Housing Market Archives - Page 24 of 25 - Real Estate News and Commentary

November 30, 2011November 11, 2012

Will inflation help the housing market: how real estate is affected

by Dan Krell
© 2011
DanKrell.com

Many people believe that as inflation increases, home values decrease. The argument put forth is that as purchasing power decreases, so do the value of your assets. However, some economists say that it is flawed thinking to assume that housing, like other goods, decline in value as inflation increases.

Collin Barr reported that Yale economist Robert Shiller (coauthor of the Case-Shiller Home Price Index) has spent years collecting data that indicates “that house prices over time tend to rise more or less in step with inflation” (fortune.com: Why house prices will keep falling; March 29, 2011). That’s all well and good, except that home prices far exceeded the rate of inflation during the recent “bubble years;” and is reported as still having a 25% gap from baseline. So, unless we see an increasing rate of inflation, some believe that home prices drop another 20%.

Brian Summerfield, Online Editor of REALTOR® Magazine, describes (in an April 5th Realtor.org blog post) a scenario of how inflation can lift the current housing market. By highlighting affordability, he explains the cost of housing is currently cheaper to own a home (compared to renting). Additionally, as inflation creeps up and eats more of the family budget by decreasing buying power, the a person’s housing budget will be pressured by rising rents and buying a home will be increasingly more attractive.

Of course, Mr. Summerfield’s scenario is hinged on several “caveats”: interest rates will have to remain relatively low (he says no higher than 7%); implementation of “accessible” 30 year fixed mortgage programs; housing supply will have to remain low; and no additional economic crises.

In several Realtor.org blog posts, Lawrence Yun, Chief Economist for the National Association of Realtors®, discussed inflation and housing. In an April 18th post he explained that “Unexpected inflation” does erode savings, however actually benefits borrowers. Additionally, in a September 15th post reporting that housing starts are the lowest since World War II, Yun explains that some investors are returning to undervalued real estate as a hedge against inflation. Since new housing is not on track with population growth, some believe there will be a housing shortage that will cause increased demand in coming years.

The reality is that although there is a relationship between home prices and inflation, it does not signify causality. In other words, although one may have an effect on the other, housing and inflation are independent. Even in Brian Summerfield’s scenario, he is cautious to provide conditions to bring his vision to reality. And no one has talked about the affects of stagflation.

When talking about a recovery, the typical homeowner should remain cautious- especially in espousing a view that a home is an investment vehicle. Even though our consumer oriented society has encouraged people to pay for their lifestyles with their home’s equity, it’s now widely decried as irresponsible.

In light of the current economic conditions, many potential home buyers are becoming more pragmatic as well. Even though the basic benefits of homeownership include affordability, community, etc, many potential home buyers view owning a home as anchor that will keep them tied to a specific area. And in a time when jobs are scarce, many people want the freedom of mobility in case they have a career opportunity elsewhere.

Will inflation help the real estate market? We will only know in hindsight.

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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 November 28, 2011. Using this article without permission is a violation of copyright laws. Copyright © 2011 Dan Krell.

November 17, 2011July 25, 2019

Attitudes towards business and the housing market

Everyone seems to be fixated on resolving the housing market through direct intervention. However, it is increasingly apparent that people are forgetting the symbiotic economic system that housing belongs. Even local attitudes towards business may affect local housing markets.

First let’s consider housing data reported for October 2011 by Real Estate Business Intelligence, LLC and Metropolitan Regional Information Systems (MRIS), which indicates that sold prices for homes in Montgomery County decreased 3.2% compared to September 2011 and decreased 6.5% compared to October 2010 (the same time last year). And although sold prices for homes in Loudon and Fairfax counties decreased from October 2011 compared to the previous month, the median sold price for these two Virginia counties increased compared to October 2010 (an increase of 2.5% and 2.3% respectively).

Maybe Donald Trump knows something we don’t; the high profile real estate investor purchased a Loudon County golf course in 2009, and more recently a Charlottesville winery.

Next consider that some high profile companies have been making their preferences clear, as they choose Virginia over Maryland. Anita Kumar reported in her October 27th Washington Post blog (McDonnell, pursuing Lockheed Martin, says Maryland is less friendly to business) that Maryland has lost two defense contractors to Virginia. And recently, Virginia is trying to persuade Lockheed Martin (one of Montgomery County’s largest employers) to move there too; this courtship became widely publicized after a brouhaha erupted when the Montgomery County Council considered passing a resolution asking Congress to cut defense spending in favor of social spending. Additionally, Steve Contorno of the Washington Examiner reported just last week (McDonnell woos Bechtel Corp. away from Maryland; 11/17/2011) that the “International construction and engineering giant Bechtel Corporation” will move its global operations headquarters from Frederick to Reston.

Another consideration is the demographic change in Montgomery County, which may be one of the main reasons for big-box retailer Wal-Mart wanting to expand within the county. Reported by Carol Morello and Ted Mellnik of the Washington Post (Incomes fall in Montgomery and Fairfax counties; September 22, 2011), the once considered “posh” county now has a lower median income than Prince William County, VA, which is home to Potomac Mills Outlet Mall.

As the housing solution continues to elude many, along comes the National Association of Realtors (realtor.org) publicizing a “2011 Five Point Housing Solutions Plan.” The plan is a result of a policy meeting (New Solutions for America’s Housing Crisis ) conducted by the Progressive Policy Institute (progressivepolicy.org) and Economic Policies for the 21st Century (economics21.org).

Looking more like a “five point housing suggestion,” NAR’s plan offers these recommendations: 1) Not to weaken housing any further; 2) Support communities by reducing foreclosures; 3) Open mortgage markets to “foster new demand among responsible homebuyers”; 4) Support for a secondary mortgage market with government participation; and 5) A call for a national housing summit to “articulate a new housing policy.”

Much like a doctor’s patient seeking pain relief caused by a systemic problem, housing relief through direct intervention may only be temporary. Although some have found the solution to a faltering housing market and other economic ailments tied to jobs, others continue to be confounded by the issue.

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

August 11, 2011July 28, 2019

Financial Crisis Déjà-vu

Although it may feel as if you’re experiencing one, no – you’re not having a déjà-vu. Wall Street and other world markets are once again in crisis mode. However, unlike the crisis of 2008 that was caused by a credit crunch; this week’s crisis is characterized as a debt crisis.

Sure, crises shock the public and economic systems. And much like other crises, we are stunned, worried and confused. However, this crisis is a bit different. Although the imminent effects are yet to be seen, this crisis has been openly brewing for months; and the public has been primed leading up to the debt debate and subsequent debt deal that seemed to satisfy no one – especially Standard & Poor’s. As you already know, S&P downgraded the credit of the United States of America on August 5th (You can read the downgrade report along with the rationale on standardandpoors.com).

As a home owner, you might think that home values are once again in peril. However, a sharp decline in home prices that was characteristic of the housing downturn from 2007 to 2009 is unlikely. In retrospect, the housing bubble lost its turgidity and home values started to erode before the credit crunch of 2008 (one could argue that the credit crunch was caused by the foreclosure crisis). Unlike today’s housing market, the market downturn in 2007 and home prices were mostly affected by the tsunami of distressed properties that swelled the active inventory for over three years. As inventory decreased, home prices seemed to rebound indicating the beginnings of a very modest housing recovery.

Although nationwide home prices may continue to roller coaster until economic stability is achieved; a hyper-local analysis may indicate that neighborhood home values will vary.

As financial markets “correct” themselves, consumer sentiment of home ownership may not be initially or directly affected by the current crisis. It is more likely that most home buyers may initially continue their home search unabated. Home sellers, on the other hand, are more apt to pull their homes from the market if indications are of a slowdown.

Of course there will be consequences. Intuitively, one might have expected mortgage interest rates to increase on the heels of a U.S. credit downgrade. However, at least initially, interest rates decreased. The rationale is that although the U.S. credit was downgraded, investors looking for a “safe haven” for their money view world markets in turmoil; there is fear of a worldwide recession as Europe is dealing with an ongoing debt crisis, while China is coping with inflation and their version of a real estate bubble. Notwithstanding, the long term effects on mortgage interest rates remain to be seen.

Additionally, the short term evaporation of savings and capital in the financial markets can affect the ability of home buyers’ down payments; savings are the most common source of downpayment as indicated by the National Association of Realtors® Profile of Home Buyers and Sellers 2010 (realtor.org). The end result may be a bifurcated housing market, evident by the financial disparity of home buyers. Home buyers who are financially better off will have cash for their downpayment as well as be able to afford the potential higher interest rate mortgage.

As we move forward, uncertainty is felt about the immediate effects of a combined global crisis and/or possible recession. However, like all crises – this too shall pass in time.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

June 3, 2008November 23, 2021

Signs of Recovery or Anomalous Blips of Activity?

by Dan Krell
Google+

As President Bush officially proclaimed the month of June as National Home Ownership Month this year, many wondered about the future of the housing market. As the national media continues to portray the housing market as a financial black hole by telling stories of dread and dismay, it is a wonder if any of the industry initiatives have actually helped to stimulate the market. Generally the bad news is that the market continues to be slow; however the good news is there are signs of recovery.

National real estate sales numbers continue to slide, as reported by the National Association of Realtors (Realtor.org). The recent report indicated that home sales were down again for the month of April 2008 (as compared to sales from the same time the previous year). Additionally, the NAR reports that the national median home price for all types of housing fell to $202,300 (from $219,900 the same time a year ago).

However, the NAR reported positive news about localized markets, such as Greenville, SC and Springfield, MO, where strong home value increases are attributed to healthy local economies. Additionally, markets in areas such as San Diego, CA and Fort Meyers, FL have experienced increased home sales after significant price reductions, which is an indication that these localized markets have found their equilibrium.

Locally, there are micro markets rebounding as well. Sales statistics compiled and reported by the local MLS (Metropolitan Regional Information Systems, Inc.; MRIS.com) indicate that there are localized market increases even though Montgomery County, as a whole, continues to post decreased sales numbers. And even though the county average sales price has lowered to $575,513 (as reported by the Greater Capital Area Association of Realtors; GCAAR.com), sales statistics within specific zip codes (such as 20814, 20815, 20816, 20854, 20852, 20833, 20878, 20882) indicate increases in sales prices as compared to the same time last year. Some of these areas had slight sales price increases, while others had moderate gains; the average sale price for the zip code 20854 (Potomac, MD) increased over 30% in April 2008 as compared to the same time last year!

Along with these signs of recovery, a March 2008 announcement by the Office of Federal Housing Enterprise Oversight, Fannie Mae and Freddie Mac indicated that there will be an increase of $200B to increase the liquidity of the mortgage industry. Analysts explain that the liquidity will reduce restrictions on high loan-to-vale mortgage programs. Restrictions on these loans were imposed to minimize further losses to Fannie and Freddie after foreclosure related losses increased as the housing market declined.

As much of the secondary mortgage market has all but shriveled and died, the importance of Fannie Mae and Freddie Mac is now underscored. With an additional $200B, Fannie and Freddie have committed to increase the availability of low down payment mortgage programs that have been the center of home ownership programs for years.

While many housing and economic indicators are down, there are many signals that the economy as well as the housing market is seeking its equilibrium. While some economists feel these signs are anomalous, others remain optimistic that stronger economic growth in the second half of 2008 will assist in stabilizing the housing market.

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 2, 2008. Copyright © 2008 Dan Krell.

May 28, 2008November 23, 2021

If Cheap isn’t Selling, What is?

by Dan Krell
Google+

“Home buyers want location, quality, and value.”

Everyone has been talking about bargain real estate for many months now. However, are these bargain homes really selling? If you look on the local MLS, there are presently twenty four single family homes listed in the county priced under $250,000. Of these twenty four homes, approximately 16 of these homes are short sales, 6 are bank owned, and 2 are being sold by the resident. It sounds as if there are a lot of great bargains available, but if you take the time to read the MLS listing and walk through the homes, you realize that these homes may be cheap, but they are no bargain.

Although a short sale (when a home owner sells for less than what they owe their lender) could be a great opportunity to get a bargain home, the obstacles are many and the purchase can be needlessly complicated by the real estate agent who does not know how to manage this type of transaction. Buying a bank owned home (foreclosure) could also represent a home buying bargain; however once inside the home you may realize that the cost of acquiring and repairing the home can exceed the purchase price of neighborhood homes for sale that are in move in condition. The many bank owned home auction events (many of these foreclosures are unsold MLS listings) are an indication that most home buyers feel that a cheap home does not represent a bargain.

So if “cheap” isn’t selling, what is? Unlike the recent the seller’s market when a “tear down” rambler next to the train tracks attracted a bidding war, today’s home buyers are back to basics. Home buyers are looking for a combination of location, quality, and value.

Location, location, location. Yes, the clichéd saying always had meaning, but for various reasons (including gas prices) a home’s location is more important than ever. Whether it’s the local amenities, proximity to Metro, or both- some neighborhoods always seem to be in demand.

When you compare your home to other neighborhood homes, does your home have a superior or inferior location (consider physical location and proximity to amenities)? If your home has a lesser desired location, you might consider making an adjustment in the listing price.

Don’t under estimate the home buyer. Home buyers are savvy and they desire quality and value for their money. Often times, renovations and updates that are completed cheaply repel potential home buyers- mostly because of poor craftsmanship. Needless to say, uncompleted do-it-yourself projects have the same effect. New appliances and carpet make any home look better, except when you choose to buy the cheapest available. Thinking that home buyers won’t know the difference in quality is erroneous. If you look at the recent neighborhood home sales, many are likely to have had quality updates and renovations. If you decide to make updates to your home prior to listing, do it tastefully with a mind for quality. If you cannot, then consider not making updates but adjusting the listing price.

Although price is always at issue, it’s not always the “cheap” home that sells. Some home buyers may make sacrifices in location and quality; but the reality is that home buyers want value for their money.