Housing Market Archives - Page 15 of 25 - Real Estate News and Commentary

June 18, 2014August 11, 2019

Oil prices and housing, is there really a link?

It seems that anytime there is turmoil in the Middle East, there is concern over disrupting the oil supply and spiking energy prices – notably at the gas pump. Spiking gas prices not only makes everything seem more expensive, it has been thought to compel people to re-think their home buying strategies as well. Is the chaos in the Middle East and increasing oil prices coinciding with a shift in home sale trends?

Gregory White, of Business Insider (businessinsider.com), stated that “The simple reason why a rise in crude prices could tank the housing market is that it has done it before.” This is not a recent story; no, White wrote this in a March 6^th 2011 piece titled: “Barclays On How The Oil Price Spike Could Crash The Housing Market Again.” The article was a brief commentary on Luca Ricci’s (who was at Barclays at the time he was quoted) analysis of the possible consequences of the surge in oil prices to the U.S. housing market.

Ricci was quoted to say, “The main effect is on consumption via gasoline and energy prices. As consumption generally accounts for 60% of GDP, the effect is large. In oil exporters this effect will be offset by windfall revenues from the higher oil prices, so the overall effect is unclear. In our view, the oil price increase in 2008 significantly contributed to the recession and the financial crisis in the US, which then spread globally. By raising CPI inflation, it reduced real disposable incomes and, hence, the purchasing power of the average households, leading to a contraction in real consumer spending and lowering the ability to repay mortgages.”

Indeed, a 2008 sharp increase in gas prices and road congestion was a factor for many to re-think their home location. It was not only those living in suburbia whose idea of an ideal home shifted toward saving fuel costs; home buyers at that time, who did not put their housing search on hold, looked for a home that was closer to their work or easily accessed some form of mass transit. A National Association of Realtors® (realtor.org) study reported that 28% of home owners surveyed indicated that high fuel costs were a decision to sell their home, while 40% of home buyers surveyed indicated that high fuel and commuting costs offset the higher home prices closer to the city center.

How much could you save by moving closer to your office? Based on the Washington Metropolitan Area Transit Authority Savings Calculator (WMATA.com), eliminating 20 miles of daily driving can save over $224 per month or $2,688 per year (estimates at the date of this article). And if gas prices peak like they did in 2008, savings from curbing your driving could be double – or more!

However, while the immediate focus may be on saving on energy costs, urban living could have a trade off in higher property taxes and housing costs. And as much as increasing oil and gas prices may have an indirect effect on the housing market, the urbanite trend may be more about convenience and a healthier living style rather than saving money on gas and commuting costs. Nonetheless, the urban living trend surged in 2010, when sales soared in planned walkable communities with embedded shops and services. Market demands resulted in suburban renewal, where planned urban villages were built (and are being built) in convenient locations; which have also become destinations for the community’s restaurants, shops and offices.

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By Dan Krell
Copyright © 2014

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 11, 2014July 4, 2019

Forget GDP – real estate is still a local phenomenon

Are you one of those who are ignoring the recent negative GDP report? Or are you chalking it up to the weather or other factors? If you are unaware, the May 29^th news release by the U.S. Department of Commerce – Bureau of Economic Analysis (bea.gov) reported that the Gross Domestic Product for the 1^st Quarter 2014 was revised to -1%. Of the number of reasons cited was a negative contribution from residential fixed investment (basically poor home sales).

Although one poor quarter is not a trend, two consecutive quarters of negative GDP could be considered a recession. But this rule of thumb is not always accurate – after all, this is the second time during the current recovery we have had a negative GDP. Many economists are not concerned and expect a rebound, citing the recent employment report; while some are very concerned, citing the low employment participation along with declining personal income and spending.

I hear you saying: “Ok, even though home sales have been lacking, home prices have been increasing,” which is a sign of strength in the housing market. According to an analysis by Ray Valdez (The housing bubble and the GDP: a correlation perspective: Journal of Case Research in Business & Economics; June 2010, Vol. 3, p1), there is a strong relationship between GDP and home prices. Local data for Montgomery County MD during May 2014 not only indicates a year over year decrease in sales volume, but average home sale prices may have decreased bout 1% compared to May 2013. Other indications that the local housing market is cooling this year is the sharp increase of new listings, and a lower absorption rate of listed homes.

The BEA GDP release also cited Gross Domestic Income for the 1^st Q as decreasing 2.3% (compared to the 2.6% increase the previous quarter). Putting income in perspective, Rick Newman of Yahoo’s “The Daily Ticker” (The Middle Class is Even Worse Off Than the Numbers Show); “The “average” American worker earns about $44,000 per year and saves around 4% of his income. And the “average” household has a net worth of approximately $710,000, including the value of homes, investments, bank accounts and so on. But many Americans, needless to say, fall well below those benchmarks, which fail to capture widespread financial distress…” Newman points to the growing wealth of the affluent as skewing income data: “The rich have always skewed wealth and income data to some extent, since they pull up averages and make ordinary people seem a bit better off than they really are. But the outsized gains of the super-rich during the past 25 years have become so disproportionate that some measures of prosperity may be losing their relevance.”

If you’re concerned about mixed economic reports affecting the housing market and possibly your sale or purchase; you can take heart in the notion that the current environment is different than that of the Great Recession. Some economists expect a rebound, citing relatively low mortgage interest rates and some loosening lending standards as incentivizing home buyers.

Nevertheless, real estate is still a local phenomenon; and just like the differences between regional markets, external influences can create differences among geographical areas as well. If you’re planning to be in the market, consult with your real estate agent about recent neighborhood data and trends to assist you with your pricing strategy.

By Dan Krell
Copyright © 2014

May 28, 2014August 8, 2019

Luxury home sales outpace mid-low tier sales

What seemed like the breakout year in real estate may turn into a hard act to follow. Although the National Association of Realtors® May 22^nd news release made headline news by skillfully pointing out that April existing home sales increased 1.3% from March; April’s sales data were 6.8% lower than last April. Much like the assertion to “Keep Calm and Carry On,” the spin on data may bean attempt to motivate home buyers and sellers.

The Greater Capital Association of Realtors® home sale statistics were consistent with NAR’s, such that Montgomery County MD single family home sales decreased about 8.2% in April compared to the same time in 2013. Looking deeper, the numbers reveal a similar scenario that played out in 2011 when a bifurcated market emerged between upper bracket and middle to low bracket homes. Sales of upper bracket homes are doing very well this year, while moderate to lower bracket homes sales are decreasing compared to last year. And much like 2011 when luxury home sales hit record prices (when DC’s Evermay and Halcyon House sold); 2014 is also a year of record luxury home sales (LA’s Fleur-de-Lys sold for $102M, CT’s Copper Beech Farm sold for $120M, and a NY mansion sold for $147M; each sale successively breaking the record for most expensive residential US home during a 5 week duration!). Consistent with this theme: cash sales are increasing this year, while first time home buyers are decreasing.

While the housing market may be shaping up to be similar to that of 2011, the reasons for a similar profile are different. We were looking for the market bottom during 2011, as well as assimilating an unprecedented number of distressed properties. However, even though distressed sales are rapidly decreasing; 2014 was supposed to be an extension of last year’s increased sales activity.

What we may be experiencing is the flip side to the housing crisis, as described by Daren Blomquist, RealtyTrac Vice President in his May 19^thblog post (Nearly One-Third of Americans Live in Counties Where One in Five Homeowners is Underwater: Heat Map; RealtyTrac.com). Blomquist characterized the lack of participation in today’s market as being from the unusually high number of home owners with high loan balances on their home, including the many whose mortgages are underwater. This lack of participation is much like the many homes taken out of the market because of the foreclosure crisis during the downturn. He stated that the “normal flow [of move-up buyers] is being disrupted by homeowners with negative equity who are holding back from becoming move-up buyers, which in turn is impacting the availability of inventory downstream for first-time homebuyers.” According to RealtyTrac, those who are “seriously underwater” (125% or higher of loan balance to home value) account for 11% of Montgomery County MD home owners, while the county average loan balance to home value is about 79%.

The idea of the inactive move-up buyer is not new. In fact it seems to be that move-up buyers were lacking after other deep recessions; the August 17, 1985 article published in the Chicago Tribune titled, “Move-up Buyer Provides The Base For A Recovering Housing Market” is a testimony for such behavior. The timing for the move-up buyer is likely correlated to the time necessary to either recover lost equity; or reach a comfort level for the net amount gained in their home sale.

By Dan Krell
Copyright © 2014

May 15, 2014November 23, 2021

Picky home buyers and real estate slowdown

Why would a major real estate industry player predict a slowdown in home sales? The L.A. Times reported on May 5^th (Real estate giant predicts slow home sales for months to come) that Realogy Holdings Corp, the parent company of Coldwell Banker, Century 21 and Sotheby’s, claims that a slowdown in mid and low bracket homes could hurt the brokerage business and could prove to be a difficult 2014.

Meanwhile, a recent “Real-Time Seller Survey” conducted by Redfin (refin.com) indicated that 52.4% of home sellers were confident about selling their homes; however 40.9% of sellers were concerned about affording their next home. This may be why 40.3% of those surveyed planned to price their home above market value – maybe not the best strategy. The May 8^th Business Wire article (Redfin survey: 40% of home sellers plan to price higher than market value) quoted Redfin agent Paul Reid as saying; “Buyers this year are far less tolerant of overpricing, and homes that aren’t priced appropriately are likely to sit on the market until the seller is forced to reduce the price … Buyers often interpret a price drop as a sign there is something wrong with the home, leading some to negotiate even more aggressively or lose interest altogether.”

Economics aside, some experts say that a slowdown is in part due to institutional investors having all but left the market as distressed properties are decreasingly a part of the housing landscape; and the housing market is once again reliant on the owner occupant home buyer – who is often characterized as “picky.”

A lot has been said about “picky home buyers” since 2008, and the fact is that home buyers have not changed much – indeed, they may even be pickier today. It could be that the lessons of the financial crisis are still fresh in their minds; home buyers as group seem to be a hardy and savvy group. 2008 was a transition year, as home buyers shirked distressed properties for homes that exuded value. “Cheap” did not necessarily mean the home was a bargain to those who planned to be owner-occupants. Many home buyers were turned off to short sales and foreclosures, not just because of the process but because of the realization that the combined cost of the home purchase with repairs often exceeded the price of a re-sale that was in move-in condition.

Even though there is a perceived dearth of available homes for sale today, doesn’t mean that home buyers will pony up for an overpriced home. Home buyers are typically looking for a combination of location, quality, and value. According to Lyn Underwood (Home buyer turn-ons and turn-offs; McClatchy-Tribune Business News. April 26, 2014), home buyers are attracted to homes for a number of reasons; some of the top home characteristics include an updated kitchen with stone counters and maple cabinets; an open floor plan; new or refurbished wood floors; and flexible spaces (rooms that can be used for a number of uses).

If you’re selling this spring, don’t take home buyers for granted: don’t over price your home; and stay away from cheap renovations meant to look expensive (buyers are turned off by poor workmanship, sloppy installation, or inferior materials); and keep your home neat and tidy when showing. Your listing agent can provide guidance on preparing and pricing your home to sell in today’s market.

Original published at https://dankrell.com/blog/2014/05/15/picky-home-buyers-and-real-estate-slowdown/

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. This article was originally published the week of May 12, 2014 (Montgomery County Sentinel). Using this article without permission is a violation of copyright laws. Copyright © Dan Krell.

April 11, 2014July 3, 2019

Housing recovery is cliché

The word “recovery” has been used a lot over the last five years. So much so, it seems as if the term is automatically associated with anything written about real estate and housing. But, maybe it’s time for a shift in our perception and expectations.

If you look up the definition of recovery, you might find: “re·cov·ery – noun \ri-ˈkə-və-rē,\ : the act or process of returning to a normal state (after a period of difficulty).” It might make sense to refer to the housing market as still recovering, and in the process of returning to normal; but then again, who’s to say that the home price and market activity peaks realized during 2005 – 2006 was normal?

A number of research papers (such as Reinhart & Rogoff’s The Aftermath of Financial Crises) were produced to discuss how the recovery from the Great Recession would take shape. Although there is not a clear consensus, many concluded that a recovery after a financial crisis is much longer in duration than recoveries from non-crisis recessions. However, some claim that may not be the case because the comparisons to other financial crises around the globe are not analogous the U.S. financial system.

Regardless, maybe the use of the term “recovery” is, after five years, cliché. Niraj Chokshi seemed to allude to this in his November 2013 article on Washingtonpost.com, “What housing recovery? Home values and ownership are down post-recession.” Chokshi pointed out that home ownership and home values have not even recovered to the levels of the three years during the recession (2007-2009).

But then again, it could be that there is a journalistic license to use “recovery” when referring to housing; because there is an expectation for the real estate market to return to the peaks it experienced in the last decade. An April 7^th National Association of Home Builders (nahb.org) press release of the NAHB/First American Leading Markets Index was titled, “Latest NAHB Index Reading Shows Recovery Continues to Spread;” highlighted that there are 59 of 350 metro areas that “returned to or exceeded” their normal market levels. However, “market levels” are based on a metro area’s employment, home prices, and single family home permits (it is unclear if the labor participation rate, which is the labor force as a percent of the civilian noninstitutional population, is included in the employment data).

Talking about a recovery is no longer acceptable for home buyers and sellers planning their futures; rather it is more appropriate to again talk about relative market conditions. Considering that references to a recovery that is extending into a fifth year seems distant and confusing; the dramatic changes that the industry underwent after the recession makes it almost inconceivable for the marketplace to return to the exact state that existed prior to 2007. Relative market conditions are more meaningful to home buyers and sellers, specifically when they are deciding listing and offer prices.

Although the National Association of Reltors® Existing Home-Sales stats are due out April 22nd, and Pending Home Sales Index due April 28th; Wells Fargo Housing Chartbook: March 2014 (April 9, 2014) states, “Although we still see conditions improving in 2014 and 2015, the road back to normal will, in all likelihood, remain a long one…” and outlines a “Brave New Housing World.”

With that in mind, a look at local market conditions; March 2014 year-over-year Montgomery County MD home sale statistics for single family homes as reported by the Greater Capital Association of Realtors® (gcaar.com) indicated: total active listings increased 27.5%; contracts (e.g., pending sales) decreased 7.4%; and settlements (e.g., sales) decreased 12.6%. Additionally, the March 2014 county average single family home sale price of $562,157 is less than the county average SFH price of $573,281 reported for March 2013.

by Dan Krell
©2014