Housing bubble countdown

The March S&P/Case-Shiller U.S. National Home Price Index (spindices.com) was announced May 31st to reveal a 5.2% increase in home prices.  Although down from last March’s 5.3% increase, home prices seem to be appreciating at a regular pace, with the metro areas of Portland, Seattle, and Denver leading the way with double digit gains (year-over-year price increases of 12.3%, 10.8%, 10.0% respectively).  As home prices climb, so too are the claims that we are experiencing a housing bubble.

Those concerned about the next bubble have been ringing the alarm bells since last fall, when the combination of limited inventory, multiple offers, and rising prices created an environment in some regions that was reminiscent of the go-go market just prior to the last market bust.  And like the broken watch that is correct twice a day, those naysayers may eventually be correct – but it may not be for another eight years.

How to predict a housing bubble

According to Ted Nicolais, the real estate cycle has been steady since 1800 (How to Use Real Estate Trends to Predict the Next Housing Bubble; dce.harvard.edu; February 20, 2014).  Writing for the Harvard University’s Department of Continuing Education’s The Language of Business blog, Nicolais maps out Homer Hoyt’s cycles and found a regular 18-year cycle to the bubble and bust housing market (albeit two exceptions).

The 18-year cycle, as it turns out can be observed by analyzing trends.  An applying Henry George’s four phases of the real estate cycle (as modernized by Glenn R. Mueller), Nicolais can determine how and when the next housing bubble will occur.  (Henry George was a nineteenth century economist who studied the boom-bust cycle of the economy).

The first phase is the “recovery.”  Home prices are at the bottom, and demand increases.  Real estate vacancies decrease as economic activity increases, which fuels the economy.

real estate bubbleThe second phase is the “expansion.”  Housing inventories dwindle, there is little is available to buy, and finding a rental becomes difficult.  Nicolais explains that an issue with real estate is that once demand increases, filling inventory takes a long time.  New development can take two to five years.  Until new inventory is added, price growth accelerates; and rather than valued at market conditions, real estate becomes priced to future gains.  During a real estate boom, people buy into the prospect of “future growth” and believe the escalating prices are reasonable.

Phase three is “hyper supply.”  When the completion of new development begins to satisfy demand, inventories fist stabilizes and then swells.  Price growth begins to slow.  Nicolais stated that the amount of continued development will determine the severity of the impending recession; while demand is satiated, new inventory comes to market and vacancies increase.  He asserted that “wise” developers stop building during this phase.

Phase four is the “recession.”  New development is stopped, while projects coming to completion add to a growing inventory.  Occupancy rates and prices fall; property values and profits dwindle.  Developments in mid-construction may not be completed because they are no longer financially feasible.

Following the four phases and the 18-year cycle; Nicolais stated that the great recession was not caused by external forces, but rather occurred on schedule!  He figures that the current housing market is transitioning from recovery to an expansion phase.  And with the exception of the occasional slow down, he predicts that the next housing bubble will be in 2024.

Original published at https://dankrell.com/blog/2016/06/03/housing-bubble-countdown/

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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.

Get top dollar for your home

Get top dollar for your home
Get top dollar for your home (infographic from LJHooker.com)

The guarantee of “Getting top dollar for your home” is a theme in many real estate ads, as well as being promised by many agents.  Of course the goal of every home owner is to  get top dollar is the goal for every home seller!  But why is this meme still prominent, and is it still meaningful?

What does “get top dollar” mean anyway?  Getting top dollar on your sale may be relative to other home sales during the same period.  Market conditions and timing are variables that may dictate your sales price; home sale prices are lower when home buyer demand wanes, as well as sales that occur during winter months.  However, other influences on sale price include your home’s physical location and condition.  For example, homes that sit on (or are in close proximity) to a main thoroughfare typically sell for less; as well as houses with deferred maintenance and a lack of updates.

Is “getting top dollar” just about listing at a high price?  The key to a successful sale is pricing your home correctly.  Proper pricing includes analyzing your local market, and comparing your home to the most recent neighborhood sales that are most similar to your home in style, size, age, and condition.  Also, looking at market trends in three and six month segments will determine a seasonal effect.

How can you tell if your home sold for top dollar?  Certainly if your house sells for more than others in the neighborhood, you might think you got “top dollar.”  But if your neighbor sells immediately after you and sells for more; your claim to getting top dollar is now in jeopardy.  There is also the home sale price conundrum: If your house sells fast with multiple offers, you might think that the list price was too low; However, if you price your home too high, you risk over pricing such that the house might languish on the market and miss the window of opportunity.

Maybe the promise of “getting top dollar” is just a marketing ploy by real estate agents to get your listing.  A top complaint by home sellers is that their agent misled them; often citing the promise of a high sales price, only to be coerced into reducing and/or accepting a lower price at a later time.  Regrettably, there are real estate agents who resort to questionable sales tactics to get business; and unfortunately, they learn these tactics from real estate trainers, and/or develop them on their own and share with other agents.

Maybe “getting top dollar” for your house is a metaphor for being satisfied.  Although you might think you could be satisfied with just selling for a high price; customer satisfaction includes other factors too, including level of service.  It has been determined that many consumers are less interested in hiring agents whose focus is about being “#1;” rather, consumers want to be treated as if they are “#1.”

Maybe “getting top dollar” is about your bottom line.  Consider that many home buyers in today’s market are seeking “turnkey” homes, where they won’t have to worry about immediate maintenance issues – and some are willing to pay “top dollar” for such a home.  Be honest about your home’s location, condition and features.  Making some modifications can increase the sales price, however at a cost.  A cost-benefit analysis of pre-listing repairs and updates may help you decide on the projects that will add to your sales net.

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Presidential election and home sales

Elections have vastly changed in mood and intensity.  It used to be that the candidates debated about substantive issues looking for win-win solutions, including housing.  Maybe some of you remember how both the Clinton and Dole campaigns showcased their ideas of expanding the capital gains exemption during the 1996 election.  Housing and home sales doesn’t seem to be a platform issue anymore.  Elections have become divisive and nasty, even among the electorate; and for many Americans, the trending (real estate) election issue is – whom is moving to Canada!

That’s right, moving to Canada.  Maybe you’ve heard someone at work or at the store proclaim they are moving to Canada if “the other candidate” wins the election.  The theme of moving to Canada after the election has become a mantra so much so that it’s become part of pop culture. The idea has even been satirized by the likes of South Park.  And of course there is the growing number of celebrities who vow to move to Canada if the election outcome isn’t to their liking.

Of course the threat of moving to Canada is tongue in cheek (for most), or is it?  Nevertheless, leave it to astute real estate agents who realized that people considering such a move is now a target market.  Agent ads and blog posts popped up in recent weeks reaching out to those disaffected home owners asking for their business.  Reporting for Buzfeed, Craig Silverman reported on two agents who posted such an ad on their Facebook pages (Leaving Because Of Trump? These Texas Realtors Want To Sell Your House; buzfeed.com; May13, 2016).  Although both agents received a lot of attention for their seemingly whimsical posts, there was a mixed response; some did not get the humor.  It was reported that one of the two agents interviewed was asked to remove her post; and of course neither reported any new business from the posts.

Every four years, people wonder if presidential elections effect the real estate market.  During the 2012 election cycle, the real estate portal Movoto took it upon itself to find an answer (David Cross; Election Years Are Bad for Home Prices; movoto.com; May 12, 2012).  They analyzed historical data from the California Association of Realtors® and found that there is indeed a direct effect of a presidential election on home prices (at least in California).  They determined that the average home sale price during an election year is lower than that of the years preceding and following an election.

Movoto’s hypothesis was: “Presidential election years are stressful for the American people and in times of uncertainty people are less likely to take chances—this includes making large purchases such as a new house.”  While the National Association of Realtors® comment on Movoto’s findings was, “We’ve observed no correlation between levels of home sales and an election year. The market responds to a wide range of economic factors, including jobs, interest rates and consumer confidence.”

Although there maybe anecdotal evidence that presidential election years affect home prices; there is no doubt that the outcome of a presidential election effects policy, which as a result affects the economy and the housing market (see Experts: Housing to Grow Steadily, But Maybe Less So if Trump, Cruz or Sanders is Elected President; Zillow.com; May 17, 2016).  But no one has yet suggested that US elections would have an effect on Canada’s real estate market.

By Dan Krell
Copyright © 2016

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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.

Real estate agent robots

Are real estate agent robots the future of home sales?
Are robot real estate agents the future of home sales? (infographic from techspot.com).

Many erroneously describe Gordon Moore’s prediction as the doubling of computing power every two years.  “Moore’s Law” is more accurately described as the doubling of transistors on a chip every two years.  The point is that computer power is on steep path of improvements; and the prediction has been accurate since Moore’s 1965 paper “Cramming more components onto integrated circuits” (Electronics; April 19, 1965).  What does Moore’s Law have to do with real estate? Everything.  Many industries have benefited as computer processing power increased – including real estate.   Will we see real estate agent robots in the future?

It is often said that a smart phone has thousands more computing power than the Apollo guidance computer.  Consider how far computing power has increased over the last fifty years; common computer processors today exceed 1 billion transistors per chip with average clock speeds over 2.5 GHz (the Mac Plus I had in graduate school had an 8MHz processor with only 68,000 transistors!).  The ever growing processor power has allowed major developments in artificial intelligence (AI) and robotic applications we are witnessing today.  And the promise of quantum computing is expected to make our current computers seem like abacuses.

A cutting edge 2013 paper by Carl Benedikt Frey and Michael Osborne, of the University of Oxford, discussed the effects of advancements computerization and robotics on employment and the labor market (The Future of Employment: How susceptible are jobs to computerisation? Oxford Martin School – University of Oxford; September 2013).  The authors concluded that about 47% of the US workforce is at risk of being “automated soon” (which is in the next ten to twenty years).  Workers expected to be affected include, “…transportation and logistics occupations, together with the bulk of office and administrative support workers, and labour in production occupations…” The service industry, including real estate, was singled out as being affected by AI and robotics.

Included among the top occupations most at risk included: real estate broker, real estate agent, property manager, and real estate appraiser. The increasing reliance on automated property valuations by lenders, real estate agents, and consumers is a testament to the advancement of AI in the industry.  Back in April, Inman (a leading real estate information publisher) devised an experiment to see if a computer algorithm would best a real estate broker in choosing homes for potential home buyer.  The results announced May 10th revealed that the computer program did a better job than the real estate agent (Broker vs. bot: And the winner is…; inman.com; May 10, 2016).  Of course, there were limitations to Inman’s test; but still a notable result nonetheless demonstrating how AI is affecting the real estate industry. Robotics is making significant advances too.

Recent developments have made self-driving cars real, along with Honda’s Asimo; and even artificial companions.  You can now purchase your own service robot, if you can afford it.  Just like AI, robots may also take over real estate agent tasks in the near future.  Imagine walking into an open house and being greeting by a friendly and helpful robot! We often talk of how quickly the internet has developed and its impact on the real estate industry.  And it’s partly due to rapidly increasing computer processing power and Moore’s Law.  Imagine how AI and robotics will change home buying and selling in ten or twenty years.  And once quantum computing becomes commonplace, you may even experience a real virtual tour via a holodeck.

Original at https://dankrell.com/blog/2016/05/13/real-estate-agent-robots/

Copyright © Dan Krell If you like this post, do not copy; instead please: reference the article, like it at facebook or re-tweet.

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.

Home pricing strategy and housing market shift

home pricing strategyThe apparent luxury home market collapse is most likely due to an increased inventory of luxury homes, and a lack of foreign investors (who were active in the market several years ago).  The impact of reduced prices is noticeable in home price indices as well, as there seems to be a consensus that there is a hint of a slowdown of price appreciation.

Corelogic’s May Home Price Insights (corelogic.com) indicated that nationwide home prices during March increased 6.7% year over year; and projects 5.7% appreciation for next March.  Additionally, the report highlights twelve states that have reached new home price highs.  Month over month average home prices nationwide increased 2.1%; however next month’s projection is for a gain of only 0.7%.

April’s S&P/Case-Shiller National Home Price Index (spindices.com) indicted that February home prices increased at an annual rate of 5.3%, which is roughly the same as the previous month’s index.  The hot real estate markets of Portland, Seattle, and Denver realized the highest year over year gains, growing at 11.9%, 11% and 9.7% respectively. However, the national 0.2% month over month gain was not as encouraging.

David Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices, provided commentary about the April S&P/Case-Shiller report, saying “…Home prices continue to rise twice as fast as inflation, but the pace is easing off in the most recent numbers…While financing is not an issue for home buyers, rising prices are a concern in many parts of the country. The visible supply of homes on the market is low at 4.8 months in the last report. Homeowners looking to sell their house and trade up to a larger house or a more desirable location are concerned with finding that new house. Additionally, the pace of new single family home construction and sales has not completely recovered from the recession.”

Although the recent home price indices have not yet established negative trends, they are telling of a housing market under pressure.  Local home sellers should take note that the S&P/Case Shiller Home Price Index for the Washington DC metro area indicates a month over month -0.2% (negative two tenths of a percent) change in the average home price.  The Corelogic HPI Market Condition Indicator for the Washington DC-MD-VA-WV metro area is “Overvalued.”

If you are planning a home sale during the latter half of this year, you should be extra aware of the local market trends; paying attention to competition and general inventory.  Home pricing strategies that were common last year may not work to your advantage.  Over pricing your home could result in driving home buyers to your competition, rather than netting a higher sales price.

Original post at https://dankrell.com/blog/2016/05/06/new-home-sale-strategy-needed-as-home-prices-start-to-shift/

Copyright © Dan Krell

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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.