This is not your father’s housing recession or recovery
by Dan Krell ©2012
DanKrell.com
When the housing market began its decent into uncharted territory in 2007, people talked of a “V” shaped housing market recovery, meaning that they braced for a market bottom followed by an upturn of increasing activity. What many experts are now talking about is an “L” shaped market recovery, where the housing market will hit bottom and not begin its ascent for a number of years. In retrospect, we have experienced the market’s bouncing along the bottom for at least 2 years (seeing inconsistent activity from month to month); although some still think that the market has yet to bottom out.
Two reasons why the housing market may continue to drag along the bottom include the dramatic loss of net worth in recent years and the recent increase in foreclosure activity.
The fact that the mean (average) income fell 7.7% is nothing compared to the 38.8% drop of mean net worth, as reported by a recent Federal Reserve Bulletin, “Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances” (fed.gov). The report stated, “Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices.” The report further clarifies, “…The decline in median net worth was especially large for families in groups where housing was a larger share of assets, such as families headed by someone 35 to 44 years old (median net worth fell 54.4 percent)…”
This report underscores what many in the industry have known, but have not fully admitted about the weak move-up market; the dramatic loss of home equity in recent years has not only made it difficult for many to sell their homes, but also has taken away the means to purchase another [home]. Additionally, the combination of diminished net worth and reduced income has forced many would-be first time home buyers to wait on the sidelines.
Additionally, foreclosures have not been news for some time, but the reduced foreclosure activity in the past year was said to be temporary in response to legal challenges and the robo-signing fiasco. As the shadow inventory (homes in foreclosure or bank owned) has been building up, many speculate the impact when foreclosure activity picks up.
A recent RealtyTrac (realtytrac.com) press release reveals that foreclosure filings have picked up and discusses the possible outcome. Besides a 9% increase in nationwide default notices was reported in May; RealtyTrack reported, “Foreclosure starts nationwide increased on an annual basis after 27 consecutive months of year-over-year declines.”
Lenders are becoming increasingly aware of the benefits of selling distressed homes as short sales over repossessing them. Brandon Moore, CEO of RealtyTrac, was reported to say that the increase of pre-foreclosure sales is an indication that many recent foreclosure filings may end up as short sales or auctioned to third parties, rather than becoming REO (bank owned).
The dramatic loss of net worth along with continued foreclosure activity only contributes to the changing perception of home ownership. This housing recovery will certainly be recorded in the history books as one of the most protracted and having a lasting impact; this is not your father’s housing recovery.
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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of June 25, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.
Perceptions of U.S. housing boosted by international investors
by Dan Krell ©2012
DanKrell.com
A June 11th report by the National Association of Realtors® discussed how international home buyers are an increasingly important segment of the U.S. housing market (realtor.org). The NAR release, “International Sales Continue to Climb in U.S. Market, Realtors® Report,” indicated that the dollar volume of U.S. homes bought by foreign home buyers increased about $16.1 billion over the last year. As encouraging as this may sound, there’s more to the story than you might imagine.
Interestingly, the report stated that average price paid for a U.S. home by an international home buyer is $400,000; and 30% of the homes purchased were priced between $250,000 and $500,000. Because foreign home buyers typically find it difficult to obtain a mortgage, it was reported that 62% of the purchases were cash deals. The NAR report stated that although many of these home purchases were for primary residences, a majority of international home buyer purchases were for vacation and investment uses.
Would you believe that 55% of international home buyers originated from Canada, China, United Kingdom, Mexico, and India? Canada accounted for the largest number of foreign home buyers (24%), followed by China (11%), the U.K. and Mexico (6% each).
But before you decide to learn a new language, you should note that four states have received the most attention from these home buyers; Florida, Arizona, California, and Texas “accounted for 51% of the purchases.” Of these sales, Florida accounted for 26% of all foreign home purchases, and California coming in second with 11% of foreign purchaser sales.
This market segment is not a new phenomenon; international home buyers have participated in the U.S. housing market for a long time. It just seems as if this segment of home buyers has been stronger during economic turmoil (Are you old enough to remember the influx of Middle East investors during the 1970’s and Japanese investors during the 1980’s?). The increasing number of international home buyers investing in the housing market is a tribute to the perceived value of U.S. real estate.
By the way, the influence of international sales has not gone unnoticed by Congress either. In an effort to help stimulate this sector of the housing market, S. 1746: Visa Improvements to Stimulate International Tourism to the United States of America Act was introduced in October 2011, by Senators Charles Schumer [D., N.Y.] and Mike Lee [R., Utah], and H.R. 3341: Visa Improvements to Stimulate International Tourism to the United States of America Act, was introduced in November 2011 by Rep. Mazie Hirono [D-HI2] and Rep. David Dreier [R-CA26]). These bills offered resident visas to foreign investors who invested at least $500,000 in U.S. real estate. However, some have criticized such stimulus as an empty gesture because international home buyers may not need additional incentive to purchase homes in the U.S.
Will foreign home buyers save the housing market, as a U.S. News and Report piece suggested (October 28, 2011)? Unlike the clichéd climax of a dramatic film noire, when the foreign investor saves the day, the answer may be “yes” and “no”. Although housing is receiving an increased amount of attention from foreign investors, it is unlikely that the increased activity itself would save the U.S. housing market. However, the increased foreign investment in U.S. housing may boost the perceived value of housing and the perception of home ownership.
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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of June 18, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.
Skepticism increases 1.3% on conflicting housing data
by Dan Krell © 2012
DanKrell.com
When the National Association of Realtors® announced last week that April’s existing home sales increased 3.4% to an annually adjusted rate of 4.62 million compared to a downwardly revised 4.47 million in March (http://www.realtor.org/news-releases/2012/05/april-existing-home-sales-up-prices-rise-again), I have to admit I was a bit skeptical. The local market is not exactly humming along, so as I read in the above referenced NAR release that April’s existing home sales rose 10% over the figure from April 2011, I thought some perspective is needed.
Let me quote you some housing statistics. The number of Montgomery County single family homes that sold increased 5.1% in February, 14.7% in March, 33.9% in April and 27.9% in May (MRIS data reported by the Greater Capital Area Association of Realtors®; gcaar.com). These numbers are not from 2012; but rather, these are the local stats from 2010 compared to closings from 2009. Yes, as you remember – 2010 was a spectacular year for local real estate!
Sarcasm aside, the number of Montgomery County single family home closings increased 5.8% during April 2012 (compared to 2011); and the number of Montgomery County condo closings also increased 8.1% during the same time. But, Montgomery County year-to-date settlements are still below the number of settlements that occurred during the same time in 2011 (-1.4% for single family homes; and -2.8% for condos). Although the 690 single family home settlements that occurred in April 2012 is higher than 652 that occurred in April 2011, the 2,034 single family home settlements that occurred year-to-date through April 2012 is lower than the 2,062 settlements that occurred the same period in 2011. Regardless, the number of settlements is far lower than what we have seen in past “normal” markets (for example, GCAAR reported that there were 849 settlements of Montgomery County single family homes in April 2001).
It must be noted that although the first half of 2010 seemed to be on a role, the number of 2010 Montgomery County single family home closings actually ended the year slightly lower than 2009. So, even though we have a month of some positive news, let’s be cautious about making assumptions.
Ok, I know you’re going to ask about NAR’s statements about rising home sales. Sure, NAR chief economist, Lawrence Yun, was reported to say that “the housing recovery was underway.” He was also quoted to say, “A return of normal home buying for occupancy is helping home sales across all price points, and now the recovery appears to be extending to home prices…”
However, the latest release of the S&P/Case-Shiller Home Price Indices (May 29th; standardandpoors.com) states “that all three headline composites ended the first quarter of 2012 at new post-crisis lows.” Although there was a 1.6% decrease in home prices in the Washington DC metropolitan area in February compared to January, there was a 1% increase in March compared to February; however, prices have decreased 0.6% for the year.
Although media headlines shout that housing has turned a corner, it’s a little premature to assume that the housing market has normalized with only one month’s data. The housing market has turned so many corners in recent years that I think we’ve made several circles! Just as in 2010, let’s see the final tally. There’s still some data to collect; let’s see how the housing market fares through the remainder of the summer.
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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of May 28, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.
Renting vs Buying 2012
by Dan Krell © 2012
DanKrell.com
Inventories of homes for sale are at a five year low. The last time home inventories were this low, homes were sometimes selling as soon as you could put a “for sale” sign in the yard. For some, the recent shrinking inventories are a welcome sign of market equilibrium; even analysts at Barclay’s site low housing inventory as one indication of a housing comeback.
For others, however, the shrinking inventory is a sign that supply is just lessening to demand. Many individuals who might have previously thought of buying home are, for now, putting off home ownership. Many people are delaying family formation and do not want to be “anchored” by a home in a tight employment market. As Fed Chairman, Ben Bernanke, discussed in a speech given in February to the National Association of Home Builders, economic uncertainty has impacted the willingness to commit to home ownership. “…housing may no longer be viewed as the secure investment it once was thought to be…” (“Housing Markets in Transition”; federalreserve.gov).
As the inventory of homes for sale homes shrinks, the number of rentals increases- along with rent! According to rental statistics compiled by the Greater Capital Association of Realtors® (gcaar.com), fourth quarter 2011 rental listing volume increased about 89% compared to the fourth quarter 2010. Additionally, fourth quarter 2011 average rent list prices for Montgomery County increased 11.4% compared to the fourth quarter 2010; and the average rent price for Montgomery County increased 5.29% compared to the fourth quarter 2010.
More evidence of a strong rental market comes from the National Association of Home Builders (nahb.org): the Multifamily Vacancy Index (MVI) fell in the fourth quarter of 2011 indicating fewer rental vacancies. Additionally, the Multifamily Production Index (MPI), which measures builder and developer sentiment about current conditions in the multifamily market, is at its highest since 2005; the MPI component measuring developer sentiment for market-rate rentals is at an all time high.
The recent shift in the perception of homeownership has resulted in a falling homeownership rate: recent seasonally adjusted homeownership rates have been slowly declining from the all time high of 69.2% reached in the first quarter of 2005. The most recent seasonally adjusted homeownership rate (Q3 2011) is 66.1%, which is similar to the homeownership rate of 66.2% reported by the 2000 Census.
But evidence of a housing market attempting equilibrium comes from a May 9th National Association of Realtors® news release suggesting that home prices are stabilizing. First quarter 2012 “Median sales Price of Existing Single-Family Homes for Metropolitan Areas” compiled by the NAR indicate that although average national home sale prices decreased 0.4%, and average home sale prices for the Washington DC region increased 5.7% (realtor.org)
Reports of a recovering housing market may be supported by recent increases in home buyer activity. Market data reported by GCAAR indicates that “contracts” (also known as pending sales) increased 12.4% for the month of April (compared to April 2011); and increased 8.5% year to date 2012 (compared to the same period last year).
Even though home prices may be stabilizing, buying a home could still be cheaper than renting. According to Trulia’s Winter 2012 Rent vs. Buy Index (trulia.com), homeownership is less expensive (and may still be a better deal) than renting in 98 of 100 metro areas- including the Washington DC metro area.
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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of May 14, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.