Vacation homes declining

vacation homes
Vacation homes sales decline (infographic from

According to the National Association of Realtors 2017 Investment and Vacation Home Buyers Survey (, last year’s vacation home purchases plunged 21.6 percent!  Last year’s decline in vacation homes sales comes at the heels of a huge drop in 2015, and has tumbled about 36 percent since the post-recession high marked in 2014.  Are the statistics telling us it’s a good time to buy that vacation home you have been thinking about?  Or is it that Americans are rethinking their view about vacations and retirement?

Of course, Lawrence Yun, NAR chief economist, feels that the decline is due a very tight vacation homes market that may likely make a comeback in the ensuing years. In an April 11th NAR press release he stated that “In several markets in the South and West – the two most popular destinations for vacation buyers – home prices have soared in recent years because substantial buyer demand from strong job growth continues to outstrip the supply of homes for sale. With fewer bargain-priced properties to choose from and a growing number of traditional buyers, finding a home for vacation purposes became more difficult and less affordable last year.”  He added, “The volatility seen in the financial markets in late 2015 through the early part of last year also put a dent in sales as some affluent households with money in stocks likely refrained from buying or delayed plans until after the [2016] election.”

However, another explanation given by the NAR is short term rentals, including airbnb.  Short term rentals allow people to visit vacation and resort towns without committing to buy a home.

To give perspective about the tight vacation homes market, NAR stated that vacation home sales were only 12 percent of all transactions in 2016, a decrease from 16 percent in 2015 (and close to the recent low of 11 percent in 2012).  Additionally, low vacation home inventory pushed sale prices higher.  The 2016 median vacation home price increased 4.2 percent, which is a decade high of vacation home price growth.

A lack of inventory and rising home prices are sure to put a damper on the vacation homes market.  But the slump could be a manifestation of something else.

Bloggers and columnists have reported a shift in the younger generation’s home buying habits for about a decade.  The trend seems to be a rejection of the accepted industry standard home buying cycle set by older generations.  For decades, the Baby-Boom generation has set the bar for home sales.  Their views on home ownership and vacation homes have guided the experts.  However, millennials have a different perspective, having a more conservative take on home buying and exhibiting a strong sense of value.

The NAR’s 2017 Investment and Vacation Home Buyers Survey pointed out that that the top two reasons to purchase a vacation home are for a family retreat and for retirement.  However, just like the trend in home buying, millennials are redefining their retirement and vacation needs.

Expecting to work longer, Millennials’ idea of retirement is not perceived the same as the Baby-Boomer’s vision of retirement.  Staying relevant and engaged is now more important than leisure.

Having a regular spot for the family to congregate and vacation is no longer highly desired.  Millennials want the option to travel rather than visiting the same vacation spot every year.  Millennials are also savers. They may view vacation homes as exorbitant and expensive.  Even though the vacation is only a small portion of the year, there are regular expenses that may include a mortgage, property taxes, HOA fees, and maintenance.

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Housing market 2017

housing market 2017
Housing Market 2017(infographic from RE/MAX National Housing Report

There’s no doubt that 2016 was an outstanding year for real estate and the housing market.  In fact, National Association of Realtors chief economist Lawrence Yun was reported to say in a January NAR press release ( that the 2016 housing market was the best since the Great Recession.  There were 5.45 million total existing home sales in 2016, which exceeded 5.25 million during 2015.  What is necessary for a great housing market 2017, and how will it finish the year?

January’s sales were strong and Dr Yun stated in the press release that there is “resilience” in a “rising interest rate environment:”

“Much of the country saw robust sales activity last month as strong hiring and improved consumer confidence at the end of last year appear to have sparked considerable interest in buying a home…

Market challenges remain, but the housing market is off to a prosperous start as home buyers staved off inventory levels that are far from adequate and deteriorating affordability conditions.”

Home prices also surged during 2016.  A February 28th S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index press release ( indicated a 30-month index high, increasing 5.8 percent during December.  The Seattle, Portland and Denver regions were at the top during this period, posting gains of 10.8 percent, 10.0 percent and 8.9 percent respectively (the Washington DC region gained a respectable 4.2 percent).  David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices stated:

“Home prices continue to advance, with the national average rising faster than at any time in the last two-and-a-half years…One factor behind rising home prices is low inventory. While sales of existing single family homes passed five million units at annual rates in January, the highest since 2007, the inventory of homes for sales remains quite low with a 3.6 month supply. New home sales at 555,000 in 2016 are up from recent years but remain below the average pace of 700,000 per year since 1990. Another factor supporting rising home prices is mortgage rates. A 30-year fixed rate mortgage today is 4.2% compared to the 6.4% average since 1990. Another indicator that home price levels are normal can be seen in the charts of Seattle and Portland OR. In the boom-bust of 2005-2009, prices of low, medium, and high-tier homes moved together, while in other periods, including now, the tiers experienced different patterns.”

Of course, the record year was nowhere near the peak market pace of 6.48 million existing home sales during 2006.  However, the economics of the market during that time was different; being influenced by outside forces such as uber-easy money policies and overzealous speculation in the housing market.

The peak market sales records may be a benchmark of a sort.  But in retrospect, those numbers are a reflection of a distorted market where speculators bought and sold homes in record numbers taking advantage of the easy money and a seemingly guaranteed big money payoff (which was a factor in the steep home appreciation spike at that time).  It was a crazy time for housing, when homes were flipped in a matter of days.  Many investors were even making money on homes they never owned by selling their interest in their purchase contracts.  The result was that home buyers found themselves either priced out of the market, or borrowing more than they could realistically afford because of the fierce buyer competition.

After posting impressive housing stats for 2016, the expectations for housing market 2017 are high.  And not surprisingly home sales started the year on the same pace, as the NAR reported January’s existing home sales (homes that settled during January) increased 3.3 percent.  However, the pending home sale index (homes under contract and described by NAR as a forward looking number) showed a different picture with 2.8 percent decrease during January.  Of course in the absence of bad weather, some economists explain that the decrease in pending home sales are due to low inventory and rising interest rates.

Housing Market 2017

Some are concerned about the decreased prospects of future home sales, suggesting that there won’t be a repeat performance of record home sales during 2017.  The recent pending home sale index release is reminiscent of the index reported for January 2014, where the NAR reported that the pending home sale index dropped 9 percent following post-recession record year of home sales during 2013.  At the end of 2014, it was revealed that existing home sales dropped 3 percent from the previous year.  Reasons given for the decrease were low inventory and tight lending.

Many, like myself, remain optimistic for housing market 2017 because interest rates remain historically low, even with recent rate hikes; and mortgage lending has been the easiest since the financial crisis.  The sentiment for housing market 2017 is also shared by consumers; who conveyed increased optimism about the housing market in Fannie Mae’s 2017 Home Purchase Sentiment Index (HPSI).  The February 17th News release ( indicated that the January’s HPSI increased 2 percent, which is 1.2 percent higher than the same time last year. Doug Duncan, senior vice president and chief economist at Fannie Mae, stated:

“Three months after the presidential election, measures of consumer optimism regarding personal financial prospects and the economy are at or near the highest levels we’ve seen in the nearly seven-year history of the National Housing Survey…However, any significant acceleration in housing activity will depend on whether consumers’ favorable expectations are realized in the form of income gains sufficient to offset constrained housing affordability. If consumers’ anticipation of further increases in home prices and mortgage rates materialize over the next 12 months, then we may see housing affordability tighten even more.”

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Is housing market in trouble?

home sales stats
Home sales stats from

Two seemingly mundane and unrelated news items were reported over the last couple of days without much attention, but could be a warning that housing activity is slowing.  First are reports of disappointing home sales during February, while the other is about mortgage principal write downs.

The National Association of Realtors® ( reported in a March 21st statement that February home sales plunged 7.1% from January’s sales; however, February sales were still 2.2% higher than the same time last year.  The disappointing sales were recorded in all four national regions; and were likely due to a combination of extremely low inventory and increasing home prices.

NAR chief economist Lawrence Yun stated in the release that although the northeast blizzard may have had some impact, vapid sales were more likely due to the lack of supply and affordability.  He stated, “…Finding the right property at an affordable price is burdening many potential buyers.”  Yun pointed out that although there are gains in job growth, NAR’s latest quarterly Home Survey indicated that fewer respondents believed the economy was improving, while a lower number of renters stated it’s a good time to buy a home.  Remaining optimistic, Yun qualified February’s data saying home buyer demand is still high, however, “…home prices and rents outpacing wages and anxiety about the health of the economy are holding back a segment of would-be buyers.”

NAR also reported that February’s median existing home price for all housing types was up 4.4% year-over-year; while exiting inventory is 1.1% lower compared to the same time last year, which leaves unsold inventory at a 4.4 month supply.

However, a housing slowdown may not be noticeable in my area.  Statistics reported by the Greater Capital Area Association of Realtors® ( indicated that settlements during February for Montgomery County single family homes are actually up 19.3% and homes under contract increased 12.4% compared to the same time last year.  However, February’s new inventory for Montgomery County single family homes decreased 3.4% year-over-year.

Although continued increases in home prices is good news for homeowners; it is easy to see that affordability is an impediment to home ownership for many would be home buyers.  Additionally, possibly keeping home sales inventory down are the number of homeowners who continue to feel that they cannot sell because they still owe more than the value of the home.  Consider that Realtytrac ( reported that there were 6.4 million properties that were seriously underwater at the end of 2015; which represents about 11.5% of all homes with a mortgage.

In an effort to offer relief to underwater homeowners, the Federal Housing Finance Agency (conservator of Fannie Mae and Freddie Mac) approved a plan to reduce mortgage balances on a “large scale.”  Joe Light reported for the Wall Street Journal (Fannie, Freddie to Cut Mortgage Balances for Thousands of Homeowners;; March 21, 2016) that as many as 50,000 underwater homeowners could see their mortgage principal reduced by Fannie and Freddie.

Although the number of assisted homeowners seems small in comparison to the number of underwater properties reported by Realtytrac, and is not expected to impact the housing market; it is a milestone nonetheless.  Mortgage principal reductions has been controversial, and has been bandied about by industry experts and regulators since the foreclosure crisis began in 2007.  Light reported that the previous FHFA director, Edward DeMarco, was reluctant to support such a program because of the cost to taxpayers.  However, current FHFA director, Melvin Watt, has taken a “measured approach” to the plan.

By Dan Krell
Copyright © 2016

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Will home prices depreciate second half of 2014?

house for sale

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 19th 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 22nd ( 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® ( 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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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.

Real estate, climate change, and data-porn

winter home sales

The National Association of Realtors® ( March 20th news release reported that February home sales remained subdued because of rising home prices and severe winter weather.  The decline in existing home sales was just 0.4% from January, but was 7.1% lower than last February’s figures.  NAR chief economist Lawrence Yun stated that home sales declines were due to “weather disruptions, limited inventory, increasingly restrictive mortgage underwriting, and decreasing housing affordability.”  And although it may sound bad, Yun actually has a rosy outlook saying, “…Some transactions are simply being delayed, so there should be some improvement in the months ahead. With an expected pickup in job creation, home sales should trend up modestly over the course of the year.”

So, if a snow filled and cold February is to blame for poor home sales, was Snowmagedden and Snowzilla the reason for increased home sales during February 2010?  Of course not.   And although home sales increased 5.1% year-over-year here in Montgomery County MD during February 2010, it was mostly due to increased home buyer demand that some speculate was due in part to the availability of first time home buyer tax credits.  Additionally, RealtorMag reported that Southern California December home sales dropped about 21% month-over-month, and were down about 9% in compared to the same period in 2012.

As home sales are trending lower, it’s reasonable to look for reasons why demand is soft; but can weather be the main reason to keep potential home buyers at home?  Probably not.  Consumer demand is a robust force that is multifaceted, and can even prevail over seemingly difficult circumstances.  Consumer demand can even trump weather, as was the case during the winter of 2010.

winter home sales

Consumer demand can even be resilient in the face of the speculative effects of global warming.  A November 2013 RealtyToday article (The Looming Global Warming Catastrophe and its Effect on Real Estate; discusses how home buyer demand for coastal property has remained strong even as increased claims that climate change will make these areas uninhabitable.

Housing data cause and effect is only conjecture unless it is directly observed.  To make sense of the “data-porn” that is excessively presented in the media, often without proper or erroneous explanation; economic writer Ben Casselman offers three rules to figure out what the media is saying (Three Rules to Make Sure Economic Data Aren’t Bunk; Question the data; Know what is measured; and Look outside the data.  Casselman states, “The first two rules have to do with questioning the numbers — what they’re measuring, how they’re measuring it, and how reliable those measurements are. But when a claim passes both those tests, it’s worth looking beyond the data for confirmation.”

Keeping these rules in mind, could the winter slowdown be the result of cold weather, or is it something else?  Sure, cold weather may have marginal effects on home buyer behavior and demand; however, weather does not typically affect extended periods of consumer behavior unless weather events are catastrophic.  The current data may be indicative of a housing market that is returning to the distinct seasonal activity that we have been used to for many years prior to the “go-go” market and subsequent recovery years.

However, other factors referenced by Dr. Yun, such as increased home prices and tougher mortgage standards, are more likely to be the reasons for subdued home sales.  And as the year progresses, these factors may emerge to be significant issues for home buyers.

by Dan Krell
© 2014

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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.