Category: real estate

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Housing shortage concerns; supply and demand

by Dan Krell © 2012
DanKrell.com

New HomesExactly two years ago, I wrote about the possibility of a housing shortage. In February 2010, Montgomery County’s housing inventory of homes for sale hit a two year low and was almost cut in half from the previous year; most likely due to a respite in the foreclosure tsunami. However, home inventories remained relatively low through 2011; as some looked forward to a renewed seller’s market, if not a balanced market.

So here we are in February 2012, and home inventory in the county is just about where it was in 2006- which is the consensus peak of the housing market. You might think that because home inventories are at a five year low, it might be a good time to jump into the market and list your home for sale.

Not so fast. Consider that the average time it took to sell a home during the peak of the market was no more than two months; much sooner in many cases. However, the current average time on the market is almost 30% longer today than what it was at the peak; much longer in many cases. Additionally, even though home inventory is similar to the peak market, the number of units sold compared to that time is about half; and keep in mind the average home sale price continues to fall.

For a home owner thinking of selling their home, it’s still a precarious market regardless of the reduced inventories. Although eager home buyers lament the limited choice of homes for sale, they are still demanding and selective. For home owners preparing their home to sell, the market is still about price and condition; make your home look its best. Keep in mind that about one-third of the home buyers in the market are first-time home buyers looking for their “perfect” home.

As I concluded two years ago, it’s not so much of housing shortage, but rather a market seeking equilibrium. Clearly, a market shift has taken place- but where?

As the number of single family homes listed for sale declines, the number of single family home listed for rent increases- as does the average rent. Supply and demand; another option for home sellers may be renting their home.

Homes for saleThe up side of leasing your home is that you can move on and have cash flow from the rental. To assist in determining an appropriate monthly rent, your Realtor® can provide neighborhood rental data. You should also consult with your accountant to make sure that leasing your home is an option; considerations in calculating rent may include (but is not limited to): tax implications, your mortgage payment, HOA/condo fees, property taxes, insurance, and maintenance.

Of course, solving one issue opens the door for others; there are disadvantages to renting your home as well. Other considerations might include (but not limited to) daily rental management, what to do if the tenant does not pay, and cost of repairs after the tenant vacates. Also, if you plan to rent your home to buy another home, don’t commit mortgage fraud; your lender may require extensive documentation on the rental – including an established rental history.

Although a balanced housing market may include increased rental inventory; do your due diligence before you decide to rent your home, and make sure it’s right for you.

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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 February 20, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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Looking beyond inventory and sales: A deeper understanding of current housing market conditions

by Dan Krell © 2012

Housing Statistics

According to the National Association of Realtors® news release of February 9th, home affordability has increased in the last quarter of 2011 in many metro areas- including the metropolitan Washington DC region. The increase of home affordability is attributed to “softer existing-home prices and record-low mortgage interest rates in the fourth quarter.” The Washington DC region home affordability increased in the last quarter about 5.8% while the region’s home prices for existing homes fell about 5.4% (realtor.org).

Details of the NAR’s fourth quarter market analysis include a continued interest in home ownership among first time home buyers, as 33% of home purchases in the fourth quarter of 2011 were by first time home buyers. Additionally, 29% of the homes purchased in fourth quarter were “all-cash purchases,” which has been relatively unchanged; however, the percentage of “all-cash” real investor purchases was 19% (down from 20% realized in the third quarter).

Greater housing affordability may sound promising, however having more meaningful information may help understand what’s happening in the housing market.

To get a clearer understanding of the housing market, you might consider the February 10th speech given by Federal Reserve Chairman, Ben Bernanke, to the National Association of Home Builders entitled, “Housing Markets In Transistion” (federalreserve.gov). The overview of the housing market was explained as an imbalance in the supply and demand. Supply in the housing market, as Dr. Bernanke described it, greatly exceeded demand in the last few years. Demand for housing, as measured by home vacancy, has considerably decreased; home vacancy is “dramatically” elevated from the number of vacant homes in the first half of the 2000’s. Additionally, a high foreclosure rate is likely to continue; which would not only increase the number of vacant homes, but negatively affect families and communities as well.

Adding to the imbalance is the strengthening of the rental market, which evidently has increased demand.

Housing Statistics

Dr. Bernanke also described the problems in the housing market as a secondary issue that stems from more pressing economic concerns, such as employment and household formation. Economic uncertainty has impacted the willingness to commit to home ownership. “…housing may no longer be viewed as the secure investment it once was thought to be…”

A stifled housing market has also held back an overall economic recovery. Dr. Bernanke stated that home equity has been reduced about 50% from the housing peak; more than $7 Trillion of equity has been lost which resulted in a decrease of household spending of “$3 to $5 per year for every $100 of housing lost” (which is estimated to be about $200 Billion to $375 Billion per year). Besides the reduced consumer spending, low/negative equity creates other problems for home owners too; such as: restricting the ability to refinance to lower interest rates; reducing or eliminating the ability to cash out home equity for emergency expenses; and possibly preventing a move due to an underwater mortgage.

Dr. Bernanke was clear when stating that housing problems have far-reaching effects on home owners, communities, the financial system, and “the vitality of the economy as a whole.” He continued to state, “…This observation underscores the importance of efforts to improve the condition of the housing market.” He is not the first to say that there is no single solution; however, he is one of the few who has been able to articulate the interconnected factors that need to be addressed.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published Using this article without permission is a violation of copyright laws.

By Dan Krell.
Copyright © 2012

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Trending home designs

by Dan Krell
© 2012
DanKrell.com

Trending home designs

You might be amazed if you stopped to think about how much the home has changed over the years. From modest beginnings, when most homes were one or two rooms, the home has transformed from the humble shelter to today’s technological marvel that expresses your personality and popular tastes.

Early home architectural designs were very practical, and may have changed along with heating/cooling innovations. Before the furnace was a standard feature in the home, most homes were built around the fireplace; in very early homes, a central fireplace was where the homeowners cooked their food. Further advances in home design occurred as new building materials were developed; the use of drywall may be responsible for the spread of “tract housing” in the 1940’s and 50’s, as home builders realized they could make homes faster and more affordable.

However, a driving factor in today’s home designs is popularity with home buyers (because that’s what sells of course). The American Institute of Architects (aia.org) conducts the quarterly Home Design Trends Survey to track architectural trends and reveal what home buyers want in their homes. Besides the fact that a wounded housing market reduced the demand for the McMansion, what else is trending?

Economy and energy efficiency design features and appliances have been trending since the financial crisis. Since 2007, there has been a significant increase in demand for high efficiency furnaces, tankless water heaters, and more insulation.

Highlights of the recent Home Design Trends Survey (2nd quarter 2011) reveal how the economy has impacted home design. Most “Special feature rooms” have declined in popularity; except for home offices where people can telecommute, there was a significant decrease in the demand for interior greenhouses, media rooms, interior kennels, safe rooms, kid’s wings, and exercise rooms (demand for au-pair suites has remained steady). Informal living features continue to trend as people are increasingly staying home to entertain themselves and friends; a demand for “home-centered activities” spaces and outdoor living spaces are increasing. Requests for indoor-outdoor transition rooms, such as mudrooms, remain strong.

Special features continue to focus on energy efficiency, as well as increasingly on accessibility. Insulation seems to be a major home buyer focus as extra insulation or the use of alternative insulation techniques are in high demand.

As visitability laws gain momentum nationwide, home accessibility design features have increased in demand. First floor owner suites, height adjusted fixtures (sinks faucets and light switches), ramps, and even elevators have increased in popularity among home buyers.

Technological advances also dictate home buyer preferences. New energy efficient devices continue in popularity as well as low-maintenance products. High performance windows were a top requested item, as were water saving devices. Home buyers are also demanding more low maintenance engineered materials in their homes; such as floors, siding, and decking.
As technology changes, home design is anticipated to change as well. For example, some foresee that the demand for the home office to diminish as wireless communication technologies advance such that people won’t anchor themselves to one room as they work from home.

If you think that trending home design features are only for new homes, think again. Popular design features often filter into older homes as home owners renovate. As a design feature’s popularity increases, so does the chance it can be found at the Home Depot.

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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 February 6, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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“Exceptionally” low mortgage rates for buyers and owners

by Dan Krell
© 2012
DanKrell.com

Last week, the Fed issued a statement from the most recent Federal Open Market Committee meeting indicating that the target rate was to remain between 0 and ¼ percent; and an “exceptionally” low rate is warranted through 2014. Although there were some bright areas of the economy, some sectors remain an obstacle- including housing (which was described as “depressed”).

The Fed’s estimation of the housing market appears contrary to the seemingly upbeat reports issued by the National Association of Realtors®, which recently revised downward several years’ worth of housing data. However, by keeping an ear to the ground, the Fed goes beyond the typical statistical analysis by collecting and analyzing anecdotal data from industry experts around the country. The anecdotes are compiled, analyzed and published eight times a year by the Fed as the “Beige Book.” Formally known as the “Summery of Commentary on Current Economic Conditions by Federal Reserve District,” the most recent report indicated an overall feeling that home sales are sluggish throughout the country. Furthermore, the report from the Richmond District (which covers MD, DC, VA) indicates that although there were a few pockets of “strength,” a softened housing market was depicted citing the sentiment of some local real estate agents.

Getting back to interest rates, the Fed’s monetary policy of “exceptionally” low interest rates for some time could mean cheap mortgage money for you. There’s no telling how much lower mortgage interest rates can go, as we are already seeing some of the lowest interest rates in several generations. The interest rate on your mortgage is tied directly to your monthly mortgage payment; a lower rate typically means a lower monthly payment.

For home buyers, “exceptionally” low interest rates could result in a more affordable home purchase; buying a home today may possibly be cheaper than paying rent. Even if home prices continue at the current level during the next few years, home affordability can drastically change if mortgage rates rise.

If you currently own a home, “exceptionally” low interest rates could mean that you could possibly reduce your monthly mortgage payment. However, refinancing is not for everyone. According to the Federal Reserve Board’s “A Consumer’s Guide to Mortgage Refinancings,” refinancing may not be for you if: you’ve had your mortgage for a long time, your mortgage has a prepayment penalty, or you plan to move in the next few years.

For a typical mortgage, the proportion of the mortgage payment that is applied to principal increases through the life of the loan. So, if you’ve had your mortgage for a while, chances are that you’ve been increasingly paying toward the mortgage principal (and building equity). However, if you refinance, the mortgage life cycle begins anew and much of your payment would be applied to interest.

If your mortgage has a pre-payment penalty, you can be charged for paying off your mortgage early. Any pre-payment penalty should be considered in the total cost of the refinance so as to consider how long it may take to “break even” based on your monthly mortgage savings.

In today’s market, many home owners are putting off a move and refinancing instead. However, if you’re planning to sell your home soon after the refinance, consider the “beak even” point of your monthly mortgage savings. Selling your home shortly after a refinance could make the short term mortgage savings seem short sighted.

More news and articles on “the Blog”
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 January 30, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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SOPA and real estate; Unintended consequences?

If you don’t surf the web very often, you may not have heard about SOPA and PIPA. No, SOPA is not something to wash with nor is PIPA the Duchess’ sister.

SOPA (H.R. 3261: Stop Online Piracy Act) and PIPA (S. 968: Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011; also known as Protect IP Act) were introduced with the intent to stop internet piracy and protect intellectual property. Essentially, the legislation gives the government authority to take down websites if a court finds a site in violation of the legislation; these websites would be considered “rogue” sites.

The main intention of the legislation is to protect intellectual property and revenue; there has been an annual increase of complaints of internet piracy, unauthorized copying, and counterfeit products that proliferates the internet. The bills are in the process of the maneuvering through Congress. H.R. 3261 is in “committee,” which is typically the first step after a bill is introduced in the House of Representatives; while S. 968 was recommended to be voted on by the Senate. Although the bills are the center of controversy, it is possible that they might not pass; but rather the wording could be incorporated in other legislation (much like the Indefinite Detention Without Charge or Trial provision that was included in the National Defense Authorization Act for Fiscal Year 2012, which was signed into law December 31st).

SOPA lists, among other things: expanding the definition of criminal copyright infringement; expanding what constitutes criminal trafficking of inherently dangerous goods or services; as well as increasing penalties for specified trade secret offenses and various other intellectual property offenses.

Supporters for SOPA/PIPA contend that internet theft has reduced corporate earnings; passing this legislation would protect their intellectual property from illegal distribution on the internet by shutting down or restricting access to offending websites, thus protecting revenue and entrepreneurship.

Critics claim that the legislation is an over reach and has the potential for abuse, which if passed could allow larger companies to control internet commerce by forcing competitors to take down competing websites. Some argue that such legislation, which concerns many bloggers and some news outlets, may conflict with the first amendment.

For example: the operators of Craigslist claim that if the legislation passes, they may be ordered to shutdown (http://www.techdirt.com/articles/20111005/10082416208/monster-cable-claims-ebay-craigslist-costco-sears-are-rogue-sites.shtml); Craigslist is listed by Monster Cable® as an “unauthorized dealer” and “blacklisted” along with Sears, Costco, eBay, and many other sites for allegedly selling counterfeit products (http://www.monstercable.com/).

The internet has become a major source of real estate information; consumers and professionals search the internet daily for home listings by brokers and FSBOs, housing and economic news, legislation, public and other related information. The National Association of Realtors® 2010 Profile of Buyers and Sellers indicate that 89% of home buyers use the internet for information and home searching. The number of home buyers, sellers, and owners using the internet to assist them in making a real estate related decision grows annually.

Although the consequences of enacting SOPA/PIPA into law (on the real estate industry) are unclear, it would be undesirable and unfortunate if readily accessible real estate information were to be unduly restricted by some association’s or real estate company’s claim of content ownership. Learn more about SOPA/PIPA, and provide feedback to our Representatives and Senators.

by Dan Krell
© 2012

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.

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