Real Estate News and Commentary

November 13, 2022November 13, 2022

Home selling 2023

Memory is flawed and I believe that people forgot what the housing market was like prior to 2020. People were told that the housing market of 2019 was in a new normal, and, yes, signs were pointing to a balanced market. Then 2020 shocked the housing market, and everyone took a short break during the health crisis. After a short market shock, home buyers came back in droves and further stressed the already limited home sale inventory. And for almost two years, a crazy and sometimes irrational sellers’ market was the “new normal.” What will be the new normal for home selling 2023?

Besides quick home sales, home sellers have also become accustomed to double-digit home sale price growth. However, steep interest rate increases have seemingly cooled home buyer motivation. Home sales dropped to their lowest levels in a decade. The question that everyone seems to be trying to answer is how will the current conditions play out.

Supply and demand. The one aspect, in retrospect, that has driven the housing market since 2013 is home sale inventory. Home sale inventory never completely bounced back to equilibrium levels since then, and sparked the several sellers’ market mini-cycles in the past decade.

Chief economist for the National Association of Realtors, Lawrence Yun, agrees, saying in a recent NAR new release “For most parts of the country, home prices are holding steady since available inventory is extremely low. Some places are experiencing price gains, while some places, most notably in California, are seeing prices pull back.”

Yun commented that the sharp mortgage rate spike since January has definitely impacted the volume of home sales this year. However, talking about home sale inventory, he stated, “Housing inventory is about a quarter of what it was in 2008,” Yun said. “Distressed property sales are almost non-existent, at just 2%, and nowhere near the 30% mark seen during the housing crash. Short sales are almost impossible because of the significant price appreciation of the last two years.”

Yun anticipates home sales to continue to decline about 7 percent in 2023, however, national median home prices will modestly increase in the range of 1 percent.

Home selling 2023: If you’re planning a home sale in next year, make certain you have a reasonable home sale strategy. Make certain you prepare you home by decluttering and making necessary repairs. Pay close attention to neighborhood home sale trends. And don’t overprice your home when choosing a list price.

By Dan Krell
Copyright © 2022

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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.

November 5, 2022December 13, 2022

Outperforming the housing market

In 2011 I wrote an article exploring the question of outperforming the housing market by attempting to time real estate transactions. The question was then aimed at home buyers and sellers. New research published in the Journal of Real Estate Research reveals more interesting data as it relates to real estate investors.

In my 2011 analysis of research and data, I discussed why attempting to “time the market” as an owner occupant wasn’t very favorable. It appeared as if attempting to time a purchase or sale didn’t yield the desired result. The conclusion was that long term home ownership was probably better than speculating on buying and selling homes on the exact bottom or top of the housing market.

Likewise, home sellers waiting for the housing market to rebound before making a move probably missed an opportunity as well. So, who is outperforming the housing market?

A recent article published by Wong, Deng, and Chau in the Journal of Real Estate Research (Do Short-Term Real Estate Investors Outperform the Market?; 2022, Vol. 44 Issue 2, p287-309) reveals an interesting conclusion.

The study attempted to further look into the incentives of short-term real estate investors, specifically how various market conditions affect short-term real estate investor performance. The study analyzed real estate transaction data from Hong Kong and found that three economic conditions were favorable to the investor’s performance that seem to mimic the current low-inventory market we are experiencing here. The three items that help the investor performance are: 1) having few sale comparables; 2) having sale prices of the comparables dispersed; and 3) market prices go down. The study’s conclusion is that buying and reselling withing three months generates a gross return that is 6 percent above market appreciation. The authors caution that their study is limited such that there are multiple investor strategies that need to be studied as to the effects on short-term real estate investor performance. They describe short-term real estate investors as engaging in arbitrage, which by definition is basically “home flipping.”

By Dan Krell
Copyright © 2022

October 25, 2022October 25, 2022

Perception of a housing crisis

If you’ve watched the news lately, you might get the feeling that the housing market is imploding. Unfortunately, the talking heads are reporting the titles of the news releases, such as the October 20^th National Association of Realtors press release headline “Existing-Home Sales Decreased 1.5% in September,” without delving into the details. Like anything else that’s reported, just parroting a headline doesn’t tell the entire story. Get the big picture and avert the perception of a housing crisis.

Here are the highlights of the NAR report: “Existing-home sales sagged for the eighth consecutive month to a seasonally adjusted annual rate of 4.71 million. Sales slipped 1.5% from August and 23.8% from the previous year. The median existing-home sales price increased to $384,800, up 8.4% from one year ago. The inventory of unsold existing homes declined for the second straight month to 1.25 million by the end of September, or the equivalent of 3.2 months’ supply at the current monthly sales pace.”

The takeaway is that yes, existing-home sales have been sluggish (eight consecutive months), however does that mean a housing crash? No. Consider the other important data points included in the news release: the median existing-home sale price increased 8.4 percent year-over-year, AND the inventory of unsold homes continues to decrease.

What’s your perception of a housing crisis ? For many, the memories are still fresh of the housing crisis of 2007 and subsequent foreclosure crisis. So, it’s not surprising that the media’s alarms go off when existing-home sales drop as they did recently. However, the fundamentals of today’s housing market are much different than that of 2008-2010. During the housing crisis of 2007, home sale prices plummeted when home sales dropped. Additionally, inventories of unsold homes swelled to record levels.

Today’s housing market is much different and looking at the entire picture, the stats tell a different story than what is being portrayed by the media. NAR Chief Economist Lawrence Yun chalks up the decline in sales to increasing mortgage interest rates, which are approaching the accepted historical average of 7 to 8 percent. He also points out “…Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory… The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010, when inventory levels were four times higher than they are today.”

By Dan Krell
Copyright © 2022

October 12, 2022October 12, 2022

Limit the trendy

Limit the trendy updates when renovating your home. If you’re renovating your home to prepare for a home sale, or for your living pleasure, there’s an overwhelming sense of excitement and creativity focused on the finished product. You may already have a vision of the design for the room and fixtures. Or you may decide to hire an interior designer (or certified home stager) to assist you with the project. Regardless of the route you take, take heed to design trends, as some are more fleeting and personal than others and could hinder your home sale.

One definition of “trend” is current style. Meaning that although a design or style is hot and desirable today, it won’t be in the near future. If you’re updating the home to live in a few years then sell a few years down the road, consider that any update you make today could seem outdated to home buyers in the future. Knowing this could help reign in your current budget, and budget for additional updates down the road.

If you’re renovating to sell, be careful to cross over the line of over-personalization. Over-personalized spaces/rooms/homes can turn off home buyers. Home buyers get distracted from the space of the home when they see updates, designs, and/or fixtures that they don’t like. “Look what they did here…” seems to be an automatic response I hear when viewing homes with clients who get distracted. Of course, distracted and otherwise turned off home buyers typically won’t pursue that home.

If you’re enticed to design by the latest and greatest trend, keep in mind that most home buyers are more interested in homes they can picture living in. A January 17th article from the NAR blog (“The Most-Hyped Home Design Trends for 2022; Home design is reflecting much more personality, from black accents to textures galore, by Krisztina Bell, No Vacancy Home Staging Inc.) has a comment about “maximalism design: “Maximalism is back, if the 2022 fashion shows are any indication. More people are seeking to surround themselves with objects that reflect their personality. We’re seeing expressionistic lighting—like geo-shaped groupings and swirls—as well as an explosion of colorful rugs. It’s popular to mix vintage pieces with contemporary furniture and colorful glass. Put a disco ball in the basement and add tinsel curtains for even more sparkle. That’s just how bold decor is getting. But don’t go overboard with ’70s decor! A few playful and unexpected pieces is all you need for this trend.”

Ms. Bell’s words of wisdom “don’t go overboard”and limit the trendy should be the rule when renovating.

By Dan Krell
Copyright © 2022

October 4, 2022October 4, 2022

Report mortgage fraud

The real estate industry, like other financial industries, has its issues with scammers and fraud. The appearance of new scams and new versions of old scams make mortgage fraud a continuing problem for the industry.

It’s not a victimless crime. You might think of those who are involved in a mortgage fraud scams as cheaters and criminals. However, it is not uncommon for innocent consumers to get caught up in a mortgage fraud scam. In the past, home flipping schemes ensnared unwitting consumers. During the great recession, mortgage modification and foreclosure rescue scams targeted unknowing homeowners.

The Federal Bureau of Investigation (fbi.gov) wants you to report mortgage fraud. The FBI describes mortgage fraud occurring “when someone lies to influence a bank’s mortgage decision or if a distressed homeowner is the victim of a fraud.” There are two types of mortgage fraud, fraud for profit (such as home flipping schemes), and fraud for housing (such as mortgage application fraud).

Application fraud is likely the most common mortgage fraud, as it can occur by any material misstatement, misrepresentation, or omission in relation to getting a loan. “Occupancy fraud” is when a borrower lies to get a better interest rate by stating they will occupy the property when it’s intended to be a rental property. “Employment fraud” is when a borrower lists an employer they don’t work for. “Income fraud” is when a borrower misrepresents their income to improve their profile for underwriters.

Among the many types of mortgage fraud, one takes advantage of seniors with home equity conversion mortgages (also known as reverse annuity mortgage). The FHA underwrites a HECM for borrowers who qualify when they become 62 years old. The HECM provides homeowners access to home equity without payment until the borrower moves or dies. Scammers obtain a HECM in the name of a recruited homeowner to convert equity in the homes into cash. The scammers keep the cash and pay a fee to the senior citizen or sometimes just take the full payout. Sometimes, appraisals are inflated. This type of fraud is more difficult to detect because the lender usually doesn’t discover something is wrong until the home owner dies.

The FBI works with partners to investigate mortgage and financial institution fraud cases. Report mortgage fraud to the FBI (https://www.fbi.gov/investigate/white-collar-crime).

By Dan Krell
Copyright © 2022