Housing Market Archives - Page 14 of 26 - Real Estate News and Commentary

February 18, 2015October 5, 2019

New rules in Real Estate

Real estate canon used to be straight forward and for the most part consistent. For instance, if you planned a sale, you would target spring time because that was generally accepted as the time when home buyer activity was the greatest; or buying a home was a rite of passage. But since 2008, what was generally accepted has been persistently challenged; home buyers and sellers have shifted into a new paradigm with new rules.

It is no coincidence that Zillow Talk: The New Rules of Real Estate (by Zillow CEO Spencer Rascoff and Chief Economist Stan Humphries, Ph.D.) comes at a time when significant changes in consumer beliefs and expectations about real estate have become widely recognized. The book is described by Zillow as “…poised to be the real estate almanac for the next generation.” And looking at the table of contents, you might think that the highly acclaimed tome is just another book about the buying and selling process; yet it seems to discuss practical aspects about buying and selling a home, as well as possibly confronting real estate myths.

It will remain to be seen how influential the work will become, as research has indicated that home buyers are typically well informed and out in front of housing trends.

A 2012 study by Karl Case, Robert Shiller, & Anne Thompson (What have they been thinking? homebuyer behavior in hot and cold markets. Brookings Papers on Economic Activity, 265-315) revealed perceptions and expectations of homebuyers from four metropolitan markets over a 25 year period. The authors concluded that the surveyed home buyers were well informed and very much aware of home price trends prior to their purchase. Data suggested that home buyer opinions (beliefs) fluctuated over time; there was more agreement among respondents during strong markets, and increased doubt during times of market uncertainty. There was also a strong correlation between price perceptions and actual movement in prices. Although home buyers were “out in front” of short term market movements, their short term expectations “underreacted” to actual home price changes; while long term expectations were persistently “more optimistic.”

Suggesting a set of “guidelines” for real estate is a trap that implies that the housing market is straightforward and static; where personal and regional differences don’t matter and the market doesn’t change. However, David Wyman, Elaine Worzala, and Maury Seldin raise the question about becoming complacent with trends and models. In a 2013 exploratory paper (Hidden complexity in housing markets: a case for alternative models and techniques, International Journal of Housing Markets and Analysis, 6:4, 383 – 404) they discuss how rigid market models may lead to rules where buyers and sellers could make poor decisions.

The authors’ discussion of “complexity theory” in real estate in not unlike the application of “chaos theory,” which focuses on letting go of assumptions upon which rules are definitive; and view housing as a dynamic and changing environment. Citing incidents leading up to the financial crisis, the authors make a case for understanding the market as complex and using common sense before making (buying and selling) decisions.

So as we begin to understand the new real estate dogma, it is likely that the new rules will most likely change along with the market. And much like the housing market, consumer beliefs are also dynamic – which seem to be ahead of the industry experts.

Dan Krell
© 2015

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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.

January 8, 2015July 5, 2019

Making real estate sexy again

The go-go market of almost ten years ago was unique. The wealth aspect of the market seemed to have an effect on almost anyone who owned property; there was somewhat of a carnal attraction that had many home owners seeking more property and turning renters into home owners. It was no surprise that home ownership rates swelled to historic highs. Those who sold their homes or cashed out on their equity found themselves wealthier; while those who didn’t sell were happy to know their “paper wealth” was rapidly growing as home values realized monthly double digit gains.

At that time, the attraction to real estate for many seemed to be instinctive; the flirtation between home buyers and real estate may have been about a future of happy living and financial growth and security. Well, the sex appeal of real estate has worn off and seems to have been replaced by a “meh” attitude; probably indicating a lack of inspiration and/or interest.

Trying to regain the attention of home buyers, some agents have tried to re-establish real estate’s sex appeal. And it has been purposeful to attract home buyers by pairing homes with items that elicit carnal desire; listings are surrounded by exotic cars, modern art, and even sexy models have been credited to facilitate sales of luxury properties.

An April 2011 report by Julie Rose of WFAE 90.7 Charlotte (Realty Firm Uses Sex Appeal To Sell Luxurious Homes; wfae.org) described a photo shoot of a luxury home where, …” a blonde in tight jeans arches her back and tips a wine glass to her glossy lips. Her date leans closer, admiring…” But as Rose sates, “She’s lovely, but she’s not what you’re supposed to be looking at…” You’re supposed to be attracted to the kitchen features that seem to be a backdrop behind the model. However, the real estate agent interviewed said that the idea was to give an idea of what the home’s potential could offer.

Not all agents are on board with this technique, some have characterized the sexy advertising as “cheesy” and distasteful. One agent was quoted by Rose as saying, “It’s definitely gonna make someone stop and look at it. But once they’re in the listing looking at the pictures, I think they’re gonna focus a little more on the models rather than focusing on the home. And I think the bottom line is you want people to focus on the home.”

Sex appeal marketing is just a new take on selling a lifestyle. Lifestyle marketing has been the cornerstone of luxury real estate for years. For example, pairing fine art with luxury real estate has become commonplace; homes and condo projects have incorporated art collections to sell the lifestyle. In fact, the premier art show, Art Basel, has become the place to not only buy/sell fine art but high end real estate as well (Luxury Property Brokers Raring To Pounce On Wealthy Art Lovers At Miami Art Basel; November 28, 2013, Forbes.com). And for gear heads who want their homes built around their supercars, Miami’s über luxury Porche Design Tower will open in 2016.

Want to convey a lifestyle about your home? Before you hire models to pose in your home, consider talking to your agent about focusing on the things that made you enthusiastic and energized about your home. Chances are that the buyer of your home will be attracted to it the way you once were.

By Dan Krell
© 2015

December 11, 2014November 23, 2021

Value vs. affordability – how inflation affects home prices

Home buyers have been tagged as being too picky for not buying homes this year. Surely home buyers have a right to be particular; after all, they’ll be spending a lot of time in the house – and spending a lot of money to get it too! But, maybe there are other reasons that home buyers have become hesitant.

Consider the uncertainty that immediately followed the Great Recession, when home sales volume dropped off. At that time home buyers seemed overly analytic, weighing many factors including short term value. Yet in truth they were fearful about economic uncertainty, and paying for a home that could potentially depreciate after closing.

The specter of another housing bubble in late 2013 may have seemed farfetched by many. But the double digit appreciation in many housing markets around the country reminded many home buyers of the environment that existed in the pre-downturn “go-go” market of 2005-2007. Anecdotal reports of bidding wars and high listing prices in early 2014 may have scared off some home buyers who reported not wanting to participate in such a market.

Reasons for home sales sluggishness during the latter part of this year may have been signs that the fear of a home price bubble was being realized by home buyers. As home buyers sought value, home sellers wanted higher home price appreciation. Was the psychology of fear playing a part in the ongoing home pricing struggle?

In hindsight, the limited housing inventory that existed during 2013 may have caused upward pressure on home prices by forcing increased competition among home buyers. The rapid home price appreciation may have also been the reason for many home owners to go to market. Brimming with listings, housing inventory swelled to levels not seen in years. Yet it may not be home prices per se that is at issue, but rather affordability.

Affordability goes beyond just the purchase price of a home. It comprises the overall costs of home ownership; which includes monthly mortgage payments, property taxes, homeowners’ insurance, regular and emergency maintenance, and utility costs. Putting aside home prices, home buyers are faced with the prospect of sharply inflating ownership costs. Consider the April 25^th LA Times article reporting on utility costs (U.S. electricity prices may be going up for good; latimes.com); Ralph Vartabedian stated, “… the price of electricity has already been rising over the last decade, jumping by double digits in many states, even after accounting for inflation. In California, residential electricity prices shot up 30% between 2006 and 2012, adjusted for inflation, according to Energy Department figures. Experts in the state’s energy markets project the price could jump an additional 47% over the next 15 years.”

Savings also affect the affordability of a home. Marilyn Kennedy Melia, in her May 17^th feature: Savings Habits and the Housing Market: American are saving less, issues with affording a home (nwitimes.com), reported that a lack of savings is preventing some home buyers from purchasing homes by not having enough for a down payment and/or little for homeownership costs. She described a recent Bankrate survey that indicated “…51 percent of Americans have more emergency savings than credit card debt, the lowest percentage since the financial site began tracking this issue in 2011.” Doug Robinson, of NeighborWorks America, was quoted to say, “Two-thirds of the people who faced foreclosure didn’t have any emergency savings…”

November 20, 2014December 13, 2022

Why real estate and home sales will rebound in 2015

The recent stumble of the housing market recovery has been a head scratcher for many. Surely low interest rates and an abundant number of homes for sale should have been incentive for any home buyer. But alas, many have been disappointed by the 2014 housing trends; even with sparse anecdotes of quick sales and bidding wars. However, many are optimistic about the housing market for 2015 because of the combination of low mortgage interest rates, increased access to credit, and moderating home prices – which could transform reluctant “looky loos” into eager home buyers.

Don’t count on low mortgage interest rates, per se, to incentivize home buyers. Although interest rates have been historically low since shortly after the financial crisis, it seems to not have been an incentive on its own to purchase homes. Industry experts have tried to pinpoint the timing of rate increases since rates first dipped below 5% in 2010. And even though rates were anticipated to have jumped when the Fed tapered its asset purchasing program this year, rates continue to be relative to historical lows. The average mortgage interest rate according to the Freddie Mac Primary Mortgage Market Survey (freddiemac.com) is 4.01% (as of November 13^th); yet home sale volume continues to lag behind 2013 figures.

Very low interest rates may continue into 2015. Back in 2012, the Federal Reserve Open Market Committee indicated that interest rates would remain “exceptionally” low through 2014. Fast forward to September’s Federal Reserve Open Market Committee meeting; the October Fed press release (federalreserve.gov) reported the FOMC maintaining the 0 to ¼ percent target rate, even for a “considerable time following the end of its asset purchase program…”

On the other hand, loosening mortgage credit underwriting could help some would-be home buyers; but it is unclear who would take advantage of such programs, and how it will help them. Tightened credit and underwriting standards that resulted from the financial crisis, along with government intervention in the form of the Dodd – Frank legislation, created regulation and stringent lending standards (such as comprehensive validation of financial standing and strict adherence to debt to income ratios); which critics point to as having hampered lenders from making loans. However, some lenders are beginning to introduce less restrictive mortgage programs, which may accommodate the self employed and those with high student loan debt.

Of course, home prices have been a point of contention between home buyers and sellers for a number of years. Home sellers seeking higher prices are sometimes thwarted by home buyers looking for affordability and value. The seeming home price tug-of-war that favored home sellers in 2013, appeared to turn back in favor of home buyers during late summer of 2014. The October 28^th release of the S&P/Case-Shiller Home Price Indices (housingviews.com) reported further deceleration of home price appreciation. The National Index showed a 5.1% annual gain, which is lower than the 5.6% annual gain reported in July. The Washington DC region saw a 3.1% annual increase; but a 0% change in August, compared to the 0.1% change in July.

Additionally, the 15% increase in national foreclosure activity, as reported by RealtyTrac (realtytrac.com), could be a wildcard for home prices. It remains to be seen if the 26% increase in foreclosure activity in the D.C. metropolitan area from the previous year is a trend, or just a result of lenders clearing “shadow” inventory.

October 1, 2014November 23, 2021

Home equity entitlements, home prices, and talk of external price controls

A home buyer who visited a recent open house told me that home sellers need to “let go of their perception of entitled equity.”

I will pause here for a moment, as you are no doubt trying to make sense of the last statement.

Was this visitor verbalizing that a seller’s home equity be measured and controlled? And the follow up question might be: “Since when is a home owner’s equity perceived as an entitlement?” Was the buyer saying that there should be outside intervention to determine the equity a home owner may net on their sale (so as to make housing affordable), much like rental controls that exist in some areas around the country?

Who makes the decision as to how much equity a home owner may realize (net)? Sure, one could argue that home equity is an intangible concept that comes from the perceived value of your home; where the value is relative until it is realized (liquidated). You could also say that equity is realized through liquidation of the home by either selling it (or cashing out with a mortgage or equity line of credit); the value being the price a buyer is willing to pay, (or the amount a lender decides so as to make a loan). So it seems that when it comes to home sales, market forces still (mostly) determines the sale price and the amount of equity (if any) the home seller nets from the sale. Simply put – buyers and sellers negotiate home prices; generally, buyer pushback on listing prices can pressure sale prices to decrease, much like high demand can pressures prices to increase.

Let’s give the open house buyer the benefit of the doubt; maybe having outside intervention was not what he meant by saying home sellers need to let go of their perceived entitled equity. Maybe he was using (or misusing) economic jargon to make a point by expressing his opinion that housing is currently overpriced.

As I wrote in August, if you want to know where the housing market is headed, ask a home buyer. And it seems as if this buyer is not alone in his sentiment, as the attitude that home prices are too high is (again) an increasing view among many home buyers. It could be that the housing market is encountering what was experienced in 2009, when at that time there was a growing disparity between the price home sellers are asking and what home buyers are willing to pay. After all, it was during 2008-2009 when similar attitudes were strongly expressed, a time when rapidly falling home prices did not encourage home sales.

Quentin Fottrell pointed out in his pithy MarketWatch analysis of recent housing data (10 most overvalued (and undervalued) housing markets, marketwatch.com, 10/1/2014) that “Seven of the top 100 metro areas are overvalued by more than 10%, the highest number since the first quarter of 2009.” He also mentions that the last time this occurred was early in the housing bubble; but Fottrell says there should be little concern of current housing bubble because of the current economic environment (jobs and construction).

Conversations with home buyers are extremely valuable to home sellers for many reasons. What you might come away from this conversation is that there is continued push back on listing prices; and unless home sellers are responsive to pricing feedback, they should prepare for a long time on market.