Real Estate News and Commentary

September 5, 2008October 5, 2019

Has the real estate market reached the turning point? (Market statistics and trends)

by Dan Krell

As indicated by the slight increase in the Consumer Confidence Index (ConferenceBoard.org), which edged up in August to 56.9, signs may point to a slightly improving economy. As consumer confidence increases, we may see home sales increase as well. Take for example the Mortgage Bankers Association reporting an increase in mortgage applications (8/27/2008 mortgagebankers.org), as well as the National Association of Realtors (Realtor.org) reporting that nationwide existing home sales have increased 3.1% in July (which is reported to be a five month high!).

Does this mean that the real estate market has turned a corner? Many remain cautious.

Other housing related reports are mixed, however. The NAR reports that although overall housing inventory (homes listed for sale) is up, single family home inventory has declined. The increased housing inventory is attributed to a sudden increase of condominium inventory.

Locally, Montgomery County single family home inventory has dropped slightly in July 2008, while sales have also dropped slightly in July from June 2008 sales (data reported by the Greater capital Area Association of Realtors). However, a few individual zip codes and neighborhoods continue to show signs of recovery by posting sales increases, price increases, or both (data derived from Metro Regional Information Systems, Inc.; MRIS.com). Neighborhoods hit hardest by foreclosures continue to lag behind in sales.

What do home buyers think? A recent Harris Interactive poll, commissioned by Move.com (news.move.com), reports that 81% of home buyers polled are anxious about the current housing market and feel there are barriers to their homeownership. However, of those polled, 44% of home buyers believe the real estate market will improve with a new president. Additionally, 41% of current homeowners polled plan to purchase a home again, 80% of all renters polled plan to purchase a home someday with 47% planning to purchase a home within the next five years.

Of those reporting barriers to homeownership, the top barriers reported were current home prices (31%), lack of down payment (28%), “lack of confidence in economy” (26%), and various personal and financial concerns. Although many polled report a barrier to home ownership, 78% of home buyers polled report that they were willing to save for down payments as well as compromise on various criteria they are searching for in their home (including neighborhood and local amenities).

So what can we expect? Lawrence Yun, NAR Chief Economist, was reported as saying in a NAR news release (8/25/2008) that home prices could increase in the few localized markets where sales have appreciably improved. He continued to say that many market area inventories remain high and will take time to shrink; however he reports that 2009 will be a more “balanced” market. He expects that “long term appreciation patterns” will eventually return.

According to MRIS’s “Trends in Housing” (mid-year 2008), foreclosures will continue to trouble the local market; the Washington, DC region’s foreclosure rate this past spring (131 per 10,000) has outpaced the national rate (87 per 10,000). However, expectations are that decreased inventory along with increased housing demand (due to job growth and relatively low interest rates) will increase market activity by early 2009. It is expected that close-in neighborhoods will see these signs of recovery first, shortly followed by the outer suburbs.

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 September 1, 2008. Copyright © 2008 Dan Krell.

August 29, 2008August 5, 2019

Irrational home sellers and buyers

Have you wondered why so many people rushed to purchase homes in the recent historic seller’s market? Why have home buyers been scarce, even in a buyer’s market? The man with the answers is Ori Brafman. Ori Brafman has an extensive background that includes organizational speaker and consultant, professor, and writer. His new book, co-written with psychologist Dr. Rom Brafman (his brother), is called Sway: The Irresistible Pull of Irrational Behavior (Doubleday, June 2008). The book is a culmination of research that explains what compels us to act irrationally. And may explain irrational home sellers and buyers.

In a recent personal correspondence about irrational behavior in real estate, Ori offers these concepts to explain such seemingly overt irrational behaviors: loss aversion, “getting stuck in the past,” and value attribution.

Loss aversion, a concept described in Prospect Theory, describes why people focus on limiting their losses as opposed to seeking gains. Ori explains that loss aversion explains why home sellers have a hard time selling for less than their original purchase price, even when it means they could potentially lose more by waiting for the downward market to end. He explains that it is not only psychologically painful, but a shot to our ego. This may explain irrational home sellers who wait for an unrealistic sale price.

This would explain why many irrational home sellers have had a difficult time adjusting list prices in the downward market. Even when a home seller will not realize a loss, they perceive a loss based on home values from a year ago. Based on this perceived loss, home sellers will list their homes for sale at higher than market prices. This fact was validated in a research study conducted David Genesove and Christopher Mayer entitled “Loss Aversion And Seller Behavior: Evidence From The Housing Market” (published in The Quarterly Journal of Economics, 11/2001). This research used data from the Boston real estate market in the 1990’s and serendipitously found that home sellers are unwilling to list and sell for a loss.

Irrational home sellers and buyers can “get stuck in the past,” looking to buy or sell a home for a price they missed some time ago. Rather than pricing their home at a realistic price, many home sellers look to sell for a price they would have sold for a year or two ago. Additionally, this could explain why some home buyers constantly offer low ball prices for homes that have obvious higher values.

Value attribution plays a large role in how home buyers view homes they may purchase. Ori explains that a home buyer might place less value on a home that is priced less than other neighborhood homes, “even when the home meets all of their criteria.” When a home is priced “rationally,” a home buyer might wonder, “What’s wrong with this house?” Home buyers will go through the home and arbitrarily decide which features devalue the home.

Together, these concepts might explain why home buyers have been scarce in this buyer’s market. Many home buyers have placed less value in owning a home in a declining market, worrying about further market declines. Additionally, home buyers irrationally worry about unrealized losses, even when buying a home may be the rational thing to do.

By Dan Krell
© 2008

Original is published at https://dankrell.com/blog/2008/08/29/why-do-people-act-irrationally-when-buying-and-selling-real-estate/
This article is not intended to provide nor should it be relied upon for legal and financial advice. Copyright © 2008 Dan Krell.

August 27, 2008November 23, 2021

Being Organized Will Facilitate the Mortgage Process

by Dan Krell
Google+

Are you ready to jump into the real estate market? Maybe you already own a home but need a larger home; or are you thinking of downsizing to a condo near the town center. If you’re like the average home buyer, you’re planning to finance most of your purchase. Although the mortgage landscape has changed, many things remain the same. Whether you are a first time home buyer or a seasoned home owner, getting organized and being prepared will make the process more enjoyable.

Some home buyers have an idea of how much home they can afford, while others are unaware. Talking to a loan officer can give you an idea of mortgage rates and trends as well as how much you can afford. Putting things in perspective at this stage will shape your home search as you decide the type of home you want as well as where you want to live.

Although many things about mortgages have recently changed, qualifying is still based on your income, credit and assets. Before you talk to a loan officer, get your financial information organized so you can provide accurate information. Providing accurate information to the loan officer will allow them to provide you with an accurate price range; this will save you the time and heartache of looking at homes you cannot afford. Although mortgage rates change daily, the loan officer can guide you with any necessary corrections.

Maryland mortgage applications now require you to provide proof of your income to support your mortgage payment, so getting organized prior to talking to a loan officer is a good idea. Start your own mortgage file; your file should have your recent paystubs, W-2 statements, bank statements, 401k statement, and any other financial information you think you may need (which may include child support or disability income). Self employed individuals will need whatever documentation they can muster (including tax returns) to support their declared income.

Checking your credit report should be considered a sensitive issue as having too many credit checks within a short period of time will lower your credit score, and in some cases alter your ability to obtain a loan. Rather than having your credit checked by every loan officer you talk with, it is a good idea to request your own credit report from three credit bureaus (and place it in your mortgage file).

You are entitled to a free annual credit report from the three credit bureaus. Although many credit companies advertise “free” reports with snappy jingles, you can request your credit report directly from the three credit bureaus (Equifax, Experian, and Trans Union). Be careful, however, many web sites (even the credit bureau websites) will bombard you with offers to watch your credit as well as other credit products for a fee.

Loan officers will request your recent paystubs, bank statements, W-2’s, and your permission to check your credit. However, until you choose a mortgage lender, you may decide to protect your personal information by providing verbal information derived from your documents.

The lender you ultimately choose will require original documents as well as your authorization to check your credit. Your up-to-date file should assist the loan officer in making the mortgage process easy and enjoyable.

August 13, 2008November 23, 2021

De-mystifying Home Staging

by Dan Krell © 2008
Google+

Home staging is often thought of as a fancy name for decorating or cleaning a home prior to it being sold. In fact, “home staging” is a term that is used to describe the process of preparing your home for sale that goes beyond normal maintenance. The purpose for staging your home is to make your home as appealing as possible to potential home buyers so your home will sell quickly. Surveys conducted by the Accredited Staging Professionals a (StagedHomes.com) and Homegain (Homegain.com) indicate that staged homes sell faster than non-staged homes.

Although home staging has been around for over thirty years, it only gained wide acceptance this last decade. Many home staging techniques are derived from interior design; home stagers often sketch rooms to analyze the best use of space.

Staging your home’s exterior is just as important as staging the interior because a home buyer’s mood is set by their first impressions. You should consider the condition of your home’s landscape, façade, roof and gutters. Unkempt flower beds and cracked walkways can quickly give the impression that the home is in disarray. Additionally, missing shingles and misaligned gutters give the impression that the home has been poorly maintained.

The basics of home staging include decluttering, rearranging, and sometimes redecorating. Home sellers often have tunnel vision about their homes. Removing the clutter of your daily life from your home is the cornerstone to home staging. Decluttering goes beyond cleaning and storing unused items. Because home buyers can get distracted by the home seller’s lifestyle when viewing a home, home stagers talk about “depersonalizing” a home.

You may have spent years making your home personal to your lifestyle, however now that you are selling it you need to depersonalize it. Depersonalization means to neutralize your home by removing as much of your lifestyle as possible from the home so anyone can feel as if this could be their home. Personal items, such as family photos, can focus the home buyer’s attention on your lifestyle and away from the home.

Additionally, the layout of each room needs to be considered so it feels bright and roomy. Properly placed furniture can assist home buyers to feel at ease and “at home.” Too much furniture in any room tends to make a large room look small and feel cramped. Additionally, misplaced furniture can make a room feel awkward and unsettling.

Let’s face it, sometimes a room needs a makeover. However, redecorating does not have to be an expensive affair. Sometimes having an extra lamp or even painting a wall can make the difference between shabby and chic. If your furniture is out of date or in poor condition, furniture rentals can be a short term solution.

If the home you are selling is vacant, staging each room tastefully can facilitate your sale. An Appraisal Institute study indicated that a decorated home sells faster than an empty home.

Although many real estate agents have been certified in home staging, professional home stagers usually have a background in interior design. The International Association of Home Staging Professionals (IAHSP.com) is a source of information about home staging, including tips on staging your home and finding a home staging professional.

August 6, 2008October 5, 2019

President Signs Historic Housing Legislation

by Dan Krell

The lack of fanfare over the signing of The Housing and Economic Recovery Act of 2008 on July 30th by President Bush was the anticlimax of the long Congressional battle of proposed housing legislation. The long awaited and highly anticipated legislation is historic for its wide reaching changes in the mortgage and housing industries as well as foreclosure assistance.

For the mortgage industry, the Housing and Economic Recovery Act of 2008 changes how the Government Sponsored Entities (GSE’s), FHA and VA will conduct their mortgage businesses. In addition to the recent loan limit increases ($625,000 for conforming mortgages and $625,000 for FHA loans in high cost areas) becoming permanent for Fannie Mae, Freddie Mac, and FHA, the new law will increase oversight and offer more options and protections to home buyers.

For the GSEs (which include Fannie Mae, Freddie Mac, and Federal Home Loan Banks), the new law provides temporary assistance to the financially beleaguered Fannie Mae and Freddie Mac from the United States Treasury in the form of discount loans to help stabilize the mortgage giants. Additionally, a new and “independent” regulator to oversee the GSEs will act like a federal regulator to ensure that the GSEs are financially stable.

The new law includes the FHA Modernization Act of 2008, which gives the venerable government insured mortgage a face lift. There have not been such significant changes to FHA since its inception in 1934. Among the many changes, FHA will have a more streamlined process, increase the down payment to 3.5% of the purchase price, bar down payment assistance programs, and require home ownership counseling for home buyers.

The new law seeks to prevent mortgage fraud by launching efforts to license all mortgage originators. Although many states now require mortgage originators to be licensed, the new law will focus on those originators who are exempt from current laws (which typically include mortgage originators who are employed by federally chartered banks).

New mortgage disclosure requirements expand the Truth In Lending Act (TILA) to require lenders to provide meaningful information to consumers about their loans. The time frame will be three days from application and seven days before settlement. This is meant to allow consumers to compare mortgage rates and terms within a reasonable time frame.

Home buyers who purchase a home between April 9, 2008 and June 30, 2009 will have the opportunity to qualify for a tax credit which is repayable over fifteen years. However, the credit is limited to ten percent (up to $7,500) of the purchase price of a principal residence, and only for first time home buyers who meet income restrictions. Other restrictions apply, so you should consult your accountant for additional information.

For home owners facing foreclosure, the new legislation includes the HOPE for Homeowners Act of 2008. The program will allow the home owner’s present mortgage be refinanced through FHA. However among other qualifications, the program requires the home owner’s present lender to agree to accept losses to 85% of appraised value of home.

To the average person, these sweeping changes may seem dull and unimportant; many remain critical of the new legislation. However, because the Housing and Economic Recovery Act of 2008 is so wide reaching, it is truly historic.