighten even more.”

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January 13, 2016December 13, 2022

Real estate bargains

The typical real estate investor and the average home buyer have something in common – they both are looking for a home that makes financial sense, a bargain if you will. After all, who wants to overpay for their home? Although the investor’s priority is purely financial, a home buyer’s priority is a mix of lifestyle requirements that fits a budget. Even with priorities in line, both investors and home buyers don’t always recognize a bargain when it presents itself.

Finding a bargain home is not as easy as some will have you believe. Bargain hunters typically look for distressed properties such as foreclosures (also known as “bank owned” or REO homes) and short sales. Although there was abundant opportunity to buying such homes immediately after the housing crash, many were hesitant due to lack of market confidence. However, as confidence was revived in the housing market, the courthouse real estate auctions were once again attended home buyers and investors looking for good buys. And as home prices increased, so did the price for distressed properties; making it more difficult to find the bargain home. Even “motivated” home owners may not be as motivated as you think in today’s market.

This phenomenon is corroborated by a recent study of “bargain homes” by Trulia’s research blog. Ralph McLaughlin reported on January 7^th (Where Is A “Bargain” Really A Bargain?; trulia.com) that advertised bargains were actually good buys in 55 of 100 housing markets. Furthermore, hot markets tend to offer less price discounting than cooler markets; home sellers are less inclined to make price reductions in markets where there is increased buyer competition. Locally, the Baltimore metro region was found to be in the top discounted markets for bargain homes (with an average discount of 11.3%); while the Washington DC metro region was found to be in bottom of discounted markets with an average of 4% discount on a bargain home.

It’s clear now that home prices were at the bottom during 2008-2009. At that time, home inventories swelled and there was an abundance of (what would seem today) “cheap” homes for sale. I wrote at that time (If Cheap isn’t Selling, What is?; May 28, 2008) about how cheap homes were not selling, and how home buyers changed their focus from “buy anything” to buying quality homes that impart value. Of course, one of the main reasons cheap homes were not selling quickly was that there was an additional cost associated with the purchase; most of the cheap homes were distressed and required rehab, or at the very least needed updates and minor renovations.

For most investors, the concept of a bargain home is strictly the result of numbers in a formula; and for some home buyers, the bargain may be about getting a good price. However, a bargain home could be more than just the price tag. Maybe the bargain home is also the “value added” home. Rather than just focusing on price, buyers should also be aware of a home’s potential. Of course there is always risk when buying a home, which we experienced during the financial meltdown eight years ago.

Regardless, many lament having not bought homes at or near the price bottom. But hindsight is 20/20. And what didn’t seem like a bargain just a few years ago, is in comparison to today’s increasing home prices and an active housing market, a missed opportunity.

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