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November 1, 2018July 21, 2019

Buyer and seller attitudes about real estate market

Economists are officially pessimistic about the housing market. This is the general sentiment following another month of declining home sales. Experts are pointing to a number of factors for the slowdown, including increased interest rates and housing affordability. But what are home buyer and seller attitudes about real estate? The National Association of Realtors’ most recent Housing Opportunities and Market Experience survey hints at a busy spring!

Economic attitudes about real estate market

An October 19^th NAR news release (nar.realtor) reported that September’s home sales were the weakest in several years. The nationwide trend affected all regions. NAR chief economist Lawrence Yun stated:

“This is the lowest existing home sales level since November 2015…A decade’s high mortgage rates are preventing consumers from making quick decisions on home purchases. All the while, affordable home listings remain low, continuing to spur underperforming sales activity across the country.”

First-time-home-buyers are finding the housing market increasingly challenging. This segment’s participation needs to be strong for a healthy home sales. September’s low thirty-two percent first-time-home-buyer participation is attributed to rising interest rates and home prices.

But low housing inventory is also an issue. September’s housing inventory decreased to 1.88 million existing homes available for sale (from the 1.91 available during the previous month). NAR President Elizabeth Mendenhall stated:

“Despite small month over month increases, the share of first-time buyers in the market continues to underwhelm because there are simply not enough listings in their price range.”

Economists at Fannie Mae believe that the housing market will continue to disappoint. In an October 18^th press release (fanniemae.com) Fannie Mae Chief Economist Doug Duncan stated:

“Our expectations for housing have become more pessimistic. Rising interest rates and declining housing sentiment from both consumers and lenders led us to lower our home sales forecast over the duration of 2018 and through 2019. Meanwhile, affordability, especially for first-time homebuyers, remains atop the list of challenges facing the housing market.”

But what do economists really know about the future? Let’s hear it directly from the consumer!

Home buyer and seller attitudes about real estate

NAR’s Housing Opportunities and Market Experience survey tracks opinions from renters and homeowners about homeownership, economy, and the housing market. The release of their third quarter 2018 survey indicates that sixty-three percent of respondents strongly or moderately believe that it’s a good time to buy a home. Although optimism is somewhat diminished from the second quarter’s survey, there continues to be a positive sentiment about buying a home. The survey’s positive sentiment continues even though a majority of respondents believed that home prices will continue to increase in the immediate six months. Additionally, a majority of respondents believe that qualifying for a mortgage may be an obstacle to a home purchase.

The survey also concurs with other metrics indicating high consumer sentiment for the economy. In light of the recent slide in home sales, NAR’s recent Housing Opportunities and Market Experience survey reveals “a near-record high of sixty percent of households believe that the economy is improving.” Adding to the strong sentiment is the survey’s increased monthly Personal Financial Outlook Index, which indicates that respondents believe that their financial situation will be better in six months.

The survey also indicates a record high of home sellers who believe it is a good time to sell a home. But given the seasonal decline of housing inventory, it is likely this will translate to a surge of home listings in the spring. The added inventory combined with high consumer sentiment will boost the housing market. So sayeth the consumer.

By Dan Krell
Copyright © 2018.

Original located at https://dankrell.com/blog/2018/11/01/attitudes-real-estate-market/

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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.

October 3, 2018April 26, 2019

Winter home sale profits

If you are planning to sell next spring, don’t wait! Consider a winter home sale. A National Association of Realtors survey indicates that a surge of home sale inventory is on the horizon. The NAR third quarter Housing Opportunities and Market Experience survey indicated that 77 percent of Americans believe it to be a good time to sell (Homeowners Ready to Sell in the Third Quarter of 2018, says Realtor Survey; September 25, 2018; nar.realtor)! This happens to be a record high for the survey. NAR Chief Economist Lawrence Yun believes that the strong sentiment is due to recent home price appreciation. He stated:

“Though the vast majority of consumers believe home prices will continue to increase or hold steady, they understand the days of easy, fast gains could be coming to an end. Therefore, more are indicating that it is a good time to sell, which is a healthy shift in the market.“

A winter home sale has less seller competition

The housing market conditions are such that we are on the verge of experiencing a déjà vu. Two years ago, winter home sales were fueled by rising mortgage interest rates, low inventory and pent up demand. As I predicted in a November 2016 column, rising interest rates and pent up demand were credited for the almost 10 percent jump in home sales by the end of January 2017! The massive jump in home sales occurred during the deep winter, when existing home sale inventory dropped about one-third of the summer inventory. Sellers who had a winter home sale during 2016-17 were greeted by eager home buyers and faced little competition.

Fast forward to 2018. Yes, admittedly, home sales have slightly dropped off during summer. But many are attributing this phenomenon to the lack of inventory. Consider that Montgomery County existing single-family home sale inventory was almost 20 percent lower than that of the summer of 2016. Although summer home sales dropped off, indicators point to a hot winter housing market. Moderating home prices, combined with pent up buyer demand and a strong economy could make a winter home sale ideal.

It’s clear that home buyers facing rising interest rates have taken a pause. But as rates approach 5 percent, positive economic sentiment is lessening the shock and many are planning to buy before rates creep higher. Giving perspective to the mortgage rate hysteria, current mortgage rates are about the same as they were during 2014. Additionally, the last time we saw mortgage rates above 5 percent was in 2010. Rates exceeded 6 percent when home sales broke records during the market buildup of 2006.

Current sentiment is good for a winter home sale

Another indicator that a winter home sale may be primed is the most recent Fannie Mae Home Purchase Sentiment Index (No Thanks to Housing, Home Purchase Sentiment Edges Up; fanniemae.com; August 2018). Home buyer sentiment increased the first time since May. Economists attribute this uptick to a strong economy along with the awareness of the recent market slowdown. The job and income related index components increased significantly indicating that buyers feel financially more secure with a home purchase. There is also a belief that home prices may moderate due to the summer sales slump.

Winter home sales tend to have less competition and serious home buyers. As I said in 2016, don’t wait until spring to sell your home! If you wait until spring to list your home, you’ll be faced with a profusion of seller competition.

Original located at https://dankrell.com/blog/2018/10/03/winter-home-sale-profits/

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June 28, 2018November 23, 2021

Housing market bubble hyperbole

Timing, as they say, is “everything.” Predicting the housing market is tricky. Even the best economists can get it wrong. Aptly, however, there is that group of naysayers who always believe the homes are overpriced and we are in a housing market bubble status. And you know what they say about a broken clock, it’s correct twice a day.

There’s no way around it, housing market trends are cyclical. Eventually, the housing market will crash and home prices will recede. But, like the phoenix, will again be reborn to go through it’s life cycle. According to Harvard’s Teo Nicolais (extension.harvard.edu/faculty-directory/teo-nicolais), there are four phases to the housing cycle. The cycles were described in 1876 by economist Henry George and modernized by Glenn R. Mueller to include recovery, expansion, hypersupply, and recession. Nicolais predicts that, aside from the occasional slowdown, there won’t be an honest to goodness housing crash until 2024.

You may be saying, “But Dan, the market feels just like the housing market bubble before the last crash.” And in some respect, you may be correct. At that time, home sale inventory was low, and home prices seemed on a never-ending climb. However, even though we have similar conditions, the current housing market is in a different cycle than where we were thirteen years ago.

Back in 2005 I reported that the active inventory of Montgomery County single family homes for sale for June 2005 increased to 2,004 units. Homes were selling at rapid rate, as the number of contracts increase 2.5 percent during June 2005 compared to 2004. And there was almost a 13 percent price appreciation from the previous year. The 2005 housing market was clearly in a rapid expansion phase. Oversupply began in late 2006 when Montgomery County single family home inventory hovered around 4,000 units for the better part of the summer and fall. And of course, the rest is history.

There is some disagreement about the current phase of the housing market. Some say the market is in the beginning of an expansion cycle, while others (like me) believe we are still in the recovery cycle. Yes, Inventory is tight. But as I reported recently, not all homes are selling. Which is contrary to the expansion of 2005, when it seemed as if all homes sold quickly regardless of condition. Home prices are increasing, but at a more reasonable rate than they did thirteen years ago. Although it may feel that houses sell in less than a week, the average days on market for homes that sell is currently 33 days in Montgomery County (according to MLS stats), and 78 days nationwide according to Zillow.

Another factor that is playing into current housing market conditions is mortgage interest rates. Unlike the housing market bubble of thirteen years ago, interest rates are increasing and is anticipated to help mitigate the home price spikes.

Sure, there are regional markets, such as Seattle and Denver, that lead the country in home price gains (typically double digits). But most everywhere else, real estate prices are improving gradually. Moreover, regional markets each have their own hot neighborhoods that grab the headlines too. Hot neighborhoods tend to be where investors, flippers and first-time home buyers converge.

Is there a housing market bubble? Are we headed to a market crash like we experienced in 2007? No, at least not in the short term. More likely, the market may be affected in the near future by a mild (and overdue) economic slowdown. Unfettered, the housing market will continue its herky-jerky pace.

By Dan Krell
Copyright © 2018.

Original located at https://dankrell.com/blog/2018/06/28/housing-market-bubble-talk/

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November 26, 2017November 23, 2021

Industry disruptors changing real estate

Reat estate industry disruptors (infographic from nar.realtor)

Buying and selling homes hasn’t really changed much over the years. It still requires a buyer and a seller. Getting them together often requires a real estate agent or broker. Sure, technology has changed the brokerage relationship dramatically. It has also forced players in the real estate industry to change or get out of the business. A new trend of real estate brokers are embracing technology like never before. Will these real estate industry disruptors change how real estate services will be provided in the future? Will these industry disruptors drive a new enthusiasm for “real estate technology brokers“?

One the largest players in the real estate industry is Zillow. Although Zillow has a number of services that can bring home buyers and sellers together, they are mostly a technology company that serves to provide consumers information. The company generates revenue by selling services to real estate brokers and agents, as well as mortgage companies and loan officers. Many consumers visit Zillow’s websites to view information about homes for sale or rent that are listed with brokers or the homes’ owners. Consumers don’t pay Zillow a fee or commission for the service.

Over the years, many have talked about how Zillow’s technological influence will predict the real estate industry’s future. Those real estate prophets foretold a time when home buyers and sellers will be able to do business on the internet without a real estate agent or broker. But in reality, Zillow’s influence only cemented the necessity of a broker or agent to facilitate the transaction. Zillow’s success has generated millions of dollars in revenue, but the company has struggled to post an annual net profit.

Redfin is another real estate company that has a significant internet presence. Some think of Redfin as a technology firm offering real estate services. But the reality is that it is a real estate brokerage built around technology. Redfin has built its brand, and went public this year. Although the company generates millions in revenue, the Seattle Times reported that Redfin’s IPO offering indicated that the company has yet to post an annual net profit and has accumulated losses of $613.3 million (Seattle real estate company Redfin files to go public; seattletimes.com; June 30, 2017).

Companies like Zillow and Redfin are not the only players in real estate know for technology, but they may be the most well-known. These companies are part of a new generation of companies that strive for a huge internet footprint to drive business. But Zillow and Redfin demonstrate that technology in and of itself is not a guarantee of profitability, nor has it been an absolute “game changer” for the real estate industry. Instead, technology has been the catalyst for change.

Industry disruptors and real estate

Consumers probably don’t realize the subtleties, but the rapid changes in real estate technology has forced real estate agents and brokers to change how they engage their clients. Since companies like Zillow and other real estate aggregator sites have propagated the internet, the role of the real estate agent and broker has shifted away from being the source of information to being the source of a meaningful analysis. Agents and brokers have also shifted their roles from information keepers to transaction managers.

What better way to be a real estate change agent and industry disruptor than to build a business around technology. Redfin is probably the most poised to make major impact to how consumers are served in the real estate industry. With all of its tech goodness, Redfin’s contribution to the industry hasn’t been as much technological than financial. The brand will likely be known for being instrumental in reducing real estate commissions. In markets where Redfin has been successful in establishing its brand, agents have been under significant pressure to lower listing commissions and/or offer buyer rebates.

Original published at https://dankrell.com/blog/2017/11/26/industry-disrupt…ging-real-estate/

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June 3, 2016November 23, 2021

Housing bubble countdown

The March S&P/Case-Shiller U.S. National Home Price Index (spindices.com) was announced May 31^st to reveal a 5.2% increase in home prices. Although down from last March’s 5.3% increase, home prices seem to be appreciating at a regular pace, with the metro areas of Portland, Seattle, and Denver leading the way with double digit gains (year-over-year price increases of 12.3%, 10.8%, 10.0% respectively). As home prices climb, so too are the claims that we are experiencing a housing bubble.

Those concerned about the next bubble have been ringing the alarm bells since last fall, when the combination of limited inventory, multiple offers, and rising prices created an environment in some regions that was reminiscent of the go-go market just prior to the last market bust. And like the broken watch that is correct twice a day, those naysayers may eventually be correct – but it may not be for another eight years.

How to predict a housing bubble

According to Ted Nicolais, the real estate cycle has been steady since 1800 (How to Use Real Estate Trends to Predict the Next Housing Bubble; dce.harvard.edu; February 20, 2014). Writing for the Harvard University’s Department of Continuing Education’s The Language of Business blog, Nicolais maps out Homer Hoyt’s cycles and found a regular 18-year cycle to the bubble and bust housing market (albeit two exceptions).

The 18-year cycle, as it turns out can be observed by analyzing trends. An applying Henry George’s four phases of the real estate cycle (as modernized by Glenn R. Mueller), Nicolais can determine how and when the next housing bubble will occur. (Henry George was a nineteenth century economist who studied the boom-bust cycle of the economy).

The first phase is the “recovery.” Home prices are at the bottom, and demand increases. Real estate vacancies decrease as economic activity increases, which fuels the economy.

The second phase is the “expansion.” Housing inventories dwindle, there is little is available to buy, and finding a rental becomes difficult. Nicolais explains that an issue with real estate is that once demand increases, filling inventory takes a long time. New development can take two to five years. Until new inventory is added, price growth accelerates; and rather than valued at market conditions, real estate becomes priced to future gains. During a real estate boom, people buy into the prospect of “future growth” and believe the escalating prices are reasonable.

Phase three is “hyper supply.” When the completion of new development begins to satisfy demand, inventories fist stabilizes and then swells. Price growth begins to slow. Nicolais stated that the amount of continued development will determine the severity of the impending recession; while demand is satiated, new inventory comes to market and vacancies increase. He asserted that “wise” developers stop building during this phase.

Phase four is the “recession.” New development is stopped, while projects coming to completion add to a growing inventory. Occupancy rates and prices fall; property values and profits dwindle. Developments in mid-construction may not be completed because they are no longer financially feasible.

Following the four phases and the 18-year cycle; Nicolais stated that the great recession was not caused by external forces, but rather occurred on schedule! He figures that the current housing market is transitioning from recovery to an expansion phase. And with the exception of the occasional slow down, he predicts that the next housing bubble will be in 2024.

Original published at https://dankrell.com/blog/2016/06/03/housing-bubble-countdown/

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