Category: real estate

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Bold predictions for real estate and housing

by Dan Krell
DanKrell.com
© 2012

fortuneWe survived the “Mayan Apocalypse” of 2012, so what’s in store for the housing market and the real estate industry in 2013?

The “Long Slog:” Although analysts disagree about the date of the housing market bottom, most agree that the national housing market bottomed out sometime time in 2009-2010.  Many looked forward toward 2012 to be a phenomenal year for housing and a return to normalcy.  Certainly 2012 housing figures were better than those of 2011, but in many areas of the country (including locally), the market fell short of outperforming 2010.

Unlike the occasional Pollyanna story about the local housing market, analysts expect “the long slog” or “the long grind” that will take years (emphasis on the plural) to get back to normalcy.  No matter how you articulate it, and barring future economic setbacks, experts describe the climb out from the bottom as a long, slow trudge that will have high and low points along the journey.

Home sale prices: When real estate fell into a seemingly endless downward spiral in 2008, some sectors continued to do well.  Homes priced at and above one million dollars continued to outperform other sectors of the housing market through 2011.  The “upper bracket” sector began to show weaknesses in the early part of 2012; as luxury home sales slowed, mid-range home sales picked up momentum.  However, activity flipped toward the end of 2012; as upper bracket activity increased significantly, while activity in other price sectors decreased.  Until fiscal cliff, debt ceiling, and other government budget debates are resolved; local upper bracket home sales will be inconsistent during 2013.  This market bifurcation can skew local monthly average home sales figures, as well as possibly distorting monthly marketplace snapshots.

Hyper-local real estate: Regional and local variances in home sale prices will require home buyers and sellers to continue to focus on hyper-local data to determine selling prices.  One of the best ways for you to clarify neighborhood sales trends is to consult a local real estate agent for recent neighborhood comparables.

Mortgages & Appraisals:  Getting a mortgage may become be increasing difficult in 2013.  Recent reports of FHA losses and a possible bailout could force new guideline changes to help the venerable mortgage program.  Because of increased foreclosures and delinquencies, there is talk about FHA becoming increasingly credit score reliant, and increasing mortgage insurance premiums for riskier borrowers.

Appraisals will continue to be a lightening rod of criticism and a source frustration.  Since its inception, the Home Valuation Code of Conduct was confusing to everyone, and eventually became a scapegoat for many seemingly inconsistent valuations.  However, a low sales volume due to lack of resale inventory will also create issues with appraisals.

Pent-up demand: No need to worry about interest rates – yet.  Keeping mortgage interest rates low, the Federal Reserve has commented on continued purchases of mortgage backed securities as part of a larger stimulus program.  However, continued low mortgage interest rates may not be the reason for home buyer activity as much as pent up demand.  However, home buyers waiting on the sidelines to purchase a home have been met with low resale inventories during 2012.  For many home owners, the general lack of home equity remains the major reason to not sell a home; and it’s also a reason for low resale inventories to continue through 2013.  Continued low inventory environment will create a competitive environment for home buyers.

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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. Copyright © 2013 Dan Krell.

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Don’t buy into a false economy

by Dan Krell
DanKrell.com
© 2012

Auction Stories about housing and real estate often reported in local media are entertaining and sometimes informative. However, some stories can create an erroneous impression about what’s happening in the marketplace. If you are not careful, you may be lead to buy into a false economy; using a Realtor® in today’s market is vital to get real time neighborhood information to make the best decisions.

A recent story highlighted a DC foreclosure that reportedly received over one hundred offers, and the accepted offer was more than double the list price. The story appeared to use this home sale as an example of a hot DC market. And make no mistake – that neighborhood is a hot market for various reasons (including the limited number of active homes for sale); but there’s missing information that could distort your perspective.

First, understand that the story referred to the sale of a HUD owned property, which was most likely a FHA foreclosure. The fact that there were reportedly 168 offers on the property is not unusual for a HUD owned property located in a neighborhood with very active buyers; although some HUD properties don’t get much attention, it is not unusual for many such homes to attract a lot of attention, as well as many offers.

Most offers on HUD homes are usually at list price or below, not only because savvy buyers are seeking a foreclosure bargain; but because of financing limitations. HUD appraises these properties so as to know the market value, and usually lists the home at that price. HUD foreclosures that are eligible for FHA financing use that appraisal, and are therefore limited to that price.

The MLS listing for this home indicated that it was listed “Insured with Escrow,” which means that the home was eligible for FHA financing. And looking at recent neighborhood comps, it looks as if the home was priced competitively. Additionally, the repair escrow indicates that the home requires repairs to meet FHA guidelines.

AuctionAlthough there are some buyers who pay over list price for an “Insured” HUD foreclosure, they know they need to pay cash or find alternate financing; so unless the buyer of this home has cash, the buyer could encounter issues obtaining alternate financing. Furthermore, although the story reported that the home sold, the MLS listing indicates that the home is under contract with contingencies (home inspection). So, the home is far from settled, and it remains to be seen if this contract falls through (or remains owner-occupied as required for this sale).

Although the story about this home sale was interesting, it is not typical for the housing market. The story does not indicate that the reported 14% DC median home sale price increase compares November 2012 sales to November 2011. There is also no mention that “luxury” home sales could have impacted November’s home sale price figures; GCAAR (gcaar.com) reported that DC single family home sales priced at $1.5M and above increased about 111%! Also, according Realestate Business Intelligence (rbintel.com), the November 2012 average DC sale price is about 97% of list; the average sale price is not over list.

Don’t get me wrong, this was a good story. But the story may be about buying into a false economy and buyer’s remorse; the real story may ultimately be how you should consult with your Realtor® before making a purchase or sale.

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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. Copyright © 2012 Dan Krell.

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This is Chaos – anything can happen

by Dan Krell
DanKrell.com
© 2012

housing developmentThere has been a lot that has been written about chaos theory, and some have even tried to apply it to real estate. More specifically, many have discussed the application of chaos theory to real estate investing. And even more recently there have been attempts to applying chaos theory in figuring out where housing is headed; or to be succinct – when will housing once again begin to realize consistent appreciation?

I’m not one to disappoint, but I can’t predict the future. However, my attempt to explain chaos theory may reveal how its application to the housing market is difficult at best (at least in today’s environment), yet while simultaneously is an exceptional exercise in understanding the underlying dynamics.

Chaos theory is somewhat of a misnomer; a more apt name might have been “pattern to equilibrium theory” as it’s not so much about chaos as it is about predicting natural patterns that seek equilibrium; or put another way – predicting results by looking at dynamic patterns. Equilibrium could be what we typically think it is – a pattern of a self sustaining system; or it could also mean a pattern of inertia to the system’s inevitable demise.

Simplified, chaos theory investigates the relationships and patterns of a system’s trend toward stability. The theory delves into the natural patterns of subsystems so as to predict how patterns develop and unfold to manifest themselves.

housing developmentAlthough mathematicians have been investigating the precursors for chaos theory for many years, one of its first practical applications was in trying to predict the natural patterns of the weather. So it makes sense that you might want to apply the theory to the housing market so you could figure out the best time to buy and sell. The problem in the theory’s application to the housing market is that unlike the weather, housing is not an “organic” system; housing does not follow the natural unfettered patterns of market forces. Rather, decades of intervention and policy have influenced the expressed patterns of the housing market.

But don’t get discouraged, an aspect of chaos theory termed “the butterfly effect” explains that any action, no matter how small and insignificant, can influence a larger system. So, although the housing market is not an organic system, you could theoretically investigate its related influences to work out a market trajectory. So, rather than solely considering supply and demand, you might take into account more wide ranging and complex influences, such as Greek economic policies, German parliamentary elections, EU monetary policy, etc.

By looking at observable influences on the housing market, housing contrarians have been muttering their mantra of “the sky is falling” for years. And when the housing bubble burst, they of course claimed they had it right all along, and many are still waiting for the worst. Was it a coincidence? Of course, in the early 2000’s there were influences on housing and the economy that were inconceivable (such as mortgage CDO schemes).

Chaos theory is as complex as the systems involved. We can also apply it to come up with alternate trajectories and think about what could have been. If for not some small event, someone’s seemingly insignificant decision in the past, there might not have been a housing bubble burst or great recession. But as they say hindsight is 20/20 – but that’s an entirely different theory.

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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. Copyright © 2012 Dan Krell.

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Build your dream home and avoid a nightmare

by Dan Krell
DanKrell.com
© 2012

custom homeThe fact that home sale inventory has dropped off compared to recent years is not news. The reduced number of homes for sale has made it more difficult for increasingly discerning home buyers to find the “perfect” home. And for some, a perfect home even goes beyond a new “spec” home or new home development; so they consider a custom home as a way to uncompromisingly have all the features they really want in their new home.

There are many pros and cons to building a custom home. As you might imagine, one clear advantage of building a custom home over buying a resale is that you can choose your home style and floor plan to fit your taste and lifestyle. Customizing a resale to fit your needs has its limitations; besides the physical limitations of the home itself, you may encounter issues with zoning and/or a HOA. Buying a spec home or a home in a new home development also has limitations; you are typically limited to the home styles and floor plans offered by the builder (and some will not comply with customization requests).

Planning to build a custom home takes time and money. Choosing the right contractor and architect is highly important. Designing the home you want requires time for permitting and construction. Weather is often an impediment; poor weather conditions can prolong the process and possibly increase your construction costs.

Next, you’ll need to find a place to build your dream home. Finding the perfect lot can sometimes be difficult, depending on the type and size of home you’re planning. Among the many things to consider: you need to make sure that the lot is zoned appropriately, as well as being large enough for the home you choose to build. Additionally, you should consider utility availability to the lot: is public water and sewer available; is natural gas available. Other issues that could affect your lot: clearing trees, easements, and/or protection areas.

Custom HomeIf an unimproved lot is not found to meet your needs, another option is to buy a “tear down.” A tear down is an old home that is torn down to build a new home on the existing lot. Of course, there are issues that need to be addressed when going this route as well. Besides encountering building issues similar to those of an unimproved lot, you may encounter additional zoning and permitting constraints with a tear down.

Unless you’re willing to pay for your project with cash, you’ll have to secure financing. Depending on your project, there are various loans are available so consult your lender about terms and qualifying criteria. Some loans may combine the acquisition of the land and the construction; and other loans could provide the loan for the construction, and then convert to a permanent mortgage.

Although it’s great feeling to build the home of your dreams, you should also consider its resale. Tastes vary, so your idea of a dream home may not be everyone else’s. A large amount of non-traditional customization could not only turn off future home buyers, but could very well hurt your sale price.

Building a custom home requires due diligence. The Maryland Home Builder Registration Unit (of the MD Office of the Attorny General)provides consumer information about purchasing new homes and the Home Builder Guaranty Fund (www.oag.state.md.us/Homebuilder/index.htm).

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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. Copyright © 2012 Dan Krell.

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What’s your relationship with your home; how homes impact our lives

by Dan Krell
DanKrell.com
© 2012
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homesHave you considered your relationship with your home?  Just like the relationships we have with our family, friends, and acquaintances, we also have relationships with inanimate objects such as our cars, computers, and our homes.  Granted, the relationships we have with our cars and homes are not the same as our human relationships, and it may sound farfetched; but if you think about it for moment, these relationships can affect our moods and lifestyles just the same.

Your relationship with your home can sometimes make you feel satisfied or frustrated, and maybe both.  But chances are that you were not always ambivalent about your home.   At one time you might have thought your home was perfect.  Or you may have decided that you were ok with the quirks in the home because you once planned to fix them.

But the reality is that over time you change: your lifestyle changes; your use of space changes.  Likewise, your home changes too: the systems become less efficient; the rooms may feel too small/large; the kitchen becomes dated, etc.

Just like your human relationships, your home requires maintenance.  Regular maintenance of your home’s systems can help assure that you will be comfortable day to day.  Ignored systems can fail when you rely on them the most, leaving you miserable and wondering about your home.  Commonly ignored systems include (but certainly not limited to) HVAC and the roof.  Having a licensed HVAC professional check the home’s furnace and air conditioning as recommended may not only ensure the system works when you need it the most, but may also help lower energy bills.  Regular inspection of the home’s roof gutters and downspouts could prevent future water penetration issues.

homeOf course, as we continually change and develop, we want our relationships to grow as well.  So, it is possible that one day you might look around your home and feel that it’s time to spice up the relationship a little – You might be thinking of some renovations, updates, and possibly expanding the home.

Unless you plan to make renovations regularly, don’t make a mistake and focus solely on making your home “trendy.”  Before you decide on a major project, experts recommend you consult with a professional interior designer and/or architect to assist in making choices that can prolong the “freshness” of the renovation.

Kitchens and bathrooms are usually where the most money is spent, and that’s because those rooms tend to get the most traffic and use.  When designing a kitchen or bathroom, it is easy to go overboard on the renovation, but even a modest refurbishment can increase your enjoyment of the home.

As you renovate the interior, don’t give the exterior the short shrift.  Upgrading the home’s windows and siding not only increases the home’s efficiency, but may also increase the home’s curb appeal when it’s time to sell.

Relationships change and sometimes end; even the most meaningful ones.  This is no different with your home.  One day you may find that although your home may have sheltered you and your family without fail for many years, you may find that your needs may have changed; you may need more or less space, or may need to live in a different city.  And just like old friends, you may one day find yourself fondly thinking about your “old” home where you once lived.

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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 26, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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