Real Estate Market Archives - Page 14 of 15 - Real Estate News and Commentary

June 20, 2012

Perceptions of U.S. housing boosted by international investors

by Dan Krell ©2012
DanKrell.com

A June 11th report by the National Association of Realtors® discussed how international home buyers are an increasingly important segment of the U.S. housing market (realtor.org). The NAR release, “International Sales Continue to Climb in U.S. Market, Realtors® Report,” indicated that the dollar volume of U.S. homes bought by foreign home buyers increased about $16.1 billion over the last year. As encouraging as this may sound, there’s more to the story than you might imagine.

Interestingly, the report stated that average price paid for a U.S. home by an international home buyer is $400,000; and 30% of the homes purchased were priced between $250,000 and $500,000. Because foreign home buyers typically find it difficult to obtain a mortgage, it was reported that 62% of the purchases were cash deals. The NAR report stated that although many of these home purchases were for primary residences, a majority of international home buyer purchases were for vacation and investment uses.

Would you believe that 55% of international home buyers originated from Canada, China, United Kingdom, Mexico, and India? Canada accounted for the largest number of foreign home buyers (24%), followed by China (11%), the U.K. and Mexico (6% each).

But before you decide to learn a new language, you should note that four states have received the most attention from these home buyers; Florida, Arizona, California, and Texas “accounted for 51% of the purchases.” Of these sales, Florida accounted for 26% of all foreign home purchases, and California coming in second with 11% of foreign purchaser sales.

This market segment is not a new phenomenon; international home buyers have participated in the U.S. housing market for a long time. It just seems as if this segment of home buyers has been stronger during economic turmoil (Are you old enough to remember the influx of Middle East investors during the 1970’s and Japanese investors during the 1980’s?). The increasing number of international home buyers investing in the housing market is a tribute to the perceived value of U.S. real estate.

By the way, the influence of international sales has not gone unnoticed by Congress either. In an effort to help stimulate this sector of the housing market, S. 1746: Visa Improvements to Stimulate International Tourism to the United States of America Act was introduced in October 2011, by Senators Charles Schumer [D., N.Y.] and Mike Lee [R., Utah], and H.R. 3341: Visa Improvements to Stimulate International Tourism to the United States of America Act, was introduced in November 2011 by Rep. Mazie Hirono [D-HI2] and Rep. David Dreier [R-CA26]). These bills offered resident visas to foreign investors who invested at least $500,000 in U.S. real estate. However, some have criticized such stimulus as an empty gesture because international home buyers may not need additional incentive to purchase homes in the U.S.

Will foreign home buyers save the housing market, as a U.S. News and Report piece suggested (October 28, 2011)? Unlike the clichéd climax of a dramatic film noire, when the foreign investor saves the day, the answer may be “yes” and “no”. Although housing is receiving an increased amount of attention from foreign investors, it is unlikely that the increased activity itself would save the U.S. housing market. However, the increased foreign investment in U.S. housing may boost the perceived value of housing and the perception of home ownership.

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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 June 18, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

April 22, 2010June 28, 2019

Fickle real estate data contributes to analysis paralysis

When perusing the daily economic indicators- in particular the housing indicators something does not seem quite right. The market is obviously volatile (as can be witnessed by the alternating positive and negative reports), but it appears it has become fickle too. Of interest is default and foreclosure data, where it seems conflicting data is now being reported almost simultaneously.

The Wall Street Journal (April 19, 2010; Mortgage Delinquencies Decline Again) reported LPS Applied Analytics data indicating that the number of homes in foreclosure fell in the first quarter of 2010. In addition, the number of delinquencies fell to a level that has not been seen since the beginning of the mortgage crisis.

The REO Insider (April 21, 2010; California Defaults Drop 4.2% in Q110: MDA DataQuick) supports the WSJ report by reporting MDA DataQuick data indicating a reduction of 4.2% in California defaults in the first quarter of 2010. The report indicates that the crisis is shifting from low to mid priced homes to the more expensive neighborhoods.

Contrast the previous reports with this MarketWatch report of a lingering foreclosure market (April 12, 2010; Foreclosure inventories hit record). The report cited LPS (Lender Processing Services) data that indicated this past February’s foreclosure rate of 3.31% was a 51.1% increase from February 2009. This report cited an increase of delinquencies in February 2010 as compared to February 2009 (the national delinquency rate was reported as being 10.2%); and the percentage of new problem loans is at a five year high. (http://www.marketwatch.com/story/inventory-of-foreclosed-homes-hits-record-2010-04-12)

It’s ok to be confused, many people are. Although the raw data may be similar (or possibly the same), differences in the reporting may be due to the type of analyses and data points that are used. Certainly this may not help home buyers and sellers clearly understand what is happening in the market; contradicting data reports may contribute to home buyer’s and seller’s analysis paralysis.

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 20, 2010October 5, 2019

When in doubt- blame the market

In a recent conversation with a home owner, who withdrew his home from the market, I asked if we could talk about the possibility of re-listing the home. My intention was to discuss different aspects of the listing, such as; the price, the amount of buyer traffic, and the types of marketing. The usual respectful responses I have heard in the past include; “no thanks” or “sure, when are you available?” However, this owner’s sharp tongue and cryptic language seemed to put all the blame on the market.

Sure, it’s easy enough to just blame the market when your home doesn’t sell. Unlike the many home owners of the last few years, who were forced to make other plans when their homes did not sell, you are more likely aware of today’s general market conditions [than they were]. So listing your home without analyzing the data to plan and tailor your sale for your local market is just poor preparation on your part.

In today’s market, the primary sources of a non sale are either your agent and/or the listing price.

Did you know that many people do not interview more than one agent to list their home? According to the National Association of Realtors 2009 Profile of Home Buyers and Sellers (Realtor.org) forty percent of home owners chose a real estate agent who was referred to them, while twenty-four percent hired someone with whom they worked in the past.

Let’s face it, your decision to sell your home hinges on information provided to you by your agent. Because much of the market data is interpreted, there is a chance that you can be misinformed (or even malinformed) by any one real estate agent; for this reason, (in today’s market) it is essential to interview at least three agents to get an accurate picture of the neighborhood market, pricing and marketing strategy.

Our natural inclination is to hire the agent who promises us the highest price and with the greatest exposure. However, many experts recommend that before you make your decision, you should talk to several past clients of the agent you intend to hire to get a true picture of their professional abilities. Additionally, a current trend of agent passivity has affected many sellers; many agents have discontinued advertising and dropped open houses from their repertoires. The reality is that you need to get the most accurate and candid picture of your ability to sell without the agent’s salesmanship to get the listing.

Pricing a home has become much more technical because of variance in market conditions, seasonal trends, and home differences- while also keeping in step with frequent changes in lending and appraisal practices. When considering pricing, it’s important to review and compare several agents’ data. Although the point of pricing your home properly is one of the most important items to consider when selling a home today, so much has been written and said about it recently that that I won’t belabor the point. However, consider that if your home is over-priced, home buyers may become alienated because the list price is not in their range of competing homes.

Selling and marketing real estate in today’s environment has moved away from the “sales-y” approach by the ego-centered real estate agent, and evolved into relying on truthful and honest information. However, for those who fail to recognize the weaknesses of their home sale- just blame the market.

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 April 19, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell

March 10, 2010October 5, 2019

Bubble market or solid economic fundamentals: Lessons we can learn from the Canadians

by Dan Krell © 2010

Bubble housing markets occur when real estate markets, either local or regional, are overvalued. The cause of bubble markets is often debated, as has been hotly argued in recent times, to be the cause of speculation and/or credit policies.

There are several real estate markets that have rebounded much faster than most such that they are in danger of becoming bubble markets. Some economists rank the real estate markets in China, Australia, and Canada as having the highest risk of becoming the next busted bubble market. Because of Canada’s close proximity and similar real estate market, we’re compelled to take a closer look.

Canada’s equivalent to the Federal Reserve Bank is called the Bank of Canada (www.bank-banque-canada.ca) and much like the Fed, the Bank of Canada is a central bank that offers advice on monetary policy. The Deputy Director of the Bank of Canada, Timothy Lane, PhD, offered his analysis on the current situation that is occurring in Canada’s real estate market in a speech given on his behalf on January 11th, 2010.

Although Dr. Lane’s speech was delivered by an advisor, in what may seem like a déjà-vu to Americans, there was somewhat of a denial of a bubble market. The Deputy Director maintained that fundamentals of the Canadian market are intact, such that recent increases in home prices are not unusual for supply and demand economics. As Canadian housing starts are below the target to meet population growth requirements, the Deputy Director made clear that inventories were diminishing as well.

Although Dr. Lane’s opinion is that housing bubbles are fueled by credit expansion, and that recent growth in the Canadian housing market is due to low interest rates and pent up demand. Mr. Lane pointed out that the Canadian housing market was not as turbulent as the market in the United States because Canadian home price appreciation was not as steep. The resulting turbulence manifested in sharp declines in American housing, while Canadian housing fared much better.

Similarities between the current Canadian housing market and the U.S. market prior to the global recession includes: historically low mortgage interest rates, reduced inventory, and increased real estate speculation. The role of increased real estate speculation is of interest because it is not only the domestic investors fueling the Canadian market, but foreign investor looking for large gains.

However, fundamental differences also exist between the markets. Dr. Lane pointed out that the Canadian mortgage system is inherently different than its counterpart in the U.S. Canadian mortgage guidelines are written primarily by mortgage insurers because mortgage insurance is compulsory for mortgages with less than a 20% down payment. Additionally, about 70% of Canadian mortgages are held by the lending institution (rather than becoming securitized) forcing the lender to make more responsible lending decisions.

Deputy Director Lane’s summation was that the Canadian housing market requires “vigilance, but not alarm.” However, they may not have much choice but to ride out market disturbances because any intervention may stall the recovering Canadian economy in a global recessionary environment.

Time will tell whether the Canadian real estate market is a bubble waiting to burst, or just a manifestation of solid economic principles. Either way, we will learn whether prudent mortgage policies can play a part in mitigating future real estate bubbles here in the U.S.

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 March 8, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell

February 23, 2010October 5, 2019

Will an expected housing shortage cause another bubble market?

Last week’s statements by Brian Wesbury may have startled the real estate industry. The chief economist for First Trust Advisers stated in an interview with Steve Forbes that the United States is headed for a housing shortage in 2011 (“Housing Shortage Coming In 2011” by Alexandra Zendrian, Forbes.com; 2/15/2010).

Mr. Wesbury’s dire prediction is predicated on housing statistics that indicate that the United States needs to add an annual average of 1.5 million homes to stay on par with population growth. The fact that housing starts and completions in the last two years have only been a fraction of the 1.5 million home target may be an indicator of a housing shortage. Even though the foreclosure crisis has added many homes to the market, the number of homes being built is significantly deficient in maintaining a reasonable pace with the population growth, according to Wesbury.

The last time people spoke of a housing shortage was in 2004, when monthly peek single family inventory for Montgomery County never exceeded 2,000 units and absorption rates of single family homes approached 80% during winter months (as reported in the 2005 Year in Review by the Greater Capital Association of Realtors). The following year, winter inventory soared and housing absorption rates did not exceed 40%. The result was a bubbling real estate market that exhibited an appreciation of 18% of single family home prices in Montgomery County from November 2004 to November 2005, even though inventory increased from 1,692 to 3,100 units for the same time period.

Cole Kendall, of Understanding Markets LLC (understandingthemarket.com), explains that the annual addition of 1.5 million homes is a benchmark that is widely used by economists to predict housing trends. The benchmark is based on a decade of demographic and economic data.

The problem is that since 2008, the Country’s economy and demography may have changed significantly, such that predictions based on historical data may be flawed. In fact, in 2008 Mr. Kendall was emphatic that over building occurred during the housing bubble. He stated that housing starts must remain low just to catch up with diminished demand, “It is impossible to know how many houses there should be in the U.S. at any time, but we can say that the gap between demographic demand and the supply of homes has been getting smaller.”

The national and local economy is vastly different today than it was earlier this decade; so even if the demand for housing once again equaled the levels that existed in 2004, any resulting market gains may be expressed differently. Currently, unemployment and stricter lending policies are only a couple of changed factors that have significantly impacted the housing market in recent years. Compared to a time when many home buyers did not even need to prove they had a job (much less an income) to qualify for a mortgage, today’s lending environment is such that a home buyer not only needs to provide evidence of employment and income, they need a higher down payment as well as evidence of financial reserves to make their case for a mortgage.

There is no doubt that the housing supply is being reduced because of decreased demand. The result may not be a housing shortage, but more likely it is the manifestation of economic forces seeking equilibrium.

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 22, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell