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November 15, 2013July 4, 2019

Is there a best way to predict the housing market

Various studies demonstrate that you can assess and somewhat predict activity in a housing market; which, albeit in hindsight, can assist home sellers and buyers in determining whether it is a good time to sell or buy a home. For example, I recently wrote about gauging real estate through divorce and premarital agreements; which discussed the implications of these life events to the housing market. The increase in prenups could indicate an increased perception in the value of home ownership and possibly the overall housing market.

Another recent study indicated that it may be possible to determine home pricing through internet search data. Beracha and Wintoki (Forecasting Residential Real Estate Price Changes from Online Search Activity; The Journal of Real Estate Research 35.3 (2013): 283-312.) set out to find out if keyword search engine data from Google could determine price shifts in various cities. They concluded that this may be the first study that directly links “aggregated” search engine data to “abnormal crosssectional home price changes.”

Essentially, the research established that you can figure out metro housing market activity through Google Trends and Google Insights, which provide keyword volume measurement in internet searches. The study examined the keywords “real estate [city]” from 2004 through 2011, and concluded that “…cities associated with abnormally high real estate search intensity consistently outperform cities with abnormally low real estate search volume by as much as 8.5% over a two-year period.”

And although the study’s authors discussed prior research linking internet keyword searches and consumer behavior, they caution that there are a number of keywords related to real estate that may be more relevant than the keywords used in their study. Regardless, the authors assume that their results may be useful in home sales and purchases. More importantly, it may seem as if their results may strengthen the link between specific search engine keywords (e.g, “real estate Rockville” or “real estate Bethesda”) and the ability to predict a housing bubble, or possibly home price peaks.

Generalized, “global” data, such as those described in Beracha and Wintoki’s study, and their meaning may be interesting; however, limiting yourself to such indiscriminate analysis for your home sale or purchase could be disadvantageous. Global data does not distinguish the many factors that impact regional markets; nor can it sort out differences within a local market (neighborhood data within a region can vary significantly).

Using “global” tools may be useful; however, if you are planning a home sale or purchase – seek out the assistance of a local Realtor®. Your real estate agent has access to local specific data that is reported through the MLS. Using MLS data, your agent can prepare a market analysis that compares your home to recent neighborhood sales; the breakdown can put your home in perspective and can give you a price range to assist you in listing or purchasing the home. Additionally, your agent can provide a hyper-local trend analysis so as to help you understand what to expect from the local housing market.

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by Dan Krell © 2013

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. Copyright © 2013 Dan Krell.

October 23, 2013July 11, 2019

Gauging real estate market through divorce and premarital agreements

Can we gauge the real estate market through divorce and premarital agreements?

A recent news item (prnewswire.com) from the American Academy of Matrimonial Lawyer (AAML.org) appears to be good news for real estate. The October 16^th press release proclaimed that a majority of AAML members surveyed indicated that there was an increase in prenuptial agreements over the last three years. Among the top reasons cited for a premarital agreement included “the protection of separate assets” and “the division of assets.”

According to the AAML, the increase in premarital agreements correlates to an improving housing market and overall economy. Alton Abramowitz, president of the AAML was quoted to say, “As the financial and real estate markets continue to improve, there is a greater awareness of risk to possibly sharing these gains in a divorce…” Mr. Ambramowitz further stated, “…The trend of divorcing spouses fighting over which one has to take possession of a devalued home and other depreciated assets appears to be coming to an end.”

Although this was an anecdotal survey that does not provide empirical evidence linking the increase of prenuptial agreements to an increasingly healthy housing market and strengthening economy; Mr. Abramowitz’s logic makes sense, and you might think his reasoning as intuitive.

However, the increase in premarital agreements is not necessarily an indication of a growing economy and housing market – but rather, there may be other anecdotal evidence explaining the prenuptial increase may be due to the increasing number of couples delaying marriage to a time when some wealth has been amassed. The results of a 2010 AAML survey indicated a rise in premarital agreements was also attributed to couples marrying later in life.

Additionally, the link between the concept of delayed family formation and an enduring sluggish housing market was cited by Ben Bernanke, in a February 2012 speech given to the National Association of Homebuilders. The speech identified economic concerns and a decline in family formation as reasons for the decreased commitment to home ownership.

Furthermore, counter-intuitive results from a recent study found that divorce rates drop during housing slumps and recession; but the notion that divorce rates are higher during prosperous times may support the most recent AAML survey that premarital agreements could be an indication of a healthy housing market. Abdur Chowdhury’s 2013 study (’Til recession do us part: booms, busts and divorce in the United States, Applied Economics Letters, 2013, vol. 20, issue 3, pages 255-261) analyzed data from 45 states between 1978 and 2009 to find that “divorce is pro-cyclical.” During a recession, Chowdhury believes that there is a “new appreciation for the economic and social support that marriage can provide during tough times.”

Supporting Chowdhury’s results, Melanie Lawder (Divorce Rates Lower During Recession, The Marquette Tribune, 2012) reported that divorce rates dropped to 16.9 per 1,000 married women (from 17.5 per 1,000 married women in 2007) during the Great Recession. Lawder also quoted a study by the National Marriage Project at the University of Virginia indicating “29 percent of Americans aged 18 to 45 believe the recession has deepened their commitment to marriage.”

Although there may be numerous reasons for divorce rates to drop during difficult economic times, the recent increase in prenuptial agreements can certainly be viewed as a positive sign for housing; it may be that there is an increasing perception of the value of real estate, which people seek to protect.

by Dan Krell
© 2013

October 11, 2013July 2, 2019

Talking housing market conditions beyond media narrative

At a recent round table meeting chaired by local real estate agents and lenders, someone asked the Realtors® to describe current market conditions. Although descriptions were given with pride and confidence, they were not different from the depictions that have been reported throughout the year; the responses seemed shallow and pedestrian.

Attendees were hoping for responses that demonstrated a grasp of the local housing market, but instead they got a media narrative that doesn’t tell the whole story. One agent eagerly provided her response saying, “there is a lack of inventory, making it difficult for buyers to find a home.” While another agent described how home sellers need to be realistic about home prices because buyers are wary of paying higher prices and continued appraisal issues.

To say that housing inventory is low is not telling the whole story. Local housing market activity during 2013, not unlike conditions reported around the country, felt like the peak market conditions of eight years ago – but for different reasons. Montgomery County’s active single family home listings through September 2013 increased about 7.7% compared to the same period in 2012, as reported by the Greater Capital Area Association of Realtors® (gcaar.com). Although county single family home active listings are less than half that were recorded in 2007; consider that SFH actives are also at about the same level reported during 2005, which is considered to be the peak market.

Although the number of homes listed may be close to the same levels of the peak market, SFH closings are reported to be about 34% lower than the number reported during the same period in 2005; and SFH contract activity is about 30% lower than 2005 as well. Even though the market has seemed as if it has been the most active in recent years, SFH contract activity is slightly lower than the same period in 2009.

And although home sale prices have rebounded somewhat, average sale prices continue to be way below what they were during the market peak. It is easy for home sellers to grasp on the reports of double-digit year-over-year increases; however, sellers who expect the same return are disappointed. The year over year jump in home prices are explained by some experts as a statistical phenomenon produced by the sharp decrease in distressed home sales (e.g., foreclosures and short sales). This can be accounted for by the nominal month-over-month increases in average home sale prices through 2013.

Home sale absorption rate through 2013 has been similar to that of 2012, considered to be the housing market bottom. Absorption rate measures the pace of home sales by comparing monthly sales to the same month’s listings. This similar pace may indicate that the increased activity during 2013 may not be due to “pent up demand,” which has been a popular narrative by economists; but rather it may signify the underlying strengths in the marketplace.

That being said, the housing market is co-dependent on overall economic conditions. As mortgage interest rates have slowly risen, we have seen a resiliency in the market as home sales have remained stable. And as some economists are talking about the possibility of the double digit interest rates in the future, it appears as if a slow and deliberate increase has not yet deterred home buyers.

By Dan Krell
Copyright © 2013

September 4, 2013June 30, 2019

Are home prices really rising as fast as reported; how accurate are the home price indices

All major home price indices point to rising home prices, and a few are reporting some very large percentage increases for a limited number of metro areas. But as home price indices are reporting price gains, why are some home sellers getting push back from buyers on price; are home prices really rising as fast as they are reported to be?

Home price data through June used in the S&P/Case-Shiller Home Price Index (spindices.com) released August 23^rd indicated a second quarter National Index increase of 7.1%, while a 2.2% increase was reported during June in the 10-City and 20-City Composites. Areas around the country that experienced the largest decreases in home prices have also experienced the highest price gains in the last 12 months. Take for example the Phoenix metro area, where home prices increased 37.1% from the low in 2011. Locally, however, the Washington DC metro area prices increased 1% in June (compared to a 2% rise in May).

Additionally, the House Price Index (HPI) published by Federal Housing Finance Agency (FHFA) indicated that home prices rose 2.1% nationally during the second quarter (fhfa.gov). And although the HPI is up 7.2% compared to the second quarter of last year, the seasonally adjusted monthly index was up 0.7% in June. Seasonally adjusted home prices for the Silver Spring-Frederick-Rockville, MD metro area indicate a decrease of 0.92% in the last quarter in light of the 4.63% one year increase; and a decrease of 1.1% in the last five years, compared to a 132.65% increase since 1991!

Something’s happening in the housing market, and experts are trying to explain what appears to be moderating home sale prices in an improving (and sometimes described as a “hot”) market. David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices stated that “Overall, the [recent] report shows that housing prices are rising but the pace may be slowing. Thirteen out of twenty cities saw their returns weaken from May to June. As we are in the middle of a seasonal buying period, we should expect to see the most gains. With interest rates rising to almost 4.6%, home buyers may be discouraged and sharp increases may be dampened.”…“Other housing news is positive, but not as robust as last spring. Starts and sales of new homes continue to lag the stronger pace set by existing homes…”

Some explain the recent modest home sale price growth as an effect of distressed home sales. Some experts hypothesize that the deep discounts paid for distressed homes since the financial crises and housing market crash have skewed home price indices lower than they would have been if the indices only accounted for non-distressed home sales; while home price gains in the last year might be more modest using only non-distressed home sales. This has been an intuitive and viable explanation such that the FHFA published in August a Working Paper (Doerner & Leventis; Distressed Sales and the FHFA House Price Index) on the effects of distressed home sales on the HPI. Although the data in this study was limited to two cities, the results are nonetheless remarkable and revealing.

The moderation of recent home sale prices, along with the findings of the FHFA Working Paper, underscore the importance in consulting with a real estate professional to compile and review neighborhood comps before deciding on the sale price of your home.

By Dan Krell
Copyright © 2013

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.

August 30, 2013July 4, 2019

A glimpse into home buyer and seller behaviors

Buying and selling a home can be one of the most expensive and complex transactions you may undertake in your lifetime. Many are increasingly seeking assistance from real estate agents; according to the Highlights of the 2012 National Association of Realtors® Profile of Home Buyers and Sellers (realtor.org), eighty-nine percent of home buyers purchased their home through a real estate agent (a substantial increase from the sixty-one percent who indicated they purchased through an agent in 2001), while eighty-eight percent of sellers listed with an agent.

If you plan to hire a real estate agent, conventional wisdom dictates that you should interview several before choosing an agent. However, the logic is countered by the survey results. Approximately two-thirds of home buyers and sellers only contacted one agent. Additionally, a majority of buyers and sellers reported that the top means of finding their real estate agent was through a referral from a friend or family member. Forty percent of home buyers and thirty-eight percent of sellers found their agent through a referral from a family member or friend. First time home buyers were most reliant on their friends’ and family members’ referrals.

Repeat business was also a frequent way indicated in choosing a real estate agent. Although ninety percent of home buyers and eight-four percent of sellers reported that they would work with their agent again in the future; only twenty-three percent of home sellers and ten percent of buyers reported that they had worked with their agent in the past.

The internet is increasingly viewed as an important source of information for home buyers. Ninety percent of buyers surveyed indicated that they used the internet for their home search; the percentage rose to ninety-six for buyers under the age of 44.

Ultimately, your home purchase or sale falls upon the experience and skill of the agent you hire. Because of the increase in specialized transactions (such as short sales, 1031 exchanges, etc), it is probably a good idea to find out if the agent has the experience if your purchase or sale falls in this category.

A recent research study by Bennie Waller and Ali Jubran (“The Impact of Agent Experience on the Real Estate Transaction.” Journal of Housing Research 21, no. 1 (2012): 67-82) highlights the notion that an experienced agent can yield a better result than an inexperienced agent. They concluded that hiring a “veteran” agent will have a positive effect on your home sale. The data indicates that “rookie” agents, those who have had their real estate license two years or less, sell homes for less, take longer to sell homes, and are less efficient during the process.

Asking friends and family for referrals as well as calling the agent you previously worked with is a good way to find a real estate agent. However, vetting out potential issues can be achieved by asking the right questions before you hire them.

Regardless of how you find your real estate agent, it is probably a good idea to find out more about them. A conversation about their experience, knowledge, and expertise is probably a good way to start. Additionally, knowledge about the local market is extremely important these days as market trends have become hyper-local. Not understanding the neighborhood market can lead an agent to over or under price a home.

by Dan Krell
© 2013