Real Estate Market Trends Archives - Page 4 of 6 - Real Estate News and Commentary

December 30, 2015August 14, 2019

Real estate year in review 2015

2015 could have been considered a “damn if you do and damn if you don’t” year for the Fed. The Fed is often criticized (sometimes harshly) for their action and inaction. And as the historic run of near zero interest rates ended this year, many criticized the Fed for waiting too long to raise interest rates, while others said it was still too soon. The full impact of the first Fed rate hike in nine years won’t be known well into the next year.

Another real estate milestone that occurred this year was the implementation of the TRID (TILA-RESPA Integrated Disclosure) rule. Although the Consumer Finance Protection Bureau decided to delay enactment once; the decision to put the rule in effect in October was not only significant, but a historic change to the real estate settlement process. Initially, there was mixed reception; some lenders indicated that they have transitioned smoothly, while others reported having difficulty. Even Congress attempted to provide a grace period for those still transitioning (Homebuyers Assistance Act, H.R. 3192). Like the Fed’s rate increase, the full effect of TRID on consumers and the industry won’t be realized until next year.

Even though the 2015 housing market started slowly, because of record cold weather; the market demonstrated its resiliency with increased sales and continued home price growth throughout the year. Some markets were on fire this year; such as the Seattle WA region, where multiple offers and single digit days on market were the norm and home price indices exceeded the national average. However, most other regions (such as the Washington DC region) experienced average growth. The lack of inventory in some markets was said to add pressure on price growth. Home sale growth is expected to continue in 2016, as housing formation and employment outlooks are brighter. While home prices are still below the 2006 peak, home prices are expected to increase with a market expansion. And as housing affordability decreases, some housing critics are clamoring to predict another housing bubble.

San Francisco CA was one of 2015’s hottest markets. The market was so heated that many described it as “insane.” Madeline Stone reported that San Francisco teardowns sold for well above $1M while resales typically sold for 70% above list price (San Francisco real estate has gotten so crazy that this startup founder was offered stock options for his house; businessinsider.com; March 31, 2015).

And of course, there is the notable sale of a 765sf two-bedroom home that sold for $408,000 earlier this year (17% over list price). The significance of the 100-year-old San Francisco home is that it was described as a “shack” and needed much more than TLC (Daniel Goldstein; San Francisco earthquake shack sells for $408,000; marketwatch.com; October 22, 2015).

And what can be more proof that the real estate market has been recovering (at least for those who can afford it) than the world’s priciest home sale. Patrick Gower, Francois De Beaupuy , and Devon Pendleton reported on December 15th (This $301 Million Paris Chateau Is the World’s Priciest Home; bloomburg.com) about the sale of Chateau Louis XIV for €257Million (approximately $301Million); a private sale to a Middle Eastern buyer. Located in a 56-acre park, the recently built Paris estate is said to have taken three years to build. Amenities include an aquarium, cinema and a wine cellar, and a gold-leaf fountain.

By Dan Krell
Copyright © 2015

If you like this post, do not copy; instead please:
reference the article,
like it at facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector

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.

February 18, 2015October 5, 2019

New rules in Real Estate

Real estate canon used to be straight forward and for the most part consistent. For instance, if you planned a sale, you would target spring time because that was generally accepted as the time when home buyer activity was the greatest; or buying a home was a rite of passage. But since 2008, what was generally accepted has been persistently challenged; home buyers and sellers have shifted into a new paradigm with new rules.

It is no coincidence that Zillow Talk: The New Rules of Real Estate (by Zillow CEO Spencer Rascoff and Chief Economist Stan Humphries, Ph.D.) comes at a time when significant changes in consumer beliefs and expectations about real estate have become widely recognized. The book is described by Zillow as “…poised to be the real estate almanac for the next generation.” And looking at the table of contents, you might think that the highly acclaimed tome is just another book about the buying and selling process; yet it seems to discuss practical aspects about buying and selling a home, as well as possibly confronting real estate myths.

It will remain to be seen how influential the work will become, as research has indicated that home buyers are typically well informed and out in front of housing trends.

A 2012 study by Karl Case, Robert Shiller, & Anne Thompson (What have they been thinking? homebuyer behavior in hot and cold markets. Brookings Papers on Economic Activity, 265-315) revealed perceptions and expectations of homebuyers from four metropolitan markets over a 25 year period. The authors concluded that the surveyed home buyers were well informed and very much aware of home price trends prior to their purchase. Data suggested that home buyer opinions (beliefs) fluctuated over time; there was more agreement among respondents during strong markets, and increased doubt during times of market uncertainty. There was also a strong correlation between price perceptions and actual movement in prices. Although home buyers were “out in front” of short term market movements, their short term expectations “underreacted” to actual home price changes; while long term expectations were persistently “more optimistic.”

Suggesting a set of “guidelines” for real estate is a trap that implies that the housing market is straightforward and static; where personal and regional differences don’t matter and the market doesn’t change. However, David Wyman, Elaine Worzala, and Maury Seldin raise the question about becoming complacent with trends and models. In a 2013 exploratory paper (Hidden complexity in housing markets: a case for alternative models and techniques, International Journal of Housing Markets and Analysis, 6:4, 383 – 404) they discuss how rigid market models may lead to rules where buyers and sellers could make poor decisions.

The authors’ discussion of “complexity theory” in real estate in not unlike the application of “chaos theory,” which focuses on letting go of assumptions upon which rules are definitive; and view housing as a dynamic and changing environment. Citing incidents leading up to the financial crisis, the authors make a case for understanding the market as complex and using common sense before making (buying and selling) decisions.

So as we begin to understand the new real estate dogma, it is likely that the new rules will most likely change along with the market. And much like the housing market, consumer beliefs are also dynamic – which seem to be ahead of the industry experts.

Dan Krell
© 2015

August 21, 2014July 5, 2019

Will home prices depreciate second half of 2014?

It’s no secret that the pace of home sales has slowed during 2014. So what’s ahead for real estate and the housing market? If you really want to know, Irwin Kellner, Chief Economist for MarketWatch, has some advice. In his August 19^th MarketWatch.com piece (Opinion: Don’t count on U.S. consumer to save economy) he eloquently and succinctly stated, “If you are trying to discern where the economy is heading, look at the consumer.” And this applies directly to real estate too.

July housing figures from the National Association of Realtors® are due to be released this week (July housing press release August 21st); and although good news may be suggested, the numbers may be revealing of where the market is heading – and it may not be good. The NAR July 22^nd (realtor.org) press release indicated that June’s existing home sales increased (compared to May 2014), however it stated that existing home sales were down 2.3% compared to the same time last year. In the area where I list and sell homes, Montgomery County single family home closings (sales), reported by the Greater Capital Area Association of Realtor® (gcaar.com) also dropped off in June (decreased 1.5%); and particularly telling is July’s decrease of 16.2% compared to the same time last year, as well as the 7.4% decrease year to date (compared to last year)!

The silver lining is that NAR reported that median home prices have increased in 71% of the “measured markets.” However, 27% of the measured markets showed a decline in median home prices from last year. Montgomery County median home sale prices are moderating (according to GCAAR stats): increases were about 3% during June and about 2% during July compared to the same periods last year.

Taking Irwin Kellner’s suggestion of “looking to the consumer,” let’s look at home buyer behavior trends; which may be understood through home absorption rate (the number of homes sold compared to the number of available listings during a given time period). It should be no surprise that the home absorption rate decreases compared to recent years due to the steady growth of home inventories and the reduced number of closings. Surprising is the rate of decrease in the absorption rate (calculated from MLS data) during June and July compared to the same periods last year (a decrease of 15% and 39% respectively).

Like the average consumer, it seems that home buyers may have become a bit skittish. Kellner points out that contrary to economist’s expectations, the August report of the Thomson Reuters/University of Michigan survey of consumer sentiment has dropped to a 10 month low. Additionally, he reported that although there has been some good news about employment, he argues that wages are not keeping up with inflation due to the nature of many newly created jobs, which are temp or part-time. Furthermore, he states that consumer savings are either low or “depleted.” Rounded out by the usual concern about job security, geopolitics, and the general economy: Kellner gives us a glimpse of today’s consumer.

As for real estate, the statistics suggest that the housing market may be at another crossroads. Homes sales have already dropped off during the busiest time of year, and it may be reasonable to expect that sales for the remaining year may also be subdued. The mediating factor will be home prices; which may eventually decline as home sellers try to be competitive with other listings, as well as entice home buyers to buy their homes.

By Dan Krell
© 2014

March 7, 2014November 23, 2021

How many more years for housing recovery?

The “long slog” housing recovery prediction appears to be relevant as a recent study published by the Demand Institute (DI) now estimates that the recovery may take several more years. DI, a non-profit that studies consumer demand, suggests that home values may not rebound until 2018.

The DI study was reported by Realtor Magazine (Uneven Recovery to Continue for 5 Years; March 03, 2014) to be comprehensive and include 2,200 cities across the country and 10,000 interviews. Overall, the report concludes that the recent sharp increase in home prices was mostly due to real estate investors who purchased distressed properties. Now that distressed home sales are declining, values are not expected to increase as precipitously; the continued housing recovery is expected to be driven by new household formation.

The study reported the appreciation rate of the 50 largest metro areas in the country through 2018; home prices are estimated to appreciate about 2.1% annually. However, the top five appreciating cities will average an overall increase of 32% through the recovery; while the bottom five will only average about 11% (Washington DC is listed among the bottom five). Cities that experienced the highest appreciation and subsequently sharpest depreciation in home prices will likely have the longest and protracted recovery, and yet may only recover a fraction of the peak home values by 2018.

Not highlighted, and not yet expected to be an impact on the housing recovery, is the move-up home buyer. The typical move-up home buyer is sometimes characterized as a home owner who decides they need more space, which results in the sale of their smaller home and the purchase of a larger home. Similar to previous recessionary periods and real estate down markets, the move- up home buyer was the missing piece to a housing recovery; the move-up home buyer provides much of the housing inventory that first time home buyers seek. However, it seems as if psychological barriers hold back many move-up buyers today as it did in past recoveries. During the current housing recovery, many potential move-up buyers have remained in their homes. And until the move-up home buyer presence is felt in the marketplace, we may yet to endure a few more years of “recovery.”

Much like the DI study, there has been a lot of discussion and debate about the effects (on housing) of the lack of housing formation during the recession and in the subsequent recovery. Andrew Paciorek, an economist at the Federal Reserve Board of Governors, described household formation during a presentation given at the Atlanta Fed’s Perspectives on Real Estate speaker series (June 2013); “Think of the unemployed or underemployed college graduates living in their parents’ basements instead of renting or buying their own place. When a person establishes a residence, whether that’s an apartment or a house or another dwelling, that person is forming a household. Mainly because of a weak labor market that held down incomes, the rate of household formation cratered during the recession and subsequent recovery…”

To give perspective to the issue, the rate of decrease of household formation during the great recession was significant (an 800,000 per year decrease compared to the previous seven years). Additionally, household formation between 2007 and 2011 was at the lowest level since World War II, and was 59% below the 2000 to 2006 average. Most significantly: during 2012, 45% of 18 to 30 year olds lived with older family members; compared to 39% during 1990, and 35% during 1980. He described the household formation crash as an indirect contributor to declining home prices, which diminished household wealth linked to home values.

Although household formation continues to be a concern as the labor participation rate has decreased, Paciorek points to improvements in the job market as the spark to increasing household formation. He forecasts that household formation should increase to 1.6 million over the next several years, and could possibly exceed the pre-recession average due to pent up demand of those who waited to form a household during the recession. However, a disclaimer was provided saying his forecast is “based on assumptions that could prove overly optimistic;” and has “lots of caveats and lots of uncertainty” – much like the housing recovery.

by Dan Krell
Copyright © 2014

November 15, 2013July 4, 2019

Is there a best way to predict the housing market

Various studies demonstrate that you can assess and somewhat predict activity in a housing market; which, albeit in hindsight, can assist home sellers and buyers in determining whether it is a good time to sell or buy a home. For example, I recently wrote about gauging real estate through divorce and premarital agreements; which discussed the implications of these life events to the housing market. The increase in prenups could indicate an increased perception in the value of home ownership and possibly the overall housing market.

Another recent study indicated that it may be possible to determine home pricing through internet search data. Beracha and Wintoki (Forecasting Residential Real Estate Price Changes from Online Search Activity; The Journal of Real Estate Research 35.3 (2013): 283-312.) set out to find out if keyword search engine data from Google could determine price shifts in various cities. They concluded that this may be the first study that directly links “aggregated” search engine data to “abnormal crosssectional home price changes.”

Essentially, the research established that you can figure out metro housing market activity through Google Trends and Google Insights, which provide keyword volume measurement in internet searches. The study examined the keywords “real estate [city]” from 2004 through 2011, and concluded that “…cities associated with abnormally high real estate search intensity consistently outperform cities with abnormally low real estate search volume by as much as 8.5% over a two-year period.”

And although the study’s authors discussed prior research linking internet keyword searches and consumer behavior, they caution that there are a number of keywords related to real estate that may be more relevant than the keywords used in their study. Regardless, the authors assume that their results may be useful in home sales and purchases. More importantly, it may seem as if their results may strengthen the link between specific search engine keywords (e.g, “real estate Rockville” or “real estate Bethesda”) and the ability to predict a housing bubble, or possibly home price peaks.

Generalized, “global” data, such as those described in Beracha and Wintoki’s study, and their meaning may be interesting; however, limiting yourself to such indiscriminate analysis for your home sale or purchase could be disadvantageous. Global data does not distinguish the many factors that impact regional markets; nor can it sort out differences within a local market (neighborhood data within a region can vary significantly).

Using “global” tools may be useful; however, if you are planning a home sale or purchase – seek out the assistance of a local Realtor®. Your real estate agent has access to local specific data that is reported through the MLS. Using MLS data, your agent can prepare a market analysis that compares your home to recent neighborhood sales; the breakdown can put your home in perspective and can give you a price range to assist you in listing or purchasing the home. Additionally, your agent can provide a hyper-local trend analysis so as to help you understand what to expect from the local housing market.

Category: Real Estate Market Trends

Real estate year in review 2015

New rules in Real Estate

Will home prices depreciate second half of 2014?

How many more years for housing recovery?

Is there a best way to predict the housing market

by Dan Krell © 2013