Hyper-Local Real Estate: understanding your home’s value

neighborhood home valuesby Dan Krell © 2010

The good news is that homes are selling. However, many wonder how sales data will be expressed within their neighborhoods. Unfortunately many are finding out that, much like weight-loss infomercials, individual results may vary. As the economy shifts, homeowners are looking to their own neighborhoods for viable and meaningful data; an awareness of hyper-local real estate has emerged.

The National Association of Realtors (Realtor.org) reported on February 11th that home sales increased from the third quarter in most states; the caveat is that thirty-two percent of the sales were for distressed properties (i.e., foreclosures and short sales). Preliminary figures for 2009 indicate that about a third of the metropolitan areas experienced an increase in median sale prices from the fourth quarter of 2008.

Regional data for Maryland and Washington, DC indicate a “warming” trend. Quarterly data indicate that home sales progressively increased through the second, third and fourth quarters of 2009. The NAR calculated an annual increase of home sales of 47.9% for Maryland, and 56.3% for the District. Area home prices have seemed to appreciate as well; the NAR calculated an annual increase of 3.8% in median home prices for the Washington, DC metropolitan area (including suburban Maryland).

Locally, data reported by the Greater Capital Area Association of Realtors (GCAAR.com) indicated increases of sales (settlements) and ratified contracts of single family homes in Montgomery County during December 2009. Compared to the same time period in 2008, the number of sales increased 12.5%; while the number of ratified contracts increased 15.4%. Additionally, the year-to-date data indicate increases for sales (up 20.7% from 2008) and for ratified contracts (up 26.4% from 2008).

Differences in regional markets are due to a wide range of factors impacting each area. For example, differences between the real estate markets in the Washington, DC metropolitan area and the greater Los Angeles area can be explained by differences in economic influences (which include but are not limited to employment, commercial, and industrial influences).

Although, the adage that real estate is regional still holds water; however, some have cast a skeptical eye towards the expression of the data to their neighborhoods. It seems that neighborhood data within a region can vary significantly. Comparing specific zip codes within a region can demonstrate that regional gains or losses may not be the trend for all neighborhoods. Take for example the comparison of several Silver Spring zip codes for December 2009 (as compiled and reported by the Metropolitan Regional Information Systems, Inc.):

The number of units sold during December 2009 increased compared the same time in 2008 for the zip codes: 20910, 20902, and 20903; the number of units sold decreased during the same time period for the zip codes: 20901 and 20906. The average sold price decreased in December 2009 compared to the same time in 2008 in the zip codes 20901, 20902, 20903, and 20910; while the average sold price increased in the zip code 20906.
neighborhood home values
Specific subdivision data could further demonstrate such variances; some of the data possibly revealing extreme deviations (positive or negative) to zip code and regional data. Hyper-local real estate is not only useful to home owners, but increasingly used by home buyers as well. Hyper-local real estate is not a fad, but essential for understanding your home’s value in a meaningful way.

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 February 15, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell

Senate passes home buyer tax credit legislation

bungalow

Yesterday (November 4th), the Senate passed legislation to extend and expand the home buyer tax credit. The $8,000 first time home buyer tax credit continues; AND adding a “move up” buyer tax credit of $6,500 (both to sunset April 30, 2010). The new legislation is certainly going to continue helping first time home buyers, as well as helping many move up home buyers who are struggling with their own liquidity.

Surely, many home buyers will take advantage of the tax credit to assist them in their purchases. Although there is a direct and immediate effect of the home buyer credit, many continue to debate its affects. Many have voiced their opinion about the pros and cons.

By Dan Krell
Copyright © 2009

Market stabilization or evidence of a two tier market?


by Dan Krell &copy 2009
www.DanKrell.com

A tale of two markets

As signs of economic stabilization are being reported throughout the world, markets begin to show signs of activity. Global housing markets have also reported increased activity and signs of a stabilizing real estate market.

Julia Werdigier recently reported in a recent New York Times article (British Real Estate Market Seems to Be Thawing a Bit, August 4, 2009) that British home prices have increased 1.3% since the beginning of the year. Although this is still quite a difference from the almost 15% slide in UK home prices since 2007, it is sure a welcome statistic as the British expect home prices to end positively.

In China, ShaignhighDaily.com (August 11, 2009) reported that home prices across seventy Chinese cities increased one percent from the same time last year. Additionally, Chinese home prices have increased for five consecutive months after a six month slide.

Here in the United States, the National Association of Realtors (NAR) recently reported that the number of pending home sales continue to increase (a five month increase). This successive increase is the first since 2003. Signed real estate contracts increased 3.6% in June from May’s Pending Home Sales Index (PHSI) of 91.3 and 6.7% from June 2008’s PHSI of 88.7 (August 4, 2009).

Additionally, the S&P/Case-Shiller Home Price Index (StandardandPoors.com) showed signs of relief of downward pressure; however, home prices are reported to be at 2003 levels. Freddie Mac reported that its Conventional Mortgage Home Price Index (CMHPI) fell 5.3% in the first quarter of 2009 compared to the 18.4% decline in the fourth quarter of 2008.

NAR Chief Economist, Lawrence Yun, was quoted in the NAR press release as attributing increased activity to “historically low mortgage interest rates, affordable home prices and large selection are encouraging buyers who’ve been on the sidelines. Activity has been consistently much stronger for lower priced homes…” Dr. Yun also stated that many first time home buyers are acting to meet the November 30th deadline to qualify for an $8,000 tax credit.

Although the data may seem encouraging, the numbers may be telling the story of an emerging “two tier “market. A two tier market is a description used when prices vary significantly for seemingly similar homes; a closer look reveals that well kept and updated home owner resales fetch a higher price than the poorer condition distressed properties.

Because home owner resales typically peek in spring and summer months, we can expect the number of home owner resale listing to decrease as winter approaches. Combined with another expected wave of home foreclosures (from resetting adjustable rate mortgages and option arms), recent real estate market gains may be temporary.

Even the venerated Alan Greenspan recently warned on the August 2nd airing of “This Week With George Stephanopoulos” (ABC.com) that there may be a “second wave down” in home prices; stating that the real estate market has stabilized temporarily, and real estate data is very difficult to measure because the data is regional.

Much like last summer’s real estate market blip (where the NAR reported a five month high in home sales for July 2008), we may be headed into another downward winter market. However, any downturn will be temporary and further indication of a two tier market as home owner resales increase next spring and summer.

This column 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 August 10, 2009. Copyright © 2009 Dan Krell.

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.

Real estate market report 2005

Many experts are not only talking about the real estate bubble, but how it’s about to burst. I was interested in finding out how many articles and proclamations exist about the bursting bubble, so I googled “housing bubble Washington, DC.” There were over 800,000 links to people and articles (some going back to 2002), talking about how the bubble is about to burst. Many talk about concerns of financial impact and others talk about a doomsday scenario when the bubble bursts. Here’s the real estate market report 2005.

Real estate market report 2005

If you look at the mid year statistics, it seems that the Washington D.C. real estate market is still in full swing. You can decide for yourself based on the statistics for single family homes in Montgomery County. So, here is the mid-year report card, based on the statistics compiled by the Greater Capital Area Association of Realtors (GCAAR). Homes listed for sale for June 2005 totaled 2,004, up from the 1,971 homes listed in June 2004, an increase of 1.7 percent. The fact that more homes are coming on the market sounds encouraging, however, the total active listings in June 2005 (homes listed for sale but not under contract) are down 4.5percent from the same time last year. So, although the supply of homes being listed for sale rose, the actual amount of homes available on the market has reduced because there are home buyers ready to gobble these homes up as they come onto market.

It seems as if the home buyers’ appetites for homes are insatiable so far this year. The number of contracts and settlements are up for the period of January to June 2005 as compared to the same time period in 2004. The number of houses where status changed from active to contract during the first six months of 2005 increased 1.3percent compared the first six months of 2004. Additionally, the number of homes that were settled during the first six months of 2005 increased 2.5percent compared to the same six month period in 2004.

Interestingly, I would like to note the sales of homes that sold for $1,000,000 or more increased from last year. There were 389 of these million dollar plus homes that sold in the first six moths of 2005, compared to the 265 sold in the same time period in 2004, that is a 46percent increase! So far, for 2005, the average sale price in Montgomery is $544,719. Compared to $477,937 for the same time period in 2004, it is an increase of $66,782! (stats from gcaar.com).

Will there be a correction or a full blown crises?

Looking at the statistics above, you may ask yourself, “can prices continue to climb and record numbers of sales continue year after year?” The market can’t continue double digit appreciation forever.  Will there be a correction or a full blown crises? Whatever happens, there will always be a real estate market.

by Dan Krell © 2005