Housing Market Archives - Page 14 of 25 - Real Estate News and Commentary

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.

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.

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.

August 21, 2014July 5, 2019

Will home prices depreciate second half of 2014?

It’s no secret that the pace of home sales has slowed during 2014. So what’s ahead for real estate and the housing market? If you really want to know, Irwin Kellner, Chief Economist for MarketWatch, has some advice. In his August 19^th MarketWatch.com piece (Opinion: Don’t count on U.S. consumer to save economy) he eloquently and succinctly stated, “If you are trying to discern where the economy is heading, look at the consumer.” And this applies directly to real estate too.

July housing figures from the National Association of Realtors® are due to be released this week (July housing press release August 21st); and although good news may be suggested, the numbers may be revealing of where the market is heading – and it may not be good. The NAR July 22^nd (realtor.org) press release indicated that June’s existing home sales increased (compared to May 2014), however it stated that existing home sales were down 2.3% compared to the same time last year. In the area where I list and sell homes, Montgomery County single family home closings (sales), reported by the Greater Capital Area Association of Realtor® (gcaar.com) also dropped off in June (decreased 1.5%); and particularly telling is July’s decrease of 16.2% compared to the same time last year, as well as the 7.4% decrease year to date (compared to last year)!

The silver lining is that NAR reported that median home prices have increased in 71% of the “measured markets.” However, 27% of the measured markets showed a decline in median home prices from last year. Montgomery County median home sale prices are moderating (according to GCAAR stats): increases were about 3% during June and about 2% during July compared to the same periods last year.

Taking Irwin Kellner’s suggestion of “looking to the consumer,” let’s look at home buyer behavior trends; which may be understood through home absorption rate (the number of homes sold compared to the number of available listings during a given time period). It should be no surprise that the home absorption rate decreases compared to recent years due to the steady growth of home inventories and the reduced number of closings. Surprising is the rate of decrease in the absorption rate (calculated from MLS data) during June and July compared to the same periods last year (a decrease of 15% and 39% respectively).

Like the average consumer, it seems that home buyers may have become a bit skittish. Kellner points out that contrary to economist’s expectations, the August report of the Thomson Reuters/University of Michigan survey of consumer sentiment has dropped to a 10 month low. Additionally, he reported that although there has been some good news about employment, he argues that wages are not keeping up with inflation due to the nature of many newly created jobs, which are temp or part-time. Furthermore, he states that consumer savings are either low or “depleted.” Rounded out by the usual concern about job security, geopolitics, and the general economy: Kellner gives us a glimpse of today’s consumer.

As for real estate, the statistics suggest that the housing market may be at another crossroads. Homes sales have already dropped off during the busiest time of year, and it may be reasonable to expect that sales for the remaining year may also be subdued. The mediating factor will be home prices; which may eventually decline as home sellers try to be competitive with other listings, as well as entice home buyers to buy their homes.

By Dan Krell
© 2014

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August 13, 2014November 23, 2021

Making sense of real estate market indicators

It used to be easy to figure out the strength of the real estate market, all you had to do was look at reported housing indices and it all made sense. Statistics were often verified and corresponded to other indices as well. However, since the financial crisis, there seems to be a disconnect between national and local housing indicators; gauging the market has become confusing – understanding what the indices measure and imply is often tricky.

Obviously, the best gauge to the health of the housing market is measuring existing home sales. Existing home sales is reported nationally and locally. The figure is important because it is a direct measure of the number (volume) of home sales during a given time period (usually monthly). National sales figures are often samples of MLS data, while local data are actual (raw) numbers. The statistic is used to chart annual sales trends; as well as a relative comparison to the same period during previous years.

Some have talked about the strength of luxury home sales as an indicator of the housing market. However, during a weak economy is weak, mid and low tier home sales tend to decrease; while upper bracket and luxury sales remain relatively strong. This bifurcation, where two distinct markets are derived from one, has emerged twice since the financial crisis; most recently earlier this year.

The National Association of Realtors® reports the Pending Home Sale Index, which is basically the number of homes that go under contract (pending sale) during a specific period. Pending sales are sometimes called a “forward looking” statistic because it is used to estimate how many homes will have sold for the year. Local pending sales are reported as a raw number of homes under contract. The statistic can be misleading because contracts fall apart for a number of reasons and may be one explanation as to why pending sales and existing sales may not correspond. Although the figure is not always indicative of actual sales, the figure is important because it reveals home buyer activity.

Another statistic relied on by many to determine the strength of the housing market are the home price indices (yes there is more than one). There are a number of national home price indices, and each has their own discrete methodology of measuring home sale prices. Some indices collect MLS data samples, while others use reported mortgage data. Average home sale prices help determine affordability, which can be an indication of buyers’ potential ability to purchase a home.

Some analysts talk about mortgage interest rates for much of the same reason one might follow home sale prices – to project home buyer affordability. The rationale is that the lower the interest the more affordable homes are and increase buyer activity.

Analysts also use new homes statistics to describe the strength of the real estate market. Included in this subset of housing data are new home sales and new home starts. New home starts is typically derived from the number of permits filed to build homes. Besides being a forward looking projection of new homes sales, economists follow new home starts figures closely because it can project construction employment as well.

Housing indices can be inconsistent. And while positive statistics may be reported nationally, it doesn’t necessarily correspond to the local market. Your real estate agent can provide insight to local sales trends and expected projections.

August 6, 2014November 23, 2021

Millennials, home buying, and tiny houses

Many analysts are trying to provide answers for this year’s disappointing home sales volume. One factor that has been maintained is the lack of participation from young home buyers, which may be supported by statistics compiled by the National Association of Realtors®. Highlights from the National Association of Realtors® 2013 Profile of Home Buyers and Sellers cites the median age of home buyers was 42 years old (increased from the median age of 39 reported in 2008, when three-fifths of all home buyers were under 45); and the median age of the first time home buyer was 31 (increased from the median age of 30 in 2008, when 54% of first time home buyers were reported to be between the ages of 25 and 34).

Millennials, typically described to be between the ages of 18 and 34, have recently been the focus of much financial analysis. There is a consensus that millennial economic participation has been impacted by employment and a challenging job market. Along with a burdening student loan debt, many millennials have decided to delay family formation; not to mention forgoing home purchases for rentals and moving back with mom and dad.

David Jacobson, in his A July 16^th Money article “10 Things Millennials Won’t Spend Money On” (time.com/money) described millennials as a financially savvy group who, like the generation of the Great Depression, has learned from the Great Recession. When it comes to housing, Jacobson states that it is not a lack of desire for homeownership, but rather just a matter of affordability. He cites a Harvard Joint Center for Housing Studies finding indicating that homeownership fell 12% among those younger than 35 during the period between 2006 and 2011; and an additional 2 million are living with their parents. Even though he describes improving economic conditions, Jacobson attributes the prohibitive cost of housing to the combination of economic challenges along with recent changes to the mortgage industry.

Emily Parkhurst, the Digital Managing Editor of the Puget Sound Business Journal, provides additional insight in an August 1^st blog post (Zillow data shows millennials don’t buy houses). Identifying herself as a millennial by saying “I’m that 32 year old non-homeowner they’re talking about…” she shares her frustrating experience with selling her husband’s condo with an underwater mortgage. Having purchased the condo before their marriage, and then having to make job related moves, they tried selling it via short sale and then trying a deed-in-lieu; but after more than three years, she states, “It’s been an insane back-and-forth with no promise of resolution any time soon. Why would I ever sign up for the possibility of that again?”

Although homeownership may still be a challenge for many, including millennials; the “Tiny House Movement” may be viewed as an affordable alternative to traditional housing. Another take on manufactured housing (mobile and double-wide homes), the Tiny House Movement was described by Randy Stearns of TIME (Tiny Houses With Big Ambitions; May 29, 2014) as “…efforts by architects, activists and frugal home owners to craft beautiful, highly functional houses of 1,000 square feet or less (some as small as 80 square feet).”

Maybe the Tiny House may not solve all of the problems in the real estate industry, but the concept of mobile, tiny efficient housing seems to be catching on not only with those who are downsizing – but also as mobile apartments for millennials.