Real Estate Thanksgiving

real estate thanksgiving
A Real Estate Thanksgiving

Thanksgiving is a time to take stock and be thankful.  Although the original Thanksgiving may have had a religious purpose, today’s secular holiday is about traditions.  However, it seems as if the tradition of enjoying a peaceful meal with family and friends has been increasingly difficult over the past few years.  But since the election is over, let’s try to talk about something worthy of discussion (at least until the next election cycle begins), such as real estate and housing. Yes, it’s a “Real Estate Thanksgiving.”

Why shouldn’t we focus on something we all can get behind? There is a good chance that your dinner guests will include someone will be moving next year.  Whether they are buying, selling, or renting a home, someone at the dinner table will be affected by such issues as housing affordability, mortgage rates, and availability of homes.

Things to talk about during your Real Estate Thanksgiving might be about mortgages, home sales, home prices, rent, maintenance, etc.  The topics are seemingly endless.

Talking about mortgages during the Real Estate Thanksgiving.  The current news is about mortgage interest rates.  How high will mortgage rates go?  Housing experts agree that mortgage rates will likely be about 5 percent next year (although the Fed just announced they may hold off on interest rate hikes after spring).  Paying more interest on your mortgage may not be your idea of positively affecting home sales.  However, increasing mortgage rates typically moderate home price growth because of affordability.  Another silver lining of increasing interest rates is a stimulated lending environment.  As a result, mortgage companies will likely further loosen lending requirements, which will increase the home buyer pool.

Real Estate Thanksgiving and home sales could focus on the reasons for the fall slowdown.  Will home sales rebound this spring?  You’re probably aware that home sales have dropped off during the fall.  Major media outlets have grasped the news and created the meme depicting “housing bubble 2.0.”  You can’t really blame them because there are many economists who are projecting bleak home sales to continue through spring.

The main reason for a disappointing 2019 forecast given by many industry insiders is affordability.  I contend that this rationale is shallow and one-dimensional.  There is no doubt that rising interest rates and increasing home prices are on the minds of home buyers.  However, the lack of home sale inventory is a dimension that is often forgotten when discussing home sales and rentals.  The lack of available homes for buyers and tenants to choose has forced many into fierce competition.  The result has been upward pressure on home prices and rents.

You have to also consider the economy at your Real Estate Thanksgiving. The strength of the economy is an aspect affecting the housing market that many haven’t discussed.  Whether you want to admit it or not, the economy is the strongest it has been in decades.  Consumer outlook is optimistic.  Home buyers and renters have expressed confidence about their job prospects too.  Employers are competing for talent, influencing the highest wage increases in over a decade.

Commenting on the economy, First American chief economist Mark Fleming believes that the economy will be a major force in the housing market (How Will a Potential September Rate Hike Impact Existing-Home Sales?; blog.firstam.com; September 18, 2018).  One of the features of his analysis for 2019 is “It’s the Economy and First-Time Home Buyer Demand, Stupid.”  He described a pent-up demand from a wave of millennial of first-time home buyers who will be in the market next year.

Fleming explained that home sales slump during an adjustment period that home buyers undergo when interest rates increase.  The same thing occurred in 2010 when rates increased from 4.5 to 5 percent.  However, the economy was struggling at that time, and home sales were stagnant.  Fleming described First American’s positive housing forecasts overcoming rising interest rates, saying,

“According to our Potential Home Sales Model, the boost from the strong economy and first-time home buyer demand should overcome any downward pressure from rising rates on home sales.”

Original article is published at https://dankrell.com/blog/2018/11/21/real-estate-thanksgiving/

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.

Buyer and seller attitudes about real estate market

Economists are officially pessimistic about the housing market.  This is the general sentiment following another month of declining home sales.  Experts are pointing to a number of factors for the slowdown, including increased interest rates and housing affordability.  But what are home buyer and seller attitudes about real estate? The National Association of Realtors’ most recent Housing Opportunities and Market Experience survey hints at a busy spring!

Economic attitudes about real estate market

attitudes about real estate
Attitudes about real estate market (infographic from nar.realtor)

An October 19th NAR news release (nar.realtor) reported that September’s home sales were the weakest in several years.  The nationwide trend affected all regions.  NAR chief economist Lawrence Yun stated:

This is the lowest existing home sales level since November 2015…A decade’s high mortgage rates are preventing consumers from making quick decisions on home purchases. All the while, affordable home listings remain low, continuing to spur underperforming sales activity across the country.”

First-time-home-buyers are finding the housing market increasingly challenging.  This segment’s participation needs to be strong for a healthy home sales.  September’s low thirty-two percent first-time-home-buyer participation is attributed to rising interest rates and home prices.

But low housing inventory is also an issue.  September’s housing inventory decreased to 1.88 million existing homes available for sale (from the 1.91 available during the previous month).  NAR President Elizabeth Mendenhall stated:

“Despite small month over month increases, the share of first-time buyers in the market continues to underwhelm because there are simply not enough listings in their price range.”

Economists at Fannie Mae believe that the housing market will continue to disappoint.  In an October 18th press release (fanniemae.com) Fannie Mae Chief Economist Doug Duncan stated:

“Our expectations for housing have become more pessimistic. Rising interest rates and declining housing sentiment from both consumers and lenders led us to lower our home sales forecast over the duration of 2018 and through 2019. Meanwhile, affordability, especially for first-time homebuyers, remains atop the list of challenges facing the housing market.”

But what do economists really know about the future?  Let’s hear it directly from the consumer!

Home buyer and seller attitudes about real estate

NAR’s Housing Opportunities and Market Experience survey tracks opinions from renters and homeowners about homeownership, economy, and the housing market.  The release of their third quarter 2018 survey indicates that sixty-three percent of respondents strongly or moderately believe that it’s a good time to buy a home.  Although optimism is somewhat diminished from the second quarter’s survey, there continues to be a positive sentiment about buying a home.  The survey’s positive sentiment continues even though a majority of respondents believed that home prices will continue to increase in the immediate six months.  Additionally, a majority of respondents believe that qualifying for a mortgage may be an obstacle to a home purchase.

The survey also concurs with other metrics indicating high consumer sentiment for the economy.  In light of the recent slide in home sales, NAR’s recent Housing Opportunities and Market Experience survey reveals a near-record high of sixty percent of households believe that the economy is improving.”  Adding to the strong sentiment is the survey’s increased monthly Personal Financial Outlook Index, which indicates that respondents believe that their financial situation will be better in six months.

The survey also indicates a record high of home sellers who believe it is a good time to sell a home.  But given the seasonal decline of housing inventory, it is likely this will translate to a surge of home listings in the spring.  The added inventory combined with high consumer sentiment will boost the housing market. So sayeth the consumer.

Original located at https://dankrell.com/blog/2018/11/01/attitudes-real-estate-market/

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.

Stock market and home buying

stock market
Real estate and the economy (infographic from nar.realtor)

It’s easy to understand why the recent stock market volatility triggered some into proclaiming that the sky is falling.  The potential for losing money can evoke some strong emotional responses.  Interestingly, some experts have speculated how the recent stock market activity would spill over to consumer spending, including the housing market.  Reporting such as Jacob Passy’s recent article titled “Could Stock Market Volatility Cause House Prices to Fall?” (Marketwatch.com; February 8, 2018) makes for good click-bait.  However, the details of the article would suggest otherwise.  The consensus is that the recent Wall Street activity is not likely to impact the housing market.

Passy is trying to make an argument that the housing market will suffer from the recent stock correction, and subsequent interest rate increases.  But Daren Blomquist, senior vice president of communications at Attom Data Solutions [formerly RealtyTrac], was quoted in Passy’s article saying “The strength of the housing market and economy in general is what’s spooking the stock market.”  However, the volatility may make some home buyers wary of making an investment in housing.

The stock correction and increased Wall Street volatility is not a new phenomenon.  The last market correction with lasting volatility occurred in June and August of 2015,through the fall.  The current stock market volatility is part of the cycle of a healthy economy.  Unlike the crash of 2008, current economic fundamentals are positive.

This stock market correction is not unusual, however it is extraordinary.

Seeking Alpha noted that the percentage drop for the two largest Dow losses this year are not even in the top 100 (10 Figures On Historic Dow Correction; seekingalpha.com; February 6, 2018).  And this correction is distinct, according to ZeroHedge, because most individual stocks were left intact (If This Correction Is Over, It Will Be Unique in Leaving Most Individual Stocks Unscathed; zerohedge.com; February 13, 2018).  Many individual stocks actually made gains while the Dow and the S&P stocks “took it on the chin.”  This phenomenon is unique and is said to demonstrate that the economic fundamentals are working.

As for rising interest rates, they are needed to moderate home prices.  If home prices aren’t controlled by market forces, such as interest rates, then homes will become unaffordable for many home buyers.  Mortgage interest are still historically low, even with recent increases.

Homeownership is out of reach for many home buyers because of increasing home prices.  David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, declared in the January 30th S&P CoreLogic Case-Shiller  Home Price Index release:

Home prices continue to rise three times faster than the rate of inflation.  The S&P CoreLogic Case-Shiller National Index year-over-year increases have been 5% or more for 16 months; the 20-City index has climbed at this pace for 28 months.”

Blitzer pointed out that these increases are not based on home buyer demand, stating, “Given slow population and income growth since the financial crisis, demand is not the primary factor in rising home prices.”  Instead, sharp home price increases are due to the lack of homes for sale and new construction.  And until housing inventory increases, “home prices may continue to substantially outpace inflation.

Lawrence Yun, chief economist for the National Association of Realtors, remarked that the recent stock market volatility should not impact the housing market.  He stated, “Underlying economic fundamentals remain strong.”  However, he cautioned that if the stock market retreats further, it could affect home buyers who plan to use funds from their 401k’s and other investment vehicles as down payment sources.

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.

Prime housing move by Amazon

prime housing
Insight into Amazon (infographic from geekyedge.com)

Amazon is about to make a decision on their “HQ2.”  The highly anticipate decision can be a prime housing move not just for the chosen city, but the region.  As you now know, Montgomery County is on the short list.  Some even have it pegged to be in the top five.  Although many local residents are excited at the prospect of increasing home values, many others are anxious how a Montgomery County Amazon HQ2 will affect their quality of life.

If Amazon chooses Montgomery County, the county will likely see a similar impact that Seattle experienced.  However, rather than be purely speculative, let’s look how Amazon has shaped Seattle.  Stephen Cohen offers interesting statistics looking at how Seattle has changed after Amazon (How Seattle Changed After Amazon Came to Town; seattlepi.com; September 22, 2017).  Cohen points out that Amazon has been based in Seattle since the mid 1990’s, and that the major impact on the town happened when the company moved to the South Lake Union campus (SLU) in 2010.  Since the move, Amazon’s stock price skyrocketed and its market cap exceeded (and has since doubled) that of Walmart.

Cohen’s data goes beyond the pros and cons of having the business giant in the community and compares statistics that span from 2010 to 2017.  During that time, Seattle’s population grew 17.3 percent.  However, it remained as the 18th most populous US city.  Although Seattle followed the national trend of becoming more diverse, its African American population slightly decreased (which was counter the national trend).  Cohen describes Seattle’s population as “skews male,” probably because Amazon’s “workforce is 63 percent male.”

housing
Seattle Case-Shiller home price index (graph from businessinsider.com)

But the home values…Seattle has had one of the hottest and prime housing markets in the country. Seattle’s average home price increases are almost double the national average.  Finding housing in Seattle is very difficult, as the town’s vacancy rate significantly decreased to about half that of the national average.  The city’s median gross rent is 47.6 percent higher than the national average.

Other interesting facts from Cohen’s data…one-person households decreased from about 15 percent to slightly more than 10 percent.  There was a 25.2 percent increase in commuters.  And, the city’s mean household income increased 41.3 percent, which is more than double the national average.

Prime housing is not for everyone.  Cohen cites the sharply increased cost of housing and high cost of living for negatively affected the poor, as well as the middle class.  And although Seattle is the 18th largest US city, it has the third largest homeless population (according to a December 7, 2017 Seattle Times expose “King County homeless population third-largest in U.S.”).

But, Lisa Stiffler reported that Amazon’s philanthropic corporate culture has noticeably changed (What gives? Tech giant Amazon finally boosts its philanthropic rep in its hometown; geekwire.com; December 14, 2016).  She notes that it is evident that employees are volunteering and getting involved with such activities as the Amazon “Non-Profit Expo.”

Seattle’s SLU is described by Stephen Cohen as an “Innovation District,” which is a Brookings Institute term for a “geographic areas where leading-edge anchor institutions and companies cluster and connect with start-ups, business incubators, and accelerators.”  SLU is similar to Montgomery County’s Technology Corridor.  An Amazon move to MoCo’s Tech Corridor would likely dovetail with a $100 million plan to improve I-270 (the infrastructure plan was reported by the Washington Post last April).  Such infrastructure improvements would open up Maryland’s western real estate market, which would ease some of the upward pressure to MoCo’s already tight prime housing market and already increasing home prices.

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.

Marijuana’s high home values

high home values
Weed makes home values high? (infographic from gobankingrates.com)

Did you know that the licensing of medical marijuana dispensaries in Maryland has begun?  There are only a handful of licensed dispensaries at this time, including one in Montgomery County.  Besides dispensaries, Maryland’s budding medical marijuana industry includes growers and processors.  Even though the industry is just taking off, there is growing support for legalizing marijuana for recreational use.  This is evidenced by recent bills introduced in the Maryland General Assembly that focused on establishing a tax for cannabis sales.  Besides increasing tax revenue for states where marijuana is decriminalized, there also seems to be a phenomenon of high home values.

If Maryland does decriminalize marijuana, it could be a potential source of tax.  The San Francisco Chronicle (6 lessons from legal pot in Washington and Colorado; sfchronicle.com; September 30, 2016)   pointed out that the state of Washington has had a windfall since legalizing pot.  It was reported that Washington collected $135 million for the fiscal year 2015 and $186 million for the fiscal year 2016.  They were expected a fifty percent for the fiscal year 2017.  And that is just on the excise tax on pot products, and doesn’t include the collected sales tax.

About those high home values…

Colorado and Washington state have realized a significant housing boom since decriminalizing marijuana.  Washington DC’s housing market has been buzzing along quite nicely as well.  While the surrounding suburbs’ housing market has slowed, GCAAR’s October stats (gcarr.com) reveal that Washington DC’s home sales have surged about ten percent year-to-date and average home sale prices grew about four percent!  Recent empirical studies have validated the housing-marijuana relationship.

One recent paper that provides such evidence was presented at the 2017 Annual Meeting of the Allied Social Sciences Associations held by the American Economic Association.  Cheng, Mayer and Mayer (The Effect of Legalizing Retail Marijuana on Housing Values: Evidence from Colorado; working paper, 2016) measured the “benefits and costs” of legalizing marijuana expressed in home prices.  They concede that although marijuana legalization is controversial, there are some benefits.  They determined that there is a causal effect such that Colorado’s retail marijuana law implementation was instrumental in its recent housing boom.  They concluded that implementing a retail marijuana law will give home prices a bump of about six percent.  They also found that high home values and inventory are mutually exclusive, such that the increase in housing demand did not affect housing supply.

Are high home values worth the affects of decriminalizing pot?  High home values is not everything.

Regardless of high home values, decriminalizing marijuana is not all peaches and cream.  Not to be a buzzkill, marijuana can also negatively impact real estate too.  Amy Hoak’s reporting lists a number of issues where legalizing marijuana has adverse effects to housing (5 ways marijuana legalization affects real estate; MarketWatch.com; November 25, 2014).

A major issue Hoak points out concerns federal law.  Regardless of any state or local retail marijuana law, the Feds still consider marijuana verboten.  Properties (commercial or residential) that are associated with marijuana related activities and can be subjected to civil asset forfeiture.  Another issue is financing properties related to the marijuana industry.  Federally chartered banks conform to federal law and won’t lend on these properties.

Hoak also points out issues with properties where marijuana is processed, sold or used (commercial or residential).  There has been a significant increase in property explosions in states where marijuana has been decriminalized.  The explosions are likely due to processing marijuana into hash oil, a process that involves butane.  Mold is an issue where marijuana is grown, because of the large amounts of water used in the process.  Much like cigarette smoke, marijuana odors can permeate walls and be very difficult to remove.  Even if a lease forbids it, residential landlords can have problems when tenants grow, process, and smoke marijuana in the home.

Regardless of the increased home value phenomenon associated with retail marijuana laws, some homes can be difficult to sell.  High home values aside, homes that have been “tainted” with odors or mold can languish on the market, even if they are in prime locations.  Finally, Hoak pointed out that people are not keen living next to properties involved in the marijuana industry.

Original published at https://dankrell.com/blog/2017/11/17/marijuanas-high-home-values/

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.