Real estate, climate change, and data-porn

winter home sales

The National Association of Realtors® (realtor.org) March 20th news release reported that February home sales remained subdued because of rising home prices and severe winter weather.  The decline in existing home sales was just 0.4% from January, but was 7.1% lower than last February’s figures.  NAR chief economist Lawrence Yun stated that home sales declines were due to “weather disruptions, limited inventory, increasingly restrictive mortgage underwriting, and decreasing housing affordability.”  And although it may sound bad, Yun actually has a rosy outlook saying, “…Some transactions are simply being delayed, so there should be some improvement in the months ahead. With an expected pickup in job creation, home sales should trend up modestly over the course of the year.”

So, if a snow filled and cold February is to blame for poor home sales, was Snowmagedden and Snowzilla the reason for increased home sales during February 2010?  Of course not.   And although home sales increased 5.1% year-over-year here in Montgomery County MD during February 2010, it was mostly due to increased home buyer demand that some speculate was due in part to the availability of first time home buyer tax credits.  Additionally, RealtorMag reported that Southern California December home sales dropped about 21% month-over-month, and were down about 9% in compared to the same period in 2012.

As home sales are trending lower, it’s reasonable to look for reasons why demand is soft; but can weather be the main reason to keep potential home buyers at home?  Probably not.  Consumer demand is a robust force that is multifaceted, and can even prevail over seemingly difficult circumstances.  Consumer demand can even trump weather, as was the case during the winter of 2010.

winter home sales

Consumer demand can even be resilient in the face of the speculative effects of global warming.  A November 2013 RealtyToday article (The Looming Global Warming Catastrophe and its Effect on Real Estate; realtytoday.com) discusses how home buyer demand for coastal property has remained strong even as increased claims that climate change will make these areas uninhabitable.

Housing data cause and effect is only conjecture unless it is directly observed.  To make sense of the “data-porn” that is excessively presented in the media, often without proper or erroneous explanation; economic writer Ben Casselman offers three rules to figure out what the media is saying (Three Rules to Make Sure Economic Data Aren’t Bunk; fivethirtyeight.com): Question the data; Know what is measured; and Look outside the data.  Casselman states, “The first two rules have to do with questioning the numbers — what they’re measuring, how they’re measuring it, and how reliable those measurements are. But when a claim passes both those tests, it’s worth looking beyond the data for confirmation.”

Keeping these rules in mind, could the winter slowdown be the result of cold weather, or is it something else?  Sure, cold weather may have marginal effects on home buyer behavior and demand; however, weather does not typically affect extended periods of consumer behavior unless weather events are catastrophic.  The current data may be indicative of a housing market that is returning to the distinct seasonal activity that we have been used to for many years prior to the “go-go” market and subsequent recovery years.

However, other factors referenced by Dr. Yun, such as increased home prices and tougher mortgage standards, are more likely to be the reasons for subdued home sales.  And as the year progresses, these factors may emerge to be significant issues for home buyers.

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.

Missing pieces to a housing recovery

by Dan Krell
DanKrell.com
© 2012
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Home salesAs the housing market expectantly slows for the winter months, we can start reflecting on this year’s housing statistics.  Home sale figures appear to point to a year ending slightly better than last.  But it may be that local home sale stats may not best those posted during the 2009-2010 period.  It appears that there are missing pieces to the housing market, which if not put into place, could result in a new real estate norm.  Let’s take a look at the puzzle…

First, the National Association of Realtors® (Realtor.org) reported that national pending home sales have been elevated most of the year; and although national existing home sales have increased during October, the numbers fluctuated throughout the year.  Of course, trying to determine the local state of housing through the national market snapshot may be like trying to see a local road map by looking at the solar system; but there is truth to what NAR Chief Economist Lawrence Yun described as “…rising consumer confidence about home buying…”

Second, New home sales have increased compared to last year.  Although the existing home sales statistics reported by the NAR may have co-mingled some new home figures in the data (due to the methodology), the U.S. Census Bureau (census.gov/construction/nrs/) reports new home sales.  Not surprisingly, October new home sales increased about 17% compared to October 2011, and 2012 year to date new home sales increased about 20% compared to 2011.

A forthcoming piece to the puzzle, which may likely be reported in the latter weeks of December, is that November was another positive month for real estate.  And more importantly – November may have been a brilliant month locally.  A preliminary analysis of Montgomery County MLS (Metropolitan Regional Information Systems, Inc.) home sale figures (all inclusive) point to a marked sales volume increase in November compared to November 2011, as well as an increase in the average monthly home sale price (dankrell.com/realestate).

AnotNew Home Salesher piece to the local real estate puzzle is home buyer behavior.  Home buyers in the market are increasingly demanding about what they are getting for their money.  Given the lack of home listings in the resale market (down about 27% from 2011 year to date through October for Montgomery County single family homes: gcaar.com), combined with variances in home sale prices and the cost for renovations and updates on many homes; home buyers perceive value in purchasing new homes compared to buying a resale in today’s market.  This is an unacknowledged reason for the surge of new home sales this year, and why new home builders have rebounded before the resale market.

The missing pieces to improving the resale market are inventory and home prices.  As mentioned, a lack of home inventory continues.  If resale inventory were to match those of previous years, it stands to reason that resale inventory would also increase.  Inventories are lackluster most likely because many home owners have put their selling plans on hold until they are convinced that home prices have stabilized.

It’s welcome news that the 2012 housing market is slightly better than the 2011.  And although the landscape of the local market has improved, home sale figures are not much better than those posted during 2009-2010.  If resale inventory does not increase, the resale market of 2013 will probably be much like that of 2012.

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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 December 3, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

Real estate pent up demand or pent up optimism

by Dan Krell © 2012
DanKrell.com

housing marketThe National Association of Realtors® latest news release of April 26th stated that March’s increased pending home sales figures is an indication that the housing market is recovering. The NAR reported that March’s Pending Home Sale Index (the PHSI is a “forward looking number indicating contracts signed”) increased from February’s PHSI and is much higher than the PHSI a year ago. Lawrence Yun, NAR Chief Economist, claimed; “The housing market has clearly turned the corner. Rising sales are bringing down inventory and creating much more balanced conditions around the county, which means home prices, will be rising in more areas as the year progresses…” (realtor.org).

Regardless of the newly sparked optimism for the housing market, a news release of one week prior (April 19th) indicated although March’s existing home sales were better than the previous year, the number of home sales declined from February’s totals. Dr. Yun cautioned that, “We were expecting a seasonal increase in home listings, but a lack of inventory has suddenly become an issue in several markets with not enough homes for sale in relation to buyer interest”…“Home sales could be held back because of supply factors and not by demand…”

My local market (Montgomery County MD, which includes Bethesda, MD, Chevy Chase MD, and Rockville MD) is part of the one of the stronger housing markets in the country, and pending sales are strong. The April 2012 Montgomery County Single Family Home Housing Report released by the Greater Capital Area Association of Realtors (gcaar.com) indicated that the number of contracts increased 12.4% compared to the same time last year, as well as increasing 8.5% year-to-date compared to the same time last year.

However, when looking at closing sales, pending sales may not be converting. Although the number of settlements of single family homes in Montgomery County is reported to have increased 5.8% in April 2012 from April 2011, the number of settlements year-to-date has decreased 1.6% from the same time last year.

Additionally, housing inventory continues to pose a problem for the market. Montgomery County single family home new listings decreased 14.6% in April 2012 from April 2011; while total actives reported for year-to-date through April 2012 decreased 15.1% for the same time last year. A diminished housing inventory is not so much an issue of meeting an increased buyer demand, as Dr. Yun has stated; but rather the issue may be that the declining housing supply may be lowering to meet buyer demand.

housing statsHowever, if housing inventories were not meeting an increased buyer demand, then we might be experiencing something akin to what occurred 2005 through 2006 (when homes sold relatively quickly, the average time on market was less than 30 days, and home prices were increasing). But we’re not experiencing the activity of 2005-2006. Additionally, the average single family home sale price for Montgomery County as reported by GCAAR is $496,144 for the month of April 2012 (compared to $515,161 for the same time last year).

I remember (and reported) similar optimisms declared in recent years; for example, an October 2009 report indicated that the PHSI was proclaimed to be at the highest level since March 2007. Enthusiasm for a market turning point would surely be welcome; but the data is inconsistent. And in fact, maybe current reports of pent up home buyer demand may be indicative of something else- a projection of pent up optimism.

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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 May 7, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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Expectations for the 2007 Market

The past year’s real estate market was not what people expected. With much speculation and pessimistic media reports many expected the worst. The worst never happened and the numbers for 2006 were respectable, as home sales go. What’s expected for the 2007 market?

It was interesting to see the inventory grow as the number of active listings increased through the year. In fact, 2006 has had the most active listings at one time since before 1999! Many home sellers were taken aback by the amount of competition they faced for potential home buyers; while at the same time home buyers were overwhelmed with the amount of choice.

Now that we are heading towards the end of the year, many home sellers are taking their homes of the market after a disappointing fall and many days on the market. These home sellers are anticipating re-listing their homes in the spring. In fact the number of active single family homes listed in Montgomery County has hovered around the 4000 unit mark since June, however recently dropped to about 3000 units in November (which is still more than last year at the same time) (GCAAR.com). While some of those homes did sell, most did not.

Although the average home price has steadily increased in the county, many neighborhoods are seeing depreciation in the form of lowered sales prices. The home price average in Montgomery County is more likely skewed due to the increase of home sales in the million dollar or more range. November showed a decrease in sales in all price ranges except $1.5M or higher. There was an increase of almost twelve percent in sales in November as compared to the same time last year for this price range; there were 296 sales of homes priced $1.5M and higher in November 2006 in Montgomery County.

Many are anticipating a brisker market this upcoming spring. Many forecasters are predicting a nationwide recovery in the real estate market place. While perusing the optimistic reports about the 2007 real estate market don’t expect a huge appreciation in home values. Many forecasters predict a balanced market across the nation. Economists for the National Association of Realtors predict that the number of existing home sales will maintain at the roughly the same level as 2006, however new home sales will continue to slide into 2007 (Realtor.org).

Locally, the outlook is also positive due to a strong economy, relatively low unemployment, and relatively low interest rates. Another positive sign for the market in 2007 is the foreclosure rate. A recent article in the Baltimore Examiner (examiner.com) reported about a 12% drop in Maryland foreclosures from 2005, while the rest of the country realized a 27% increase during the same time!

As the spring market arrives, we will see many homes returning to market along with new listings of existing homes. Adding to the many options available will be the high builder inventory, which has been accumulating through the fall.

Spring will also bring many home buyers to explore the market as well. However, with many choices to consider, the average days on market for listed homes will remain high. Let’s face the truth that the market has slowed; however, the good news is that we are not heading into oblivion.

By Dan Krell
Copyright © 2006

Housing market 2006

In reading some of the real estate forecasts for 2006, I was reminded of H. G. Wells’ novel, “The Shape of Things to Come.” What does H. G. Wells have to do with Real Estate? Nothing. Well almost nothing. Any self respecting science fiction enthusiast knows that the 1933 novel about the future of mankind was eerily prophetic about the outbreak of the Second World War as well as some technological advances. However, the novel was pure science fiction. The housing market 2006 is another matter

So I had to ask myself, “what is it about economic forecasts, real estate market predictions specifically, that seem to be prophetic in one regard and erroneous in other details?” I believe that in order to get a balanced perspective you have to get information from various sources and pull the pertinent plausible statements to form the picture. The same holds true to the coming year in the local real estate market.

So what can we expect from the housing market 2006 ?

The National Association of Realtors predicts 2006 to be the second best year in history for sales activity (Realtor.org). David Lereah, chief economist for the NAR, stated in a NAR press release on December 12 that he feels that economic conditions will be positive for the housing market in the coming year. He states that general economic conditions will be good to help sustain a stable real estate market.

Conversely, the UCLA Anderson Forecast (UCLAForecast.com), the folks who accurately predicted the recession in 2001, predicted in a recent press release that there will be a “weakness” in the national economy due to problems in the housing sector. Their vision is a weaker economy through 2007 because of a slower housing market and loss of construction and housing related jobs. The bottom line is that they believe that there is a rough road the next few years, but there will be no recession.

Interestingly enough you might think that Realtors who are active in the local market would have cohesive and consistent outlook on the future. That is not the case. Local Realtors who are quoted in Realty Times (realtytimes.com) share differing opinions about the state of the present market and offer differing views about the near future.

So, what can we make of all this confusing information? Well, with regard to mortgage interest rates, the Fed is expected to have at least one more increase planed, so it will remain to be seen where mortgage interest rates level off. Currently, mortgage rates are higher than they have been in recent history, but still hover at a respectable 6.25%. Additionally, home sales have dropped off from last year’s pace but prices are still increasing. So economically, it seems as if there is a sense of return to equilibrium.

What people have described as a bubble bust, or a downturn in the real estate market, is actually a return to a more balanced market. The dysfunctional expectation that a home should sell for $25,000 (or more) than the last home sold, and have many home buyers place an offer on one home in a moments notice will change to the more reasonable expectation of selling at market value and having a buyer contract on a home in several (or more) weeks.