As talk of a housing recovery is gaining traction, some experts are saying the recovery may be artificial and short lived. Warnings from economists and a former mortgage executive paint a picture of a possible housing bubble being caused by the source they claim is cause for increasing home prices.
Steve Cook, of Real Estate Economy Watch, revealed a recent survey of 105 economists, real estate experts and investment and market strategists. Although respondents predicted positive home price appreciation through 2014; the experts expect that home prices won’t fare as well during ensuing years through 2017. Furthermore, 48% of the respondents felt that current Federal Reserve monetary policy might be the reason for recent home price spikes; which may be creating a future housing bubble.
A majority of the expert panel suggested that requiring a minimum down payment in the Qualified Residential Mortgage (a provision to allow lenders to bypass credit risk retention rules) would create a long-term sustainable housing market. However, only about a third of respondents believe that a minimum down payment should be 20% or more.
An April 9th online article for The Wall Street Journal titled “Is the Fed Blowing a New Housing Bubble?” written by former Fannie Mae executive, Edward Pinto, explores the source for of the housing recovery. Pinto pointed out that although recent home price surges are the highest since 2006, data released by the Federal Housing Finance Agency (FHFA) indicate that home price increases may not be due to “broad based improvements in the economy’s fundamentals.” But rather, home price increases are being driven by low interest rates due to the Fed’s Quantitative Easing program.
Pinto compares current market conditions to those of 2006, when government policies also likely contributed to a housing bubble. During that period, like today, income is not keeping pace with home price increases. As an example, he cited FHFA’s conventional home-financing data that indicated new home purchase prices increased 9% during February 2013 and 15% during February 2013; while income barely increased 2% (keeping relative pace with inflation).
Pinto and his assessment of recent home price spikes are getting some attention. John Aidan Byrne of the NY Post wrote on May 6th (“Next Home Crisis”) about Pinto and his concerns. Because suppressed interest rates are pushing home sale prices up, Pinto surmises that when the Fed’s QE program ends, interest rates will rise creating an “inevitable housing disaster.” However, he concludes that to avoid a housing disaster: income must increase 33%, home sale prices will drop about 25%, or lending standards must loosen significantly. He points out that loose lending policies did not end well in the last housing bubble (http://www.nypost.com/).
Regardless of murmurs of another housing bubble, current market conditions might indicate a balanced market. The trend of monthly local absorption rates compiled from the local multiple list service has consistently shown to be in recent months between a buyer’s market and a seller’s market (absorption during a buyer’s market tends to be below 50%, while a seller’s market tends to be above 60%).
Even though there is little inventory, supply and demand may be in overall balance. However, that being said; supply and demand seems to be out of balance for well priced updated homes, which appear to the source of bidding wars and escalation clauses. Homes priced above the market and/or needing repairs/updates take longer to sell.
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.
You’ve probably heard, now and then, reports of housing surveys giving a status report of the housing and the real estate market. Of course the scientific method is forgotten for a chance at a headline; technical details and summaries are usually condensed to a one sentenced sound-bite. If you’ve ever taken the time to look into the survey results to see the samples and questions, you can see that any one poll is only a snapshot of respondents’ attitudes at the time of the survey.
The results of recent housing surveys conducted by Fannie Mae (fanniemae.com) are telling of the current economic environment. Reported quarterly and monthly, the National Housing Survey (NHS) “offers a window into the opinions of Americans across the country…” about owning and renting a home as well as personal finances and confidence in the economy.
The most recent quarterly NHS results were released August 15th, and quoted Doug Duncan, vice president and chief economist of Fannie Mae, as saying, “… consumer spending, which accounts for about 70 percent of the economy, ground to a halt in the second quarter. Consumers are more hesitant to take on additional financial commitments, and a setback to confidence means a setback to the recovery of the housing market.” Additionally, the quarterly survey indicated increasing consumer pessimism as employment concerns tops the list, economy on wrong track…yada, yada, yada.
Ok, not news to you. But how about trends indicating a further decline of the housing market?
The most recent monthly NHS (released October 10th) reported a “marked deterioration” of consumer home price expectancies. Mr. Duncan was quoted here saying that, “…The lack of a sense of urgency to buy homes, given expectations for further declines in home prices and continued low mortgage rates, coupled with general pessimism regarding their own personal finances and the economy, bodes poorly for the recovery of the housing market.”
The Home Values Survey (HVS) is another telling survey, which is conducted by Homegain (homegain.com); and examines Realtor® and consumer sentiment about the housing market and economy. The most recent Regional HVS was reported September 11th for Q3 indicated: that although a majority of real estate agents surveyed reported their client’s homes depreciated in value, home sellers continued to over-value their homes; home buyers overwhelmingly reported that homes were overpriced; 39% of home buyers surveyed in the Northeast reported that they thought homes were overpriced 10%- to 20%; and an overwhelming majority of real estate agents surveyed in the Northeast (62%) reported they believed that home values would decrease in the next six months.
The outlook is not all doom and gloom. Some surveys report a positive spin as well.
Although a Rasmussen Reports (rasmussenreports.com ) survey reported on September 21st indicated that 48% of adults nationwide felt that buying a home is the best investment for one’s family, a commentary posted on rasmussenreports.com (The Housing Bust Has a Good Side by Froma Harrop; September 22nd) promotes the idea that the housing downturn has brought home owners back to fiscal reality.
Additionally, Gallop (gallop.com) reported in April that of the American adults surveyed, there were just as many who felt that the average home price would decrease (30%) than increase (28%) in the coming year. And, of course- an overwhelming majority of those surveyed (69%) felt it was a good time to buy a home.
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.
I know it’s trite to say that selling your home in today’s economic environment is challenging. You know that home buyers are very picky and money is tight. However, are you (or your real estate agent) prepared for a low appraisal?
According to the Appraisal Institute (appraisalinstitute.org), an appraisal is “a professional appraiser’s opinion of value.” The appraiser’s role is to “provide objective, impartial, and unbiased opinions about the value of real property”… “Appraisers assemble a series of facts, statistics, and other information regarding specific properties, analyze this data, and develop opinions of value.”
Although there is a standardized procedure in conducting and preparing an appraisal, lenders add their own criteria to meet their underwriting requirements. There is no doubt that many lenders have made their criteria more restrictive since the housing market downturn.
Contrary to the current attitudes, low appraisals have always been around. It was not until the market downturn when many home sellers were confronted with concrete evidence of their home’s depreciation. However, the issues with today’s low appraisals are slightly different those of years past. In addition to stricter lender requirements and increased appraisal scrutiny, some have argued that changes to the appraisal industry (including management and ordering) may have also contributed to low appraisals.
Although not as pervasive as they were several years ago, low appraisals are still common. If your home does appraise lower than the contract price, you can appeal the value with the lender – but it will be difficult. In the past, appraisal appeals were less demanding (typical comparables were homes that sold within 6 months and 1 to 5 miles from your home) providing you a higher chance of success. However, today’s lender requirements are more restrictive. Although lenders vary on their requirements, many lenders now only accept appeals that include three original comparables that sold within the last 3 months and are within ½ mile (or less) of your home.
Don’t wait for a low appraisal to throw a wrench in your sale; take a proactive approach. Long gone are the days of setting a price by tacking on thousands to your neighbor’s recent sale price! Pricing your home correctly doesn’t only help attract home buyers, but it can also help avoid a low appraisal. Furthermore, choosing appropriate comparables for your pricing strategy is highly important, which include: comparables that are most similar to your home (same style and within 15% to 20% of living area and lot size); the most recent sales (within 3 months, but nor more than 6 months); and in close proximity to your home (unless you are in a rural are the comparable should be within ½ mile, but no more than 1 mile).
Additionally, the appraiser should be provided with your pricing rationale (i.e., the comparables that indicate that your sale price is in line with the market as well as a list of improvements that add value to your home). The intent is not to pester the appraiser while they are trying to do their job. However, some appraisers are appreciative that you have made the effort to provide the information (especially those who are unfamiliar with the local market).
Regardless of the outcome of your home’s appraisal, take heart that you can be proactive to possibly avoid appraisal issues. And if need be, don’t be afraid to appeal a low appraisal.
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.
If you’re trying to time the market before buying or selling your home, you may decide to wait a little longer after hearing the recent housing data; however, you could also change your mind when you consider some recent research.
First, a recent housing report released May 8th by Zillow.com indicates further erosion of home values. According to Zillow.com’s chief economist Stan Humphries, home values continue to slide nationwide – except for the metro areas of Honolulu, HI (there was a slight increase in home values in March 2011 compared to the same time last year) and Pittsburgh, PA (where home values have been determined to be flat for the time period) (Zillow.com).
Even the Washington, DC metropolitan appears to have taken a hit. According to Zillow.com, area home values declined 0.5% in March 2011 compared to February 2011; and declined 7% in March 2011 compared to March 2010.
Humphries further stated that housing demand continues to be “fundamentally weak;” while housing supply is and will continue to be affected by distressed properties due to higher than normal delinquency rates (which are expected to continue into the near future).
Given the less than rosy picture of the housing market, those doubting the long term value of home ownership may continue to wait out the market. But a recent research article by Anderson & Harris (2010. Timing the market: You don’t have to be perfect. Real Estate Issues 35, (3) (10): 42-42-50) may indicate that you don’t have to be perfect when timing your purchase and sale of your home.
Anderson & Harris studied various strategies of purchasing and selling commercial real estate to determine if there is a significant difference in return. Their strategy simulation provided these results: the typical “buy and hold strategy” over a thirty year period results in an annualized return of 8.18%; however, buying when a recession has ended with a predetermined sale period yields a wide range of return that ranged from 13.38% to 1.42% annualized total return. Alternatively, timing your purchase and sale with the overall peaks and valleys of the market could be more effective than trying to be exact; although they concede that peaks and valleys are realized in hindsight.
Although their data analyzed commercial real estate investor behavior, the results may have implications for the housing market. As the data suggests, attempting to exactly time your purchase and sale can yield a wide range of unpredictable results; while a long term strategy appears to be more stable. Additionally, they caution that market timing can also be affected by macroeconomic factors as well as your personal financial picture; which can reverse positive returns, even if your timing was perfect.
Anderson & Harris’ data may indicate that attempting to time your purchase may not yield the results you might expect; long term home ownership can be as good, if not better, than speculating on the exact bottom or top of the housing market. Likewise, home sellers waiting for the housing market to rebound before making a move may be missing an opportunity as well.
Obviously, you should consult financial professionals before making any financial decision; as well as consulting a Realtor® to assist you in analyzing local and neighborhood sale data. However, if you’re trying to time the housing market, consider a long term approach before making your decision.
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.
As indicated by the slight increase in the Consumer Confidence Index (ConferenceBoard.org), which edged up in August to 56.9, signs may point to a slightly improving economy. As consumer confidence increases, we may see home sales increase as well. Take for example the Mortgage Bankers Association reporting an increase in mortgage applications (8/27/2008 mortgagebankers.org), as well as the National Association of Realtors (Realtor.org) reporting that nationwide existing home sales have increased 3.1% in July (which is reported to be a five month high!).
Does this mean that the real estate market has turned a corner? Many remain cautious.
Other housing related reports are mixed, however. The NAR reports that although overall housing inventory (homes listed for sale) is up, single family home inventory has declined. The increased housing inventory is attributed to a sudden increase of condominium inventory.
Locally, Montgomery County single family home inventory has dropped slightly in July 2008, while sales have also dropped slightly in July from June 2008 sales (data reported by the Greater capital Area Association of Realtors). However, a few individual zip codes and neighborhoods continue to show signs of recovery by posting sales increases, price increases, or both (data derived from Metro Regional Information Systems, Inc.; MRIS.com). Neighborhoods hit hardest by foreclosures continue to lag behind in sales.
What do home buyers think? A recent Harris Interactive poll, commissioned by Move.com (news.move.com), reports that 81% of home buyers polled are anxious about the current housing market and feel there are barriers to their homeownership. However, of those polled, 44% of home buyers believe the real estate market will improve with a new president. Additionally, 41% of current homeowners polled plan to purchase a home again, 80% of all renters polled plan to purchase a home someday with 47% planning to purchase a home within the next five years.
Of those reporting barriers to homeownership, the top barriers reported were current home prices (31%), lack of down payment (28%), “lack of confidence in economy” (26%), and various personal and financial concerns. Although many polled report a barrier to home ownership, 78% of home buyers polled report that they were willing to save for down payments as well as compromise on various criteria they are searching for in their home (including neighborhood and local amenities).
So what can we expect? Lawrence Yun, NAR Chief Economist, was reported as saying in a NAR news release (8/25/2008) that home prices could increase in the few localized markets where sales have appreciably improved. He continued to say that many market area inventories remain high and will take time to shrink; however he reports that 2009 will be a more “balanced” market. He expects that “long term appreciation patterns” will eventually return.
According to MRIS’s “Trends in Housing” (mid-year 2008), foreclosures will continue to trouble the local market; the Washington, DC region’s foreclosure rate this past spring (131 per 10,000) has outpaced the national rate (87 per 10,000). However, expectations are that decreased inventory along with increased housing demand (due to job growth and relatively low interest rates) will increase market activity by early 2009. It is expected that close-in neighborhoods will see these signs of recovery first, shortly followed by the outer suburbs.
As talk of a housing recovery is gaining traction, some experts are saying the recovery may be artificial and short lived. Warnings from economists and a former mortgage executive paint a picture of a possible housing bubble being caused by the source they claim is cause for increasing home prices.
As talk of a housing recovery is gaining traction, some experts are saying the recovery may be artificial and short lived. Warnings from economists and a former mortgage executive paint a picture of a possible housing bubble being caused by the source they claim is cause for increasing home prices.
