Is recent housing bubble news cause for alarm

by Dan Krell
© 2013

real estate bubbleIf I said that we could experience another housing bubble, you might be concerned for my mental health.  But a couple of years ago I wrote about an impending housing shortage, which could spark another bubble similar to what occurred during 2004-2005.  The market-conditions similarities between 2004 and today are foreboding, if not intriguing. (Dan Krell © 2013)

There hasn’t been talk of a housing shortage since 2004; but looking at Montgomery County MD as an example, you might begin to see similarities between the housing bubble of 2005-2006 and today’s real estate market.

Monthly peek single family inventory in Montgomery County did not exceed 2,000 total active units in 2004; while the absorption rate was reported by the Greater Capital Area Association of Realtors® ( to be about 80% during the winter of 2004.  During the following year, the winter active inventory greatly increased and the absorption rates dropped to about 40%.  The result was a housing market that reached critical mass, and a one year appreciation rate of about 18% for Montgomery County single family homes; which played a key role in the rampant real estate speculation in 2005-2006.

Active housing inventory has been declining since 2010; the greatest decrease occurring during 2012.  According to the monthly home sale statistics posted on the GCAAR website (, there were 1813 active single family inventory units for sale in Montgomery County during January 2012.  And although active single family units peaked for the year during the spring of 2012, active inventory dwindled to a low of 1198 active units for sale during January 2013 – a year over year decrease of about 40%. Additionally, the absorption rate of listed homes for sale is rapidly approaching 60%

Add the home price facet – on March 5th, CoreLogic ( reported that national home prices increased 9.7% during January 2013, as compared to January 2012.  This was reported to be the greatest year of year home price increase since 2006.

An additional and telling similarity between the pre-bubble years and present is the number of real estate investors jumping in to cash in on distressed properties.  Of course at the height of the real estate bubble of 2004-2006, real estate investing was transformed from the traditional “rehab and flip” to no rehab and flipping properties as quickly as possible.   A great number of homes sold today are to investors, either to rehab or to rent.

In 2004, like today, we were about three years post recession; albeit the recession of 2001 was not as protracted as the “Great Recession.”  At that time, like today, the Federal Reserve funds rate was historically low.

Although an “easy money” monetary policy is another similarity between the periods, a major difference is the availability of mortgage money.  Getting a mortgage is much more difficult today than it was in 2004-2005.  Buying a home without a down payment as well as qualifying for a mortgage without documenting income could have been a factor of the wide spread real estate speculation of 2005-2006.  Today, as a result of the bursting of the 2005-2006 housing bubble, underwriting qualifications are more demanding as are down payment requirements.

The housing bubble phenomenon is not a new or a recent experience; housing bubbles have occurred in the past and most likely will occur in the future.  When they occur, housing bubbles seem to coincide with a recessionary cycle.  And just like recessions, housing bubbles vary in duration and severity.  Sure, another housing bubble may be looming; but the next bubble may be confined to specific regions of the country, and possibly some local neighborhoods.

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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 March 4, 2013. Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

Housing approaches the fiscal cliff

by Dan Krell
© 2012

Fiscal cliffMoving forward after the election, there are a number of events and possible legislation that could impact the real estate industry. The most imminent is the “fiscal cliff.”

The “fiscal cliff” is the term that describes the expected economic outcome of the automatic budget cuts (sequestration). Sequestration was part of a budget deal that was passed as the bipartisan Budget Control Act of 2011. Even though it is described as an economy falling off a cliff, some say it is more apt to an economy hitting a brick wall; because the sequestration will make it very difficult for the economy to expand. Others are not as pessimistic about the fiscal cliff; some describe the “cliff” as a gentle slope that may present some impediments to the economy that are not insurmountable.

Regardless of the description, there is a consensus that there will be some economic obstacles. There is an economic truth that the housing market benefits from a thriving economy, as well as suffering when the economy slows.

The Congressional Budget Office has provided warnings that a “fiscal cliff” could cause a recession in 2013 and possibly increase unemployment significantly. As we already know, a recession combined with increases in unemployment will not be good for the housing market. In a Florida Realtors® 2010 study conducted to determine causes of foreclosure in Florida, determined that there is a correlation between unemployment and foreclosure – citing a combination of increased cost of living, unemployment or decreased pay, and other factors.

To address budget deficits and avoid a fiscal cliff, various committees have convened and provided recommendations proposal for improve the budgetary process that included a number of recommendations to lower the budget deficit. One common thread in addressing budget deficits is to either eliminate or further restrict the mortgage interest deduction.

The origination of the mortgage interest deduction is not as extraordinary as you’d expect; however the fact that it has remained through tax reforms during the Reagan administration has been described as rather “remarkable.”

Fiscal cliffThe mortgage interest deduction is often described as a subsidy for the housing industry to encourage participation in market (similar to the first time homebuyer tax credits offered several years ago). Much like social security, it is a political hot potato that elected officials are hesitant to address. Some have argued for many years that the mortgage interest deduction should be eliminated since because they assert the subsidy artificially inflates home prices.

However, a National Association of Realtors® (NAR) December 1, 2010 press release, stated “The tax deductibility of interest paid on mortgages is a powerful incentive for home ownership and has been one of the simplest provisions in the federal tax code for more than 80 years…” The release cited a survey that indicated that the deduction was extremely important or very important to three-fourths of the 3,000 homeowners and renters surveyed (

Several years ago, the Congressional Budget Office recommended the elimination of the mortgage interest deduction. Additionally, the bipartisan National Commission on Fiscal Responsibility and Reform (more commonly known as the Simpson Bowles Commission) provided recommendations to reducing the mortgage interest deduction benefit from the current $1,000,000 limit to a cap of $500,000.

A resolution to the fiscal cliff may be reached before year’s end; the housing recovery depends on it.

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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 November 12, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

Signs of Recovery or Anomalous Blips of Activity?

by Dan Krell

As President Bush officially proclaimed the month of June as National Home Ownership Month this year, many wondered about the future of the housing market. As the national media continues to portray the housing market as a financial black hole by telling stories of dread and dismay, it is a wonder if any of the industry initiatives have actually helped to stimulate the market. Generally the bad news is that the market continues to be slow; however the good news is there are signs of recovery.

National real estate sales numbers continue to slide, as reported by the National Association of Realtors ( The recent report indicated that home sales were down again for the month of April 2008 (as compared to sales from the same time the previous year). Additionally, the NAR reports that the national median home price for all types of housing fell to $202,300 (from $219,900 the same time a year ago).

However, the NAR reported positive news about localized markets, such as Greenville, SC and Springfield, MO, where strong home value increases are attributed to healthy local economies. Additionally, markets in areas such as San Diego, CA and Fort Meyers, FL have experienced increased home sales after significant price reductions, which is an indication that these localized markets have found their equilibrium.

Locally, there are micro markets rebounding as well. Sales statistics compiled and reported by the local MLS (Metropolitan Regional Information Systems, Inc.; indicate that there are localized market increases even though Montgomery County, as a whole, continues to post decreased sales numbers. And even though the county average sales price has lowered to $575,513 (as reported by the Greater Capital Area Association of Realtors;, sales statistics within specific zip codes (such as 20814, 20815, 20816, 20854, 20852, 20833, 20878, 20882) indicate increases in sales prices as compared to the same time last year. Some of these areas had slight sales price increases, while others had moderate gains; the average sale price for the zip code 20854 (Potomac, MD) increased over 30% in April 2008 as compared to the same time last year!

Along with these signs of recovery, a March 2008 announcement by the Office of Federal Housing Enterprise Oversight, Fannie Mae and Freddie Mac indicated that there will be an increase of $200B to increase the liquidity of the mortgage industry. Analysts explain that the liquidity will reduce restrictions on high loan-to-vale mortgage programs. Restrictions on these loans were imposed to minimize further losses to Fannie and Freddie after foreclosure related losses increased as the housing market declined.

As much of the secondary mortgage market has all but shriveled and died, the importance of Fannie Mae and Freddie Mac is now underscored. With an additional $200B, Fannie and Freddie have committed to increase the availability of low down payment mortgage programs that have been the center of home ownership programs for years.

While many housing and economic indicators are down, there are many signals that the economy as well as the housing market is seeking its equilibrium. While some economists feel these signs are anomalous, others remain optimistic that stronger economic growth in the second half of 2008 will assist in stabilizing the housing 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 June 2, 2008. Copyright © 2008 Dan Krell.