New real estate economics

A new economic paradigm for housing markets. The new real estate economics are about recovery trends and bubble fears.

Lawrence Yun, chief economist of the National Association of Realtors®, stated in a November 8th news release, “…existing-home sales have shown a 20 percent cumulative increase over the past two years, while prices have gained 18 percent, but incomes have risen only 2 to 4 percent in the same timeframe.” Additionally, it is expected that existing home sales to maintain 2013 gains through 2014; and home prices to continue and upward trend (realtor.org).

The 2014 prediction for U.S. housing sounds great. But does this mean we are expecting increased multiple offer situations with further plummeting of average days on market? In a post housing bubble world, some wonder if this year’s real estate activity is sustainable – maybe it was no coincidence that some descriptions of hot housing markets sounded like the go-go market that occurred during the housing bubble years. And yet with hindsight, should we be concerned about “priming the pumps” for another housing bubble?

Sentiment about over-valued markets around the world was expressed by none other than Robert Shiller. Shiller, of the S&P/Case-Shiller Home Price Index, won the Nobel Prize in Economic Sciences this year for the “empirical analysis of asset prices.” And if Robert Shiller is talking about over-valued markets, maybe we should listen.

Shiller’s book, “Irrational Exuberance” is said to have made the argument for the dot-come (2000 edition) and housing (2005 edition) bubbles, as well as predicting the subsequent market crashes. (Interestingly, the book title is said to be taken from an Allan Greenspan speech described the rapid cycling stock market activity of the mid 1990’s.)

Two weeks after Janet Yellen’s confirmation hearings to become Chairperson of the Fed, Robert Shiller was interviewed by the German magazine Der Spiegel. Yellen’s responses to Senators during the hearing suggested that there were no bubbles in equities and housing, although she conceded that bubbles are hard to predict; while Shiller expressed concern about over-valued equities in many markets throughout the world, as well as a sharp rise in home prices in some global real estate markets (including some U.S. real estate markets such as Las Vegas). Shiller made specific mention of the U.S. Stock market saying that data is suggesting an equities bubble. However, as he cautioned that it might be too early to sound the alarm, there is an expectation that the market will go even higher.

Is this the new real estate economics?

Are bubbles such a bad thing? Economist Matthew Klein (Is the Only Choice Bubbles or Recession?; Bloomberg; Nov 19, 2013) speculates that bubbles may actually be an important part of a modern economic cycle that allows for growth in various sectors. He states “…bubbles can transform wealth that would otherwise be stashed in government bonds and other safe assets into income for those who work in the expanding parts of the economy.” However, many economists assert that eroding wealth and savings to artificially grow an economy is dangerous and unsustainable.

How will real estate economics play out? Getting back to the NAR press release, Yun credited the current sales and price trends to a lack of housing inventory and buyer demand. Unfortunately, housing inventory is at about a thirteen year low; and unless inventory increases we can expect an interesting year ahead.

by Dan Krell
© 2013

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. Copyright © 2013 Dan Krell.

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.

by Dan Krell © 2013

July 25, 2013July 1, 2019

When is best time to sell a home

Buyers aren’t the only ones looking for a deal. Home sellers are also looking for a good deal – which means they want to sell their home for the most money. As it seemed as if the housing market had strong sales this year, some sellers are still trying to decide the best time to sell. But unfortunately, timing the market may not be as easy as it seems.

Some say that spring is the best time of year to list and sell a home, while others believe that summer is better. Old time real estate agents will tell you about a time when there was a traditional selling season, which basically started in March and ran through June. In recent history, it seems as if the boom/bust market from 2005-2008 rewrote those rules. During the “go-go” market, the spring selling season couldn’t start early enough; home buyers made their New Year’s resolutions and shook off the winter fog in early January to begin their home search. For several years, it seemed as if home buyers started their real estate searching earlier each year to stake their claims on real estate before other buyers got wind of the listing.

However, once the bubble busted, home buyer activity significantly slowed, those who wanted to buy a home became increasingly methodical about their purchase as well as starting their search later in the year. It seemed as if the best time to list and sell shifted from the spring time to summer months.

Since the downturn of the housing market, sales activity peaked in the summer months. June has been a consistent contender for year high sale totals – until this year. The July 22^nd news release from the National Association of Realtors® (realtor.org) indicated that June sales “slipped” about 1.9% from May. Granted, June’s sales are significantly higher than June of 2012, but the slowdown may just be a fluke or an indication of something else.

Maybe the combination of increased inventory (NAR reported that housing inventory was slightly elevated from May to about a 5.2 month supply) along with rising mortgage rates (Freddie Mac’s June national average commitment rate for a 30-year fixed rate mortgage rose to 4.07%) is making home buyers pause.

And surely home prices are making buyers have second thoughts; bargain hunters are having difficulty finding bargains. June’s national median existing home sale price increased 13.5% compared to last June. Distressed home sales, foreclosures and short sales that typically sell at lower prices, accounted for 15% of June’s figures (compared to last June’s 26%) and are at the lowest levels since 2008. And although it may sound like great news, the double-digit jumps in the average home sale price may be a statistical artifact due to declining distressed home sales.

If you’re waiting to list your home for sale this year, you may have mistimed this year’s market.

Research has demonstrated that attempting to time the market may not always yield the best results – timing the market is much easier in hind sight. Market timing appears to be much more than looking at selling activity cycles. You should rely on the expertise of your real estate professional for neighborhood sales data and trends to assist you in deciding the price and the timing of listing and selling your home.

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

By Dan Krell
Copyright © 2013

May 1, 2013June 29, 2019

Hybrid housing market not for the squeamish

A “hybrid” housing market is has a little bit of everything. There are the multiple offers and escalation clauses, as well as the homes that sit idle for days (both could be on the very same block!); buyers willing to pay more than list and those offering less. The result is frustration among buyers and sellers who are disappointed by not having their expectations met; and even a few real estate agents are losing their cool. What is becoming increasingly apparent is that the current housing market is not for the squeamish!

Although few home owners are venturing to list their homes, those who do may be seeking a premium price; most likely due to the optimism permeating the air. Furthermore some are expecting the prize of getting multiple offers with escalation clauses. Owners of homes that do not sell within the first week of listing are anxiously wondering, “Why hasn’t my house sold yet?”

The flip side is that although home buyers are plentiful (compared to the current home inventory), there still seems to be many home buyers who seek to buy a home at a 5%+ discount. Unlike the “bargain hunter,” many of these home buyers are more concerned with future home resale (which may be indicative of a lack of confidence in the future housing market).

Pressure on home buyers and sellers is likely originating from reports of bubble activity pockets that seems to be popping up, and recent home price indices that indicate increasing national average home prices. Regardless, there appears to be a lack of symmetry among home sales as well as a lack of consistency among home buyers and sellers.

So if you’re planning a home sale or purchase, what are you to make of this? You should understand that national home price indices are comprised of multiple regions, and much of the national home price increase is due to regions that had the highest home price declines over the last six years, as well as a few pockets of very hot activity (unlike the home price climb during 2004-2006, which was mostly due to high confidence in the housing market, easy credit, and a much different economy). Likewise, the Metro DC region is microcosm of the national picture, such that it is comprised of a number of counties that realized double digit home price decreases, as well as a few pockets of hot activity.

To add some perspective to local market trends, the average days-on-market of a home in Montgomery County is roughly 60 days (depending on the source). Additionally, Montgomery County single family home data compiled by the Greater Capital Area Association of Realtors® (gcaar.com) indicated that median and average single family home price decreased year over year for the last three consecutive months. And while the number of homes listed continues to decline, the number of pending home sales (homes under contract) has also declined in March year over year, as well as year to date.

Getting into the market requires solid data, a strategy, and an open mind. If you’re selling: consult with your agent about recent neighborhood prices; and stay informed of all activity, as it could be your cue to decisions made on the sale. If you’re buying: in addition to discussing comp data, you should consult with your agent about a strategy to deal with competition from other home buyers.

By Copyright
© 2013

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

April 10, 2013November 23, 2021

Your real estate agent’s experience is more important than you know

by Dan Krell © 2013
Google+
DanKrell.com

Why your real estate agent’s experience is more important than you think:

The National Association of Realtors (realtor.org) publishes an annual profile of home buyers and sellers that includes data and descriptions about how consumers go about choosing a real estate agent. There are obviously many factors that are involved in the choice, but it is striking that an agent’s experience is not a major reason for their hire; it seems as if most buyers and sellers hire an agent who was referred by someone the consumer knew, and that many buyers and sellers did not talk to more than one agent.

Even though experience is not heavily weighted in agent choice, it may be one intangible that should be considered when you choose your real estate agent. A recent research study by Bennie Waller and Ali Jubran (“The Impact of Agent Experience on the Real Estate Transaction.” Journal of Housing Research 21, no. 1 (2012): 67-82) highlights the intuitive notion that an experienced agent can yield a better result than an inexperienced agent.

They concluded that hiring a “veteran” agent will have a positive effect on your home sale. The data indicates that “rookie” agents, those who have had their real estate license two years or less, sell homes for less, take longer to sell homes, and are less efficient during the process. Data collected from their sample indicated that rookie agents sold homes for about 10% less than experienced agents, which according to their sample data yielded an average net difference of $18,000 (the average list price was $201,297). Homes listed by “veteran” agents sell about 32% faster than inexperienced agents. And, experienced agents are more likely to expedite the transaction to completion.

One possible explanation provided by the researchers is that the experienced agents are more likely to list higher quality property that typically sells faster and for more money. Although they concede that they cannot substantiate this rationalization by this study, they suggest that veteran agents are more successful in obtaining luxury real estate and new home listings.

A more likely reason for differences between rookie and veteran agents is the mindset brought forward to the business of real estate. The investigators discuss how those who consider selling real estate their career are more successful and have better outcomes for their clients than those who do not. They also suggest that those who consider themselves as “part-time” agents are less likely to achieve as high of a result in their transaction as the full time counterpart; they contend that successful veteran agents are dedicated and devoted to their career.

Other possible reasons for their conclusions (but not discussed in the study) are that veteran real estate agents are more acquainted with the nuances of the housing market and have an increased ability to engage the parties in the transaction. Full time agents are invested in being aware of listing and sale activity in their respective markets, and network with other agents to compare notes. Additionally, experienced agents may have developed the ability to easily connect with home buyers and sellers; as well as have greater capacity to understand the specific needs of buyers and sellers – thus facilitating a smoother and successful transaction.

The business of real estate is increasingly complex and difficult. Rapidly changing demands on home buyers and sellers can be challenging and frustrating for those in the market. Your agent’s experience, both general and specialized, could make the difference in your success.

More news and articles on “the Blog”

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published the week of April 8, 2013. Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

by Dan Krell © 2013

by Dan Krell © 2013 Google+ DanKrell.com

Why your real estate agent’s experience is more important than you think:

by Dan Krell © 2013
Google+
DanKrell.com