Housing market is partying like it’s 2006

After month’s worth of good housing market news, many optimistic home buyers and sellers are preparing for their jump into the market. But some caution that not all the data is positive and the jump into the market should be taken with care.

Have you noticed when there is positive housing news, someone offers data that throws a wrench in the recovery party? Maybe we’ve just become overly analytical about the housing market, looking for reasons to be optimistic. If one month’s home sales exceed expectations, the buzz is about how the market is recovering and anecdotes about multiple offers and fast sales are talked about as if it is the norm. However, when there is a disappointing month, some will try to explain it away giving reasons such as winter weather (even though the data is already seasonally adjusted) or some other one-time incident.

If you haven’t yet figured it out, housing economics is not cut and dried – there is truth in opposing views. The good news is that those who are positive about the housing market are probably correct; the bad news is that those who urge caution are also probably correct. The truth is that since 2010, the housing market has cycled with a two year period oscillating between positive and negative data – one year showing promise, while the next disappoints.

Sure, home prices have increased in recent years, with the sharpest increase occurring from 2012 through 2013. But rebounding home prices are like the sword of Damocles hanging over the housing market: as home prices rebound, affordability has become an issue for many home buyers.

Furthermore, there is a consensus that interest rates will rise sometime in the near future; and some are worried about the effect on the housing market. Spencer Jakab of the Wall Street Journal made this clear in his March 30^th piece (Spring Puts Bounce in Housing Market: Home Prices May Get a Second Wind: wsj.com) by explaining the relationship between mortgage costs and affordability.

Jakab starts off by saying “The demise of the housing recovery has been greatly exaggerated.” And points out how home prices have rebounded, while February home sales were as good as (if not slightly better than) February 2014 (regardless of the two year cycle). He also indicates that although home prices have not reached their pre-crisis levels, they are at the highest levels since the crisis. However, he cautions those who are ready to call it a housing recovery trend. He states: “Once the Federal Reserve starts raising interest rates, likely sometime this year, affordability will begin slipping. Say 30-year mortgage rates are a percentage point higher a year from now, and prices are 5% higher. Then a monthly mortgage payment, assuming a typical down payment, would rise by about 18%.”

Considering that average wages increased 2.1% during 2014, an 18% increase in the cost of home ownership could arrest home price appreciation and possibly cause a déjà-vu market liken to 2008-2009. If you don’t remember: homes were on the market for extended periods; home prices decreased; and home buyers and sellers retreated.

So why should we get all excited about a little good news? Rather than focusing on 2 data points each month (comparing a month’s data to the previous month, and the same month from the previous year), maybe it’s time to focus on the bigger picture.

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.

April 15, 2015December 13, 2022

So how’s that internet working out for you?

If you’re like many other Americans, internet reviews persuade your choice of online purchases. Internet reviews have become so influential that it is life or death for many restaurants. Even service industries have added weight to internet reviews. But a recent Amazon lawsuit, once again, has many talking about the authenticity of internet reviews.

The gaming of internet reviews was first given attention in a 2011 New York Times exposé by David Streitfeld, when he described the effort for businesses and individuals to appear better than their competition by saying: “…an industry of fibbers and promoters has sprung up to buy and sell raves for a pittance.” And at that time, Cornell researchers concluded, at the 49^th annual meeting of the Association of Computational Linguistics (Proceedings of the 49th Annual Meeting of the Association for Computational Linguistics, pages 309–319, Portland, Oregon, June 19-24, 2011.), that the detection of fake reviews is “well beyond the capability of human judges;” and recommended an analysis of reviews to include, among other things, psycho-linguistically motivated features.

Since the issue was brought to light in 2011, you might think that the practice of using fake reviews might have dwindled. On the contrary. It seems as if the practice has become increasingly sophisticated to circumvent the controls that are meant to weed them out. You can still find services that will write reviews – for a fee; fake reviews have even become specialized, where “reviewers” advertise to place their evaluations on specific websites. Furthermore, you can find online classified ads offering payment for reviews or to “swap” reviews for free.

In response to the seemingly persistent problem, Amazon is the first to take legal action to crack down on fake reviews. Jay Greene’s April 8^th Seattle Times report (Amazon sues to block fake reviews on its site; seattletimes.com) indicated that the Amazon suit alleges that such reviews are deceptive and harmful to those who don’t abuse the review system. And according to CNET (Amazon sues alleged reviews-for-pay sites; cnet.com), Amazon (like many online sites) has invested in monitoring controls to foil fake reviews; but people seek out to game the system.

I hear you asking: “Surely, real estate agents don’t post fake reviews, right?”

According to Lani Rosales of AGBeat, the posting of fake agent reviews are “…unethical but seemingly common practice.” She reasoned in her 2011 report (Sketchy new trend – hiring fake online review writers; agbeat.com) that there has always been an element posting fake real estate agent reviews. And she anticipated that the trend would continue, as agents coped with the down market, “…Realtors are already using and will undoubtedly increase use of these willing reviewers, making for a repeat of history where agents are painted as being ‘number one,’ having ‘impeccable integrity’ and ‘superior service’…”

As we spend more time online (emarketer.com reported in 2013 that web users spent an average of 23 hours per week using email, texting, and social media), getting your online attention is big business – especially in the real estate industry. Apparently, there’s a lot of money at stake, such that a battle has be waging during the last year between Zillow Group (Zillow and Trulia) and News Corp (Move Inc and Realtor.com); alleging stolen secrets and wanting access to property listings.

And much like the fake reviews that vie for your business, the lawsuits between the real estate giants may ultimately reveal the business of the internet; which may not actually be about customer service, but really about selling a commodity – you.

April 9, 2015July 28, 2019

Home buyer survey predictive of spring housing market

I think it’s safe to say that many of us have been anticipating spring’s warm weather; if not for a change of pace from arctic temperatures, it’s the season that the housing market swings into top gear. However, Fannie Mae’s March 2015 National Housing Survey^™may support anecdotal reports of home buyer attitudes toward home prices and is making some re-think their estimation of the spring market.

The April 7^th Fannie Mae (fanniemae.com) press release titled, “Lackluster Income Growth Weighing on Americans’ Housing Sentiment: Share of Consumers Expecting to Buy a Home on Next Move Reaches Survey Low” might convey that not all home buyers are looking to buy a home this year. However, the news is not all gloom and doom. Although the survey indicated that 60% of respondents said they would buy a home if they were to move, which is an all-time survey low; the percentage of those who responded that it was a good time to buy a home hit an all-time survey high. Additionally, there were fewer respondents in March’s survey who felt their financial situation would improve in the next year.

The survey is described by Fannie Mae as “The most detailed consumer attitudinal survey of its kind.” It polls 1,000 Americans on their attitudes about such things that include (but is not limited to) homeownership, the economy, household finances, and overall consumer confidence. Fannie Mae senior vice president and chief economist Doug Duncan remarked about the March survey: “… results emphasize how critical attitudes about income growth are to consumers’ outlook on housing.” However, consumer sentiment should improve as income growth is realized.

Fannie Mae’s March survey is coming on the heels of news of a possible economic slowdown. The Wall Street Journal’s Kate Davidson reported on March 25^th (GDP Growth Estimates Tumble, Again: wsj.com) that the latest Gross Domestic Product estimates may be a repeat of last year. While several Wall Street economists revised lower their Q1 2015 GDP estimates from 0.9% to 1.5%, the Federal Reserve Bank of Atlanta lowered their Q1 2015 GDP estimate to 0.2%.

If last year’s pattern is being realized, the survey’s consumer sentiment and economic news is just a blip on the radar. Remember that the Q1 2014 GDP was negative as the economy retracted, however rebounding with 5% third quarter growth. Likewise, 2014 home sales rebounded later in the year only finishing the year only 3% behind 2013 (according to the National Association of Realtors®). And as the NAR reported on March 30^th that pending home sales rose during February, it is estimated that existing home sales will increase 6.4% during 2015 compared to 2014 (nar.realtor).

The upshot of this data could be that consumers are saying is that it’s a good time to buy a home, but only if you can afford it. However, it’s not just about the dollar amount; home buyers are increasingly demanding value for their money. Buyers are looking at the bigger picture of the costs of homeownership including maintenance and commute to work. And this attitude can be reflected in home buyers’ push back on home prices.

If you’re a home seller, relatively low housing inventory is good news; but pricing your home correctly may be the definitive factor. And as you might anticipate home buyers competing for your home; consider that some have reported that that low appraisals have impacted their sale.

By Dan Krell
© 2015

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April 2, 2015

Home seller expectations are high for 2015 market

Have you ever waited to be seated in the new trendy restaurant? You’re anticipating the menu, and thinking about what you might eat. If the wait is too long, your patience wears thin; you begin to calculate the time to the next open table. You might even scan the dining room trying to determine how much longer individual diners intend to stay at their table. If your wait is too long, you might even decide to leave. If you do get seated, you might be disappointed with an over-priced and limited choice menu.

Today’s housing market is much like the visit to that restaurant. Home buyers are motivated to jump into the market and eagerly await the next home listing; and like the restaurant menu, are often disappointed with limited choice and high prices. Additionally, low housing inventory, much like the restaurant’s long table turnover, may leave many to look for other options; some would-be home buyers are putting off their purchases and renewing leases for another year.

One of the factors that contribute to low housing inventory is the velocity of home ownership (how often a home gets sold). And indeed, home owners are staying in their homes longer before selling, according to a special study conducted by the National Association of Home Builders (nahb.org). Dr. Paul Emrath, of NAHB’s Economics and Housing Policy, provides details in a follow up study showing a decline in home owner mobility since 2007. Single family home owners stayed in their homes for an average of 12 years between 1987 and 2007. However, since 2007 the average time the home owner stayed in their home increased to 16 years. And since 2001, first time home buyers stayed in their homes 4 to 7 years less than move-up buyers.

If you’re one of those who feel that your stay in your home has been long enough, it may seem as if the market would favor a home sale. You might believe that the low inventory environment should make your sale quick, and possibly resulting in multiple offers. After all, the low number of homes listed for sale was cited for price growth by National Association of Realtors® Chief Economist Lawrence Yun in the NAR March 23^rd press release (realtor.org). And it makes sense to think that that first time home buyers should be motivated by relatively low interest rates and higher rents.

But before you set your expectations too high, consider that not all homes sell quickly – even in today’s low inventory environment. The Montgomery County average days on market during February exceeded 70 days. And even though the NAR reported a 7.5% increase in the average home prices across the country during February; the Montgomery County average sale price during February decreased 5.4% compared to the previous February and decreased 2.1% compared to January, according to RealEstate Business Intelligence (getsmartcharts.com).

If you’re putting your home on the market, don’t take home buyers for granted. Just like diners at the restaurant, home buyers have high expectations and want choices. Home buyers typically look for a combination of location, quality, and value. And just because inventory is low, buyers are not compelled to purchase your home – especially if the home is perceived to be over-priced.

For best results this spring – work with your listing agent to prepare your home, and price it according to neighborhood trends.

March 26, 2015

Home buyer strategy to cope with a low inventory market

As the weather warms, many home buyers are venturing out making themselves known; only to be greeted with low inventories and higher list prices. The National Association of Realtors® March 23^rd press release indicated that nationwide low housing inventory is pushing home prices to grow rapidly; average home prices across the country increased 7.5% during February compared to the same period last year (realtor.org).

Much like the “tire kicker;” a typical home buyer visits selected open houses and lurks online to see what’s out there before talking to a lender and/or a real estate agent. While desiring to be low-key and pretending to be demure may be the strategy of choice; acting this way during a low inventory market could lead you to miss out on the home of your dreams.

If you’re part of this year’s home buyer cohort, prepare for a low inventory market by talking with a mortgage lender and a real estate agent before you begin your search. Working with an experienced agent and lender may increase your chances of not only finding a home, but getting your offer accepted.

Even though home buyers are instructed to get qualified for a mortgage before they begin looking for a home, it is often left until just prior to writing their first offer. A lender approval not only provides you the certainty of knowing what you can afford; it tells the home seller you are capable of buying their home.

Although getting a mortgage qualification letter today is more involved than it was in bygone years, it is for the better. To comply with new rules and regulations, lenders today require a formal application before they will provide you an approval letter that can accompany your offer to purchase. You will need to provide documents indicating your income and assets to determine how much you can afford as well as verify the funds for down payment and closing costs. The application not only helps you through the home buying process, it will make your mortgage process more streamlined too.

Although hiring a buyer agent is not always a consideration during the home search, your choice of agent could affect the outcome of your purchase. Choose carefully – research has indicated that real estate agents are not all alike; veteran agents positively affect your transaction and are more efficient compared to rookies. Experienced agents offer intangible services such as understanding the nuances of the housing market, as well as having an increased ability to engage the parties in the transaction. Additionally, it was found that home buyers who employ full-time agents have better outcomes than those who hire part-time agents.

Rather than waiting to choose your agent until you’re ready to make an offer on a home, meeting and interviewing several agents could help you determine their experience and commitment. Although most buyers think of savvy agents as being expert negotiators; in a low inventory market it also pays to have an agent who thinks outside the box to seek home sale opportunities that are not typically advertised in the MLS.

A low inventory housing market presents the home buyer with a number of issues. Working with an experienced agent and mortgage lender can help you through the ups and downs of the process as well as reframing your expectations to fit the reality of market.