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July 26, 2018December 13, 2022

Affordable housing

It’s no secret that housing is expensive. Home prices are relentlessly marching forward, making it more difficult for first-time home buyers to purchase a home. One of the contributing factors is the low inventory of homes for sale. The deficiency of homes on the market is limiting options and stoking competition among determined home buyers, many of whom are willing to offer slightly more than then their cohorts. All this puts upward pressure on home prices and impacting affordable housing.

Having enough for a down payment and closing costs is a hurdle for many first-time home buyers. Home buying programs exist to help home ownership more affordable for home buyers. The Maryland Mortgage Program (mmp.maryland.gov) offers down payment assistance in the form of loans, an employer match program, or financial grants. In Montgomery County, the Housing Opportunities Commission of Montgomery County (hocmc.org) offers several down payment assistance options, including the House Keys 4 Employees program for many Montgomery County Employees. Of course, you must meet eligibility, so check with your lender and/or mortgage program.

Affordable housing is not only an issue for home buyers. It’s also an issue for renters. According to the US Census Bureau’s American Community Survey five-year estimates results (census.gov), the median rent in the US increased about $21. That does not sound life changing, however, it is the result of an analysis of nationwide monthly rents. Results of the Survey indicated that, “Of the 382 metropolitan areas in the United States, the median gross rent in 156 areas did not change between 2007 to 2011 and 2012 to 2016…” However, “Of the 219 that did change, increases outnumbered decreases four to one with 175 increases and 44 decreases.”

Some areas had a decrease in rent, while others faced increases. Among some of the areas with top increases include Andrews TX and McKenzie County ND, where monthly rents increased an average of $352 and $397 respectively.

The Census Bureau recent survey on rent concludes that “gross rents are on the rise.” Other Census data indicates that 2017 had the lowest percentage of renters move since 1988. The combination of fewer available rentals and increased rents are making it difficult to find an affordable rental.

Although “affordable housing” has been tossed about like a football, it wasn’t until Mary Schwartz and Ellen Wilson’s (US Census Bureau) analysis of the 2006 American Community Survey that really gave it meaning (Who Can Afford To Live in a Home?: A look at data from the 2006 American Community Survey; census.gov). The analysis revealed the percentage of income that is spent towards housing.

The report indicated that forty-six percent of renters spend 30 percent or more of their income on housing costs. Compare that to home owners: thirty-seven percent of owners with mortgages and sixteen percent of owners without spent 30 percent or more of their income on housing. Schwartz and Wilson came up with the “30 percent standard,” and discussed that thirty percent or more of income spent on housing is considered a “housing-cost burden.”

Addressing affordable housing for renters, Representative Joe Crowley introduced H.R.3670 – Rent Relief Act of 2017 to help renters with their housing-cost burden. The credit would only be available for taxpayers whose gross income is less than $125,000. The bill allows for a refundable tax credit when rent exceeds 30 percent of the individual’s gross income for the taxable year. Depending on the renter’s gross income, the amount of the credit could range from 10 to 100 percent of the excess (above 30 percent). One caveat is that if the tenant’s rent exceeds 150 percent of the fair market rent for that specific residence, the excess above 150 percent won’t be included for the purpose of determining the amount of the credit. Government-subsidized renters would be able to claim a credit equal to 1/12 of the rent paid by the taxpayer. Although the bill was last heard in the House Committee on Ways and Means, at the time of this article, it is being prepared by Senator Kamala Harris to be introduced in the Senate.

Maryland offers tax credits for some renters, check with the Maryland Consumer Rights Coalition (marylandtaxcredit.com) for qualifying information.

By Dan Krell
Copyright © 2018.

Original published at https://dankrell.com/blog/2018/07/26/affordable-housing/

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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.

June 18, 2018January 7, 2020

Modern homeownership

June is National Homeownership Month. In recognition of modern homeownership, National Association of Realtors President Elizabeth Mendenhall stated in a June 1^st press release that “National Homeownership Month is a time to celebrate and promote the modern American Dream of owning a home. Homeownership changes lives and enhances futures, and many Americans see it as one of their greatest hopes. These individuals are counting on the nation’s 1.3 million Realtors to champion and protect homeownership and help make it more affordable, attainable and sustainable (nar.realtor).”

The NAR provides a history of celebrating modern homeownership which goes back almost a century (nar.realtor). The roots of celebrating homeownership go back to the 1920’s when local associations would bring together consumers and brokers during “Real Estate Day” events. In 1955, the National Association of Realtors created a national “Realtor Week” to promote the value of Realtors when buying a home. The celebration of modern homeownership began in 1976 when “Realtor Week” was changed to “Private Property Week.” Then in 1986, the celebration was changed to “American Home Week” to promote owning a home as part of the American Dream. June became National Homeownership Month through a proclamation by President Bush in 2002, which expanded the American Home Week to include HUD initiatives. Although 2008 was the last official proclamation of National Homeownership Month, it has been observed annually. However, last year, President Trump revived the annual proclamation recognizing the significance of homeownership.

Although the idea of homeownership hasn’t changed since the 1920’s, many things have. For example, buying a home is much easier and affordable today than it was then. You can now search homes from your couch, rather than driving to individual broker offices. Additionally, low down payments and thirty-year fixed rate mortgages have made modern homeownership a realty for many.

Of course, some things haven’t changed in a century. A home is still an asset that maintains relative market value. Given regular cycles of up and down markets, real estate can appreciate over time. There are also some tax advantages to owning a home (consult your tax preparer). Furthermore, owning a home stabilizes communities and encourages civic pride, which positively affect home values.

Additionally, there are many social benefits to homeownership. Studies demonstrate that home owners tend to be more charitable, have an increased connection to their neighborhood, have an increased general positive life outlook, express an increased self-esteem and higher life satisfaction, and be healthier. Other studies indicate that children living in owner-occupied homes have higher test scores, higher graduation rates, decreased delinquencies, and an increased participation in organized activities.

homeownership rate — Homeownership Rate (census.gov)

The comparisons of the costs of renting vs. the costs of owning a home hasn’t changed over time. Of course, the debate takes on a different tone depending on the state of the economy. During the Great Recession, many believed that owning a home was folly. Even after the recession, many continued to believe that real estate wasn’t a viable investment, while discounting the other benefits of homeownership. The homeownership rate bottomed to a modern low of 62.9 percent during the second quarter of 2016 (census.gov). However, homeownership is back in vogue. Even with increased home prices and mortgage rates, buying a home today can still be less expensive than renting.

Modern homeownership – your home is a silent witness to your life.

You have a relationship with your home. When you own a home, your relationship with it is intimate and symbiotic, which contributes to an intangible and intrinsic sense of wholeness.

Original published at https://dankrell.com/blog/2018/06/18/modern-homeownership/

By Dan Krell
Copyright © 2018.

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April 20, 2018July 18, 2019

Housing inventory crisis?

The low housing inventory crisis has plagued the housing market for about six years. Low inventory has frustrated home buyers and all but eliminated move up home buyers. The ongoing housing inventory crisis is an obstacle to a balanced housing market.

As a result of the ongoing housing inventory crisis, existing home sales may see a decline in the next few months, when spring sales should be strong. Seasonal increases are a given, as National Association of Realtors (nar.realtor) data indicated a 3.0 percent month-over-month increase for February existing home sales and a 3.1 percent month-over-month increase in the Pending Home Sale Index (the Pending Home Sales Index is a forward-looking dataset indicating the number of homes that are under contract). However, February sales only increased 1.1 percent from last year. But the tell of slowing activity is the 4.1 percent decrease in pending home sales from last year.

Most experts blame the sluggish home sale activity on low housing inventory. NAR’s reporting that February’s seasonal month-over-month 4.6 percent increase of total housing inventory is expected. However, the 8.1 percent decrease in housing inventory compared to last year is worrisome.

The Greater Capital Area Association of Realtors (gcaar.com) March 2018 data for single family home sales in Montgomery County indicated a decline in activity across the board. Listings decreased 11.1 percent month-over-month and 7.8 from last year. Contracts decreased 6.6 percent month-over-month and 6.9 percent from last year. While closings only decreased 3.8 percent month-over-month, there was a 7.8 percent decrease from last year.

Another sign that that the housing market is in crisis is last week’s announcement from Zillow. If you have not yet heard, Zillow is expanding their Instant Offer program and plans to jump into the housing market (zillow.com). They plan to fix and flip homes by making cash offers and buying houses like other investors who participate in their IO program. The homes will be listed for sale with real estate agents who subscribe to Zillow’s Premier Agent program, as well as select partner brokers.

Zillow Chief Marketing Officer Jeremy Wacksman stated,

“Even in today’s hot market, many sellers are stressed and searching for a more seamless way to sell their homes…They want help, and while most prefer to sell their home on the open market with an agent, some value convenience and time over price. This expansion of Instant Offers, and Zillow’s entrance into the marketplace, will help us better serve both types of consumers as well as provide an opportunity for Premier Agents to connect with sellers. This is expected to be a vibrant line of business for us and for our partners in the real estate industry, while providing homeowners with more choices and information.”

The venture into flipping is a huge deviation for the internet juggernaut, whose revenue is mostly generated by selling advertising and leads to real estate agents and loan officers. The reaction in the industry is mixed, however Zillow’s stock dropped 7 percent the day after the announcement. Critics, including experienced real estate investors, scoffed at Zillow’s ambitious plan to flip a house within ninety days.

In a market where home owners are reluctant to sell, and frustrated home buyers are dropping out, Zillow needs to find ways to increase lead generation to grow subscribers (see why tech models looking for alternate revenue).

While being ridiculed by many, Zillow’s flipping plan may be a brilliant strategy to generate home seller leads for agents. Zillow acknowledges in their press release that “the vast majority of sellers who requested an Instant Offer ended up selling their home with an agent, making Instant Offers an excellent source of seller leads for Premier Agents and brokerage partners.” If Zillow’s plan works, it could also grease the wheels of the housing market by turning reluctant home owners into sellers.

As a home seller, the home sale inventory shortage limits your competition. But be aware that it’s not entirely a seller’s market. Your home’s condition can significantly lower the sales price, or even prevent a sale. Serious consideration should also be given to your listing price. Additionally, you should focus your attention to preparing your home to show to home buyers.

By Dan Krell
Copyright © 2018

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March 29, 2018July 16, 2019

Interest rate increase – Don’t panic

Last week, the Federal Open Market Committee (FOMC) decided to raise the federal funds rate. The federal funds rate is the interest rate that is charged to banks for borrowing overnight funds to maintain the required target funds. Although the Fed interest rate increase means that a banks’ business is getting more expensive, it doesn’t necessarily mean that mortgage interest rates increase in kind.

If mortgage rates are not always affected by the Fed’s interest rate increase, then what is?

Katherine Reynolds Lewis pointed out that the FOMC’s interest rate hike indirectly influences jobs, wages, prices of the things we buy, and other items (7 ways the Fed’s decisions on interest rates affect you; bankrate.com; March 20, 2018). She states, “Sometimes mortgage rates go up when the Fed increases short-term rates, as the central bank’s action sets the tone for most other interest rates. But sometimes mortgage rates fall after the Fed raises the federal funds rate.” An example of this is the seventeen rate increases during 2004-2005 when mortgage interest rates initially dropped, then slightly increased a year later. And most recently, the three Fed rate increases during 2017 when mortgage interest rates remained stable.

The reason why a FOMC interest rate increase doesn’t always affect mortgage interest rates is because mortgage interest rates are tied to the bond market. The bond market is typically a bellwether of the economy. It is highly likely that the bond market baked in last week’s Fed’s rate increase prior to the FOMC announcement. Bond yields have already been increasing due to an improving economy, which pushed mortgage rates higher in recent weeks.

In fact, the Freddie Mac Press release the day after the Fed’s announcement indicated that mortgage rates increased one basis point (freddiemac.com; March 22, 2018):

“The Fed’s decision to raise interest rates by a quarter of a percentage point puts the federal funds rate at its highest level since 2008. The decision, while widely expected, sent the yield on the benchmark 10-year Treasury soaring. Following Treasurys (sic), mortgage rates shrugged off last week’s drop and continued their upward march. The U.S. weekly average 30-year fixed mortgage rate rose 1 basis point to 4.45 percent in this week’s survey.”

Immediately following the Fed’s interest rate increase, NAR’s chief economist, Lawrence Yun, stated “We are in the middle innings of monetary policy normalization (nar.realtor, March 21, 2018).” Yun believes that the labor market is pushing the Fed to act to stave off inflation. He stated that consumers should expect more rate increases throughout 2018. However, he believes that increased new construction can belay future Fed rate increases:

“Housing costs are also rising solidly and contributing to faster inflation. The one thing that could slow the pace of rate increases would be to tame housing costs through an increased supply of new homes. Not only will more home construction lead to a slower pace of rate hikes, it will also lead to faster economic growth. Let’s put greater focus on boosting home construction.”

Yun’s call to home builders to increase housing stock is preaching to the choir. The housing market’s tight sale inventory should already be spurring home builders to crank out new homes. But there are challenges. The latest new construction statistics released by the US Census (census.gov) indicated that building permits issued during February were 5.7 percent lower than January’s permits, but 6.5 percent higher than last February.

By Dan Krell
Copyright © 2018

Original published at https://dankrell.com/blog/2018/03/29/interest-rate-increase-dont-panic/

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December 8, 2017January 26, 2020

New homes allure is neurological

Last week I mentioned that new home sales jumped 18.7 percent year-over-year, which is a ten-year high. It should come as no surprise that new homes are selling like hotcakes. After all, existing home inventory has been and remains historically low, which doesn’t give many options to home buyers. But there are other reasons for the allure of new construction. Some of the home buyers’ motives are apparent and some are not so obvious.

The idea of buying new construction goes beyond the “new home feel.” Buyers of new homes are attracted to modern designs and trends that are incorporated into new houses. New home construction takes advantage of modern building techniques and materials that allow for the open floor-plan concept that many home buyers prefer. Many of the materials used in new construction are “engineered” for efficiency and longevity.

Buyers of new homes like the feeling that there will be minimal maintenance for the first year. Everything is brand new and there is sense of confidence that the home’s systems won’t need major repairs or replacement. Being the first owner of a home also gives assurance that they won’t have to deal with the poor maintenance habits of the previous owner. This is a plus for home buyers who don’t have a lot of financial reserves to address home maintenance emergencies. Instead, they can begin to save and budget for future repairs and replacements that should be years down the road.

New home builders take advantage of current trends in green building practices. Many new home builders tout their LEED certification, demonstrating their commitment to energy efficiency and sustainable resources. Green building practices are not only used when the home is built, but is actually built into the design. Home owners seeking LEED certified builders believe they will have a smaller impact on the environment and save money on energy costs.

A new trend that buyers are pursuing is the “healthy home.” The healthy home concept emphasizes the quality of the air inside the home. Home buyers are becoming aware of the physical and environmental benefits of good indoor air quality, which can improve their emotional well-being and reduce the potential for respiratory distress.

But there is another reason why home buyers are attracted to new homes, and it lies within the brain. Research has demonstrated time and again that consumers respond to novelty. This means that home buyers have a tendency to want “new.” This can be interpreted into making an old home new by renovating a kitchen, bathroom, etc. Or it can mean buying a newly built home.

The novelty seeking behavior of the home buyer isn’t just a choice, as some may argue, it’s neurological. Basically, the desire for a new home lies within the brain. A study conducted by Nico Bunzeck and Emrah Düzel (Absolute Coding of Stimulus Novelty in the Human Substantia Nigra/VTA; 2006; Neuron 51, 369-379) demonstrated that the hippocampal region of the brain responds to novel (new) stimuli. The hippocampal region is part of the limbic system, which is noted for being responsible for memory and emotions. It has also been associated with motivation.

The study also discusses the idea that novelty seeking behavior isn’t just emotional, but it is also rewarding. This means that there is a behavioral loop for seeking new things, including buying a new home.

Home sellers need to take note of these findings. Translating this study to home buyers may mean that a home’s feeling of “newness” is important, regardless if it’s construction, renovation, or even how the home is decorated. Understanding what attracts and motivates home buyers can be the tipping point to get a home sold.

Original published at https://dankrell.com/blog/2017/12/08/new-homes-allure-neurological/

by Dan Krell
Copyright©2017

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