real estate Archives - Page 45 of 102 - Real Estate News and Commentary

December 15, 2016December 13, 2022

Homeownership evolving

homeownership and American Dream — Homeownership and the American Dream (from SolomonMcCown.com and bulldogreporter.com)

Homeownership wasn’t always part of the American Dream. The American Dream originated as a concept about increasing one’s quality of life, which was well established before the Country’s independence from Britain. John Kenneth White and Sandra L. Hanson discussed the history of the American Dream in the introduction to their edited collection “The American Dream in the 21^st Century” (2011; Temple University Press). They describe the American Dream as being fundamental to the Declaration of Independence. But the, the idiom “American Dream” was not in our lexicon until the twentieth century. Although James Truslow Adams has been credited for the phrase “American Dream;” White and Hanson attribute its first use to Walter Lippmann, who used it in his 1914 book “Drift and Mastery.” Adams’ 1931 work “The Epic of America” was the first widely accepted promotion of the phrase “American Dream.”

Homeownership most likely became a part of the American Dream as the middle class developed and rose in economic prominence. However, it probably wasn’t until the 1930’s when homeownership and American Dream were associated; when the Federal Housing Authority was established to make owning a home affordable. Before the FHA, buying a home meant signing up for a short term mortgage with a high down payment; which made renting the only option for most.

Homeownership can also be gauged by the health of the middle class. As the Amercican middle class fares, so does homeownership. This is evident from the effects of a recession; when the middle class takes the brunt of an economic downturn, homeowner rates typically suffer as a result.

Homeownership rates have steadily decreased from a peak approaching 70 percent just before the housing crash, to the current rate of 63.5 percent (census.gov). From the Census October 27th press release:

“National vacancy rates in the third quarter 2016 were 6.8 percent for rental housing and 1.8 percent for homeowner housing. The rental vacancy rate of 6.8 percent was 0.5 percentage points (+/-0.4 percentage points) lower than the rate in the third quarter 2015 and not statistically different from the rate in the second quarter 2016. The homeowner vacancy rate of 1.8 percent was not statistically different from the third quarter 2015 or second quarter 2016 rates.

The homeownership rate of 63.5 percent was not statistically different from the rate in the third quarter 2015 (63.7 percent) and 0.6 percentage points (+/-0.4 percentage points) higher than the rate in the second quarter 2016.”

The decline has been attributed to shrinking middle class, changing demographics, and the residual economic malaise of the Great Recession. Although the declining homeownership rate seems as if it is a recent phenomenon, it’s actually cyclical. Anthony DePalma reported for the New York Times about the declining homeownership rate in the post-recession climate of the 1980’s (IN THE NATION; Why Owning a Home Is the American Dream; nytimes.com; September 11, 1988).

The recent research of the future of homeownership by Spader, McCue, and Herbert projected three scenarios (Homeowner Households and the U.S. Homeownership Rate: Tenure Projections for 2015-2035; Joint Center for Housing Studies of Harvard; working paper, 2016). The low scenario is that homeownership rates continue to decline to a rate of 60.6 percent through the year 2020. The high scenario is that homeownership rates will once again increase through the year 2025 and peak around 65 percent. However, they also provide for a scenario where homeownership rates stabilize and maintain at current levels:

“The base scenario, which holds homeownership rates constant at their 2015 levels, shows that projected changes in the demographic composition of U.S. households by age, race/ethnicity, and family type will largely offset one another, affecting the homeownership rate only minimally through 2035. Under this scenario, projected household growth will add 8.9 million homeowner households and 4.7 million renter households by 2025, and 15.7 million homeowner households and 9.4 million renter households by 2035. Alternatively, the low and high scenarios produce a range for the national homeownership rate of 60.7 percent to 64.8 percent by 2035, resulting in different levels of growth in homeowner and renter households.”

They concede that the trajectory of homeownership is complex, stating:

“… the homeownership rate’s actual trajectory will depend on how quickly the foreclosure backlog clears, how many foreclosed households reenter homeownership, and whether young households’ slowed rates of homeownership entry persist in future years. Additionally, any major changes in the broader economy, housing finance system, or households’ attitudes toward homeownership may also influence future homeownership rates to the extent that they alter households’ demand or access to homeownership…”

Home owners are more inclined to maintain their homes and neighborhoods, as well as being invested in protecting their home and community; which may account for lower incidences of reported crime. Besides stabilizing communities, many of these benefits may also account for positively affecting home values.

The benefits of homeownership have been well documented and discussed by Research Economist Selma Hepp for the National Association of Realtors®:

“In addition to tangible financial benefits, research has shown that homeownership brings substantial social benefits for families, communities, and the country as a whole. Because of these societal benefits, policy makers have promoted homeownership through a number of channels. Homeownership has been an essential element of the American Dream for decades and continues to be so even today. Some of the documented social benefits include:

Increased charitable activity

Civic participation in both local community and national issues (including voting)

Greater awareness of the political process

Higher incidence of membership in voluntary organizations and church attendance

Greater social capital generated

Greater attachment to the neighborhood and neighbors

Lower teen pregnancy by children’s living in owned homes

Higher student test scores by children’s living in owned homes

Higher rate of high school graduation thereby higher earnings

Children more likely to participate in organized activities and have less television screen time

Homeowners take on a greater responsibility such as home maintenance and acquiring the financial skills to handle mortgage payments and those skills transfer to their children

Lower teenage delinquencies

General increase in positive outlook to life

Homeowners reported higher life satisfaction, higher self-esteem, happiness, and higher perceived control over their lives

Better health outcomes, better physical and psychological health

Tremendous wealth gains for homeowners under normal housing market conditions (outside of the terrible bubble/bust housing years)

Homeowners not only experience a significant increase in housing satisfaction, but also obtain a higher satisfaction even in the same home in which they resided as renters

Family financial situation and housing tenure during childhood and adulthood, impacted one’s self-rated health (in particular, the socioeconomic disadvantaged indicated by not being able to save any money or not owning or purchasing a home are less likely to self-rate their health as excellent or very good).

Less likely to become crime victims

Homeowners better maintain their homes, and high quality structures also raise mental health -renter-occupied housing appreciates less than owner-occupied housing

Housing prices are higher in high-ownership neighborhoods

Maintenance behavior of individual homeowners is influenced by those of their neighbors”

As the American Dream continues to evolve, so does the goal for homeownership. Although many have not been recently swayed by benefits, the cycle may once again reveal the true value of homeownership.

Dan Krell
Copyright © 2016

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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.

December 8, 2016July 4, 2019

Real estate fakery

“Fake news” is the cause du-jour that has energized many into a movement to stop the spreading of falsehoods. Ironically, the crusaders who point their finger at alleged sources of fake news may also be guilty of promoting it; Fake news accusations are sometimes used to promote misinformation and half-truths. Unfortunately, fake news has become a meme that is becoming trite and meaningless. The promotion of fake news may be found throughout history, but real estate fakery is well established in the industry.

Fake real estate news isn’t always a manufactured story. It is more often a story that is misleading. When reporting real estate, the media typically sensationalizes a headline without reporting all the facts, which can make you draw inaccurate conclusions. An example of this is when the local media report on rising national average home prices, giving the false impression that the local market is expanding at the same pace. This is a mischaracterization of the local market because the regional data is often much different from the national trends.

The National Association of Realtors® is sometimes guilty of real estate fakery too by stating conjecture as fact when explaining market deviations. An example of this is when existing home sales declined about seven percent during February 2014 (March 20, 2014; nar.realtor). It was explained away because of the poor weather and snow that occurred that month. However, if snow is causal to poor winter home sales; then why was there a five percent increase in Montgomery County Home Sales during February of 2010 – when Snowmageddon and Snowzilla occurred? From “Real Estate, Climate Change, and Data-Porn” :

The National Association of Realtors® (realtor.org) March 20^th news release reported that February home sales remained subdued because of rising home prices and severe winter weather. The decline in existing home sales was just 0.4% from January, but was 7.1% lower than last February’s figures. NAR chief economist Lawrence Yun stated that home sales declines were due to “weather disruptions, limited inventory, increasingly restrictive mortgage underwriting, and decreasing housing affordability.” And although it may sound bad, Yun actually has a rosy outlook saying, “…Some transactions are simply being delayed, so there should be some improvement in the months ahead. With an expected pickup in job creation, home sales should trend up modestly over the course of the year.”
So, if a snow filled and cold February is to blame for poor home sales, was Snowmagedden and Snowzilla the reason for increased home sales during February 2010? Of course not. And although home sales increased 5.1% year-over-year here in Montgomery County MD during February 2010, it was mostly due to increased home buyer demand that some speculate was due in part to the availability of first time home buyer tax credits.
Housing data cause and effect is only conjecture unless it is directly observed. To make sense of the “data-porn” that is excessively presented in the media, often without proper or erroneous explanation; economic writer Ben Casselman offers three rules to figure out what the media is saying (Three Rules to Make Sure Economic Data Aren’t Bunk; fivethirtyeight.com): Question the data; Know what is measured; and Look outside the data. Casselman states, “The first two rules have to do with questioning the numbers — what they’re measuring, how they’re measuring it, and how reliable those measurements are. But when a claim passes both those tests, it’s worth looking beyond the data for confirmation.”
Consumers also perpetuate fake real estate news by exaggerating their (good and bad) experiences, usually offering unsolicited advice or posting to the internet (to real estate forums and websites). Facts are often distorted or misrepresented about specific real estate situations, such as divorce, short sales, and foreclosure. Unfortunately, people in similar situations who are looking for answers are at their most vulnerable; and can take the “advice” as gospel, seeking a similar outcome with their transaction.

More real estate fakery on the internet comes in the form of fake reviews. Fake reviews has been an ongoing issue for a number of years. And although the online real estate portals have claimed to use artificial intelligence and other means to thwart the trend, fake reviews and those who provide them have adapted and have become more sophisticated such that it is increasingly difficult to spot. Even back in 2011, Cornell researchers claimed that detection of fake reviews is “well beyond the capability of human judges” (Proceedings of the 49th Annual Meeting of the Association for Computational Linguistics, pages 309–319).

From “Are internet Realtor® reviews real or fake?“:

The National Association of Realtors® (NAR) code of ethics prohibits deceptive practices, which includes posting or encouraging fake reviews. However, Lani Rosales of AGBeat (Sketchy new trend – hiring fake online review writers) argues that there has always been an element posting fake Realtor® reviews and testimonials.

Scammers and fraudsters also use fake real estate news to their advantage. Fake real estate listings have been an issue since the inception of the internet. Fraudsters publish pictures and information from a prior sale or rental, or may lift the photos and information from a legitimate listing being marketed by an agent. The con is to have the consumer send money, often before the home can be seen. Craigslist warns consumers: “Avoid scams, deal locally! DO NOT wire funds (e.g. Western Union), or buy/rent sight unseen.”

Real estate agents are also culpable for spreading fake news, which may be why agents are often characterized as being fake or phony sales people who will bend the truth to make a sale. Of course there are some in the industry who fit the stereotype, but many are “straight shooters.” Unfortunately, it is common for agents to use puffery to make a home seem nicer (until you visit it and realize the “rustic charmer” is a neglected home). Not as often, agents may create a history for the home that is not real to promote a lifestyle or even hide relevant defects.

When it comes to real estate news, advice, and listings – don’t take anything for granted. Don’t fall prey to real estate fakery – know the source, and verify the information with a local real estate professional or your real estate agent.

By Dan Krell
Copyright © 2016

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December 1, 2016January 28, 2020

Home prices surprise

Back in January, I told you that the housing market of 2016 would be about home prices.

2016 housing market hinges on home prices.

A home selling season has not been anticipated so much by home sellers since 2013. It’s not that 2015 was a bad year for housing, because it wasn’t. It’s that many home owners who have been wanting to sell since 2010 (some because of being underwater) may be in position to make the long awaited move.

And indeed, national home sale prices have appreciated considerably through the year. But who would have thought that home prices would once again approach the level reached during the peak market of 2006?

The S&P CoreLogic Case-Shiller National Home Price Index (spindices.com) reported in July that the index was within 3 percent of peak, with another month of 5 percent appreciation. And surprise! This week’s release of home price data indicated that the September’s S&P CoreLogic Case-Shiller National Home Price Index exceeded the index that was recorded during the peak market that occurred July 2006! September’s year-over-year gains were due to a 5.5 percent gain to the National Index, while the 20-City composite remained unchanged at a 5.1 percent.

Of course, regional and local differences explain why actual home prices in many areas don’t seem as high as they were during the peak. Consider that Seattle, Portland, and Denver reported the highest annual home price gains with 11 percent, 10.9 percent, and 8.7 percent respectively. The Washington DC region realized a 2.7 percent increase; which is well below the top gainers, as well as below the national average. Although the housing markets in Miami, Tampa, Phoenix and Las Vegas experienced the most home price gains during the peak; current home prices in those cities “remain well below their all-time highs.”

Analysis provided in the November 29th press release states:

“The new peak set by the S&P Case-Shiller CoreLogic National Index will be seen as marking a shift from the housing recovery to the hoped-for start of a new advance” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “While seven of the 20 cities previously reached new post-recession peaks, those that experienced the biggest booms — Miami, Tampa, Phoenix and Las Vegas — remain well below their all-time highs. Other housing indicators are also giving positive signals: sales of existing and new homes are rising and housing starts at an annual rate of 1.3 million units are at a post-recession peak.

The Federal Housing Finance Agency (fhfa.gov) also reported continued home price gains last week. The FHFA Home Price Index (HPI) increased 6.1 percent year-over-year. The November 23^rd press release reported that home prices increased in 49 states during the third quarter of 2016 compared to the same period last year. However, “Delaware and the District of Columbia were the only areas not to see price increases.”

Indications of a strengthening housing market have been reported for many months. Last year, the National Association of Realtors® (realtor.org) reported that the national median home sale price recorded for June 2015 ($236,400) surpassed the peak national median home sale price established during July 2006 ($230,400).

And if that weren’t enough, existing home sales have also been expanding. The NAR reported last week that existing home sales increased during October. The two-month consecutive increase doesn’t only outpace June’s peak, but is now the “highest annualized pace in nearly a decade.”

Existing-home sales ascended in October for the second straight month and eclipsed June’s cyclical sales peak to become the highest annualized pace in nearly a decade, according to the National Association of Realtors®. All major regions saw monthly and annual sales increases in October.

Termed an “autumn revival,” Lawrence Yun NAR chief economist, stated that “October’s strong sales gain was widespread throughout the country and can be attributed to the release of the unrealized pent-up demand that held back many would-be buyers over the summer because of tight supply…Buyers are having more success lately despite low inventory and prices that continue to swiftly rise above incomes.”

As much as we would like home prices to significantly appreciate indefinitely, market forces and economic factors will intervene. Increasing interest rates is not only consistent with a growing economy, it will likely moderate home prices.

Fed Chair Janet Yellen stated in her November 17^th Congressional testimony regarding monetary policy:

At our meeting earlier this month, the Committee judged that the case for an increase in the target range had continued to strengthen and that such an increase could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the Committee’s objectives. This judgment recognized that progress in the labor market has continued and that economic activity has picked up from the modest pace seen in the first half of this year. And inflation, while still below the Committee’s 2 percent objective, has increased somewhat since earlier this year. Furthermore, the Committee judged that near-term risks to the outlook were roughly balanced.

Yellen stated that “an increase could well become appropriate relatively soon.” Yellen referred to economic strengths as rationale, however analysis of new data should comport with the Open Market Committee’s objectives. Yellen stated that housing market strengths are favorable for an interest rate increase. Although new home construction has been “subdued,” the fundamentals of the housing market are complimentary to such a move.

Original published at https://dankrell.com/blog/2016/12/01/home-prices-surprise/

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November 22, 2016October 20, 2020

A hot winter housing market

Winter is not usually a time of year when you would think of selling your home. After all, everyone gets into holiday and hibernation mode. Between Thanksgiving and New Year’s Day (during the winter housing market), home sale inventory is usually trimmed by an average of 50 percent and contract activity is significantly reduced.

But this winter will be different. Rising interest rates and pent up demand could make the housing market very active this winter.

Consider that mortgage interest rates are on their way up. Freddie Mac (freddiemac.com) reported last week about a mortgage interest “spike” that can get fence-sitters to jump into the winter housing market. The rate for the 30-year-fixed-rate mortgage averaged 3.94 percent, which jumped from the prior week’s average of 3.57 percent. On the face of it, the increase doesn’t seem significant. But the difference is about $70 per month on a $300,000 mortgage.

Last week’s interest rate surge could be the beginning of interest rate increases we’ve been anticipating (for five years). Speculation is that the bond market is anticipating and pricing in a Fed interest rate hike at next month’s Open Market Committee meeting. Of course, the next sixty days could be a lead up to new mortgage rate expectations, which could exceed 4.5 percent by the end of next year.

Historically low interest rates for a 30-year-fixed-rate mortgage have become part of our lives. Upward movement will be met with hyperbole and excitement from the media, claiming reduced home sales and a faltering real estate market. However, let’s put it in perspective. Mortgage rates averaged above 4 percent throughout 2014. The last time we had an average mortgage rate above 5 percent was 2010. In fact, the average mortgage rate at the height of the go-go market during 2006 was above 6 percent.

What does it mean for you if you’re planning a sale? Don’t wait until spring! Consider selling during the winter housing market. You won’t have much competition; and serious home buyers, who are sensitive to interest rates, will be looking through the holidays and winter.

If you decide to sell during the holidays and the winter housing market, make sure your home is ready. Decluttering is the most important aspect of home preparation. However, winter decluttering may be more difficult because of the colder weather and our desire to slow down during these months. Besides our inclination to “nest,” it’s easy to accumulate items in the house that make us cozy and comfortable. But winter clutter can be minimized by organization and a daily straightening-up for incoming buyers.

Check your home’s systems. Have licensed professionals inspect your furnace and roof. Besides keeping the house warm and dry for buyers who visit, checking these systems can prevent surprises when a home inspection is performed.

After a weather event, clear your walkways and driveway of ice and snow. Besides making it easier for home buyers to visit your home, it lessens the possibility of someone falling and getting hurt.

If your home is vacant, have a licensed professional winterize it. Winterizing your home can reduce the risk of bursting pipes and damaging plumbing fixtures. If you are out of town, have a trusted person check on the home regularly (even if you are listed with a real estate agent). Your “stand-in” should also be available to take care of any house related issues that occur in your absence during the winter housing market.

By Dan Krell
Copyright © 2016

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November 17, 2016November 23, 2021

It’s Mr. Trump’s housing market now

Change is not always easy. Sometimes we choose to change and other times we are forced to change. The Great Recession forced massive change to many aspects of our lives – mostly financial. Many found themselves out of work because of the recession, and many home owners lost their homes to foreclosure; while the rest of us searched for ways to cope. It’s Mr. Trump’s housing market now.

As a result, the Dodd–Frank Wall Street Reform and Consumer Protection Act was quickly pieced together and signed into law in 2010. “Dodd-Frank”, contained over two-thousand pages of regulations and rules, many of which were to be created at a later time by many agencies and unelected bureaucrats. Dodd-Frank also created the Consumer Financial Protection Bureau, which took over RESPA, lending and consumer finance markets enforcement responsibilities. The CFPB created the “Qualified Residential Mortgage” and “Know Before You Owe” rules that significantly impacted the mortgage and housing industries.

The purpose of Dodd-Frank and the CFPB was well intentioned as Congress sought a solution to prohibit future crises. In the uncertain financial atmosphere that ensued, consumers wanted accountability from Wall Street and mortgage lenders. While some continue to generally blame Wall Street and the mortgage industry for the financial crisis, the reality is that the dynamics that created the financial crises were complex. And one can surmise from the many hearings, books, dissertations, and working papers that the crux of the financial crisis was widespread fraud that took advantage of a hot real estate market and easy money.

Six years after Dodd-Frank, the rules and regulations keep coming. Writing for the US Chamber of Commerce’s “Above the Fold,” J.D. Harrison pointed out that Dodd-Frank has created over 27,000 new federal regulations by thirty-two federal agencies impacting many industries (Dodd-Frank’s Regulatory Nightmare in One Rather Mesmerizing Illustration; uschamber.com). Compared to the previous Wall Street reform in 2002, which had two agencies issuing regulations to only five industries. Harrison stated that the Sarbanes-Oxley Act “basically sought more corporate transparency and accountability.”

Many have associated Dodd-Frank with the ongoing slow economic recovery, citing increased consumer costs and restricted lending – which effects the housing market, home buyers and sellers.

An example of increasing consumer costs is the CFPB’s TILA-RESPA Integrated Disclosure. The Mortgage Bankers Association (mba.org) recently reported that compliance with TRID costs on average $210 per mortgage, some of which is recouped from the consumer. The rule is also responsible for “slower application to closing times.”

A recent appellate case highlighted some of these Dodd-Frank outcomes. The CFPB sought fines against a mortgage lender for their years of compliance with HUD’s interpretation of a rule; the fines were imposed retroactively for not complying with a new CFPB reinterpretation of the same rule. Additionally, the court focused on the CFPB’s unilateral ability to impose rules and fines without oversight.

It’s Mr. Trump’s housing market now.

Repeal and Replace is a talking point that is not exclusively for the Affordable Care Act. Shortly after Donald Trump’s election as the forty-fifth President of the United States, many industry insiders and pundits are already anticipating the future of Dodd-Frank and the CFPB. Mr. Trump’s plan for financial services is posted to the President-Elect’s site (greatagain.gov) stating: “The Dodd-Frank economy does not work for working people. Bureaucratic red tape and Washington mandates are not the answer. The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.”

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