Has the housing market improved in the last four years

Dan Krell, Realtor®
DanKrell.com
© 2012

In retrospect, the beginning of the global recession in late 2007 was the end of the housing boom and may have spawned the foreclosures crisis and the financial crisis of 2008. And although this period of time will undoubtedly become the basis of many future dissertations examining the “Great Recession;” you might ask “how much has the state of housing improved since 2008?”

If you recall, the Housing and Economic Recovery Act of 2008 (HERA) was anticipated to have wide reaching changes in the mortgage and housing industries as well as supposed to have assisted struggling home owners. This multifaceted piece of legislation consolidated many individual bills addressing issues that were thought to either be the cause or the result of the financial crisis. Besides raising mortgage loan limits to increase home buyer activity, the historic legislation was the beginning of changes meant to “fix” Fannie Mae and Freddie Mac, as well as “modernizing” FHA to make the mortgage process easier for home buyers and refinancing easier for struggling home owners. Additionally, this law was the origination of the Hope for Homeowners program to assist home owners facing foreclosure (www.govtrack.us/congress/bills/110/hr3221).

The Federal Housing Finance Agency (FHFA), originated from HERA, has been the “conservator” of the then sinking Fannie Mae and Freddie Mac. Since the FHFA took control, there has been conjecture as to what would become of the mortgage giants: some talked about closing their doors, while some talked about changing their role in the mortgage industry. Since FHFA became the oversight agency, Fannie Mae and Freddie Mac has strengthened their role in maintaining liquidity in the housing market by helping struggling home owners with their mortgages as well as freeing up lender capital by the continued purchases of loans (fhfa.gov)

The inception of Hope for Homeowners was the beginning of a string of government programs designed to assist home owners facing foreclosure, or assist underwater home owners refinance their mortgage. Although there have been individual success stories, there has been criticism that these programs did not assist the expected numbers of home owners. A January 24th CNNMoney article by Tami Luhby (money.cnn.com) reported that “…the HAMP program, which was designed to lower troubled borrowers’ mortgage rates to no more than 31% of their monthly income, ran into problems almost immediately. Many lenders lost documents, and many borrowers didn’t qualify. Three years later, it has helped a scant 910,000 homeowners — a far cry from the promised 4 million…” and “HARP, which was intended to reach 5 million borrowers, has yielded about the same results. Through October, when it was revamped and expanded, the program had assisted 962,000…” (money.cnn.com/2012/01/24/news/economy/Obama_housing/index.htm).

Despite the recent slowdown in foreclosure activity, there is disagreement about the projected number of foreclosures going into 2013. A March 29^th Corelogic news release (www.corelogic.com/about-us/news/corelogic-reports-almost-65,000-completed-foreclosures-nationally-in-february.aspx) reported that there have been about 3.4 million completed foreclosures since 2008 (corelogic.com). And although an August 9^th RealtyTrac® (www.realtytrac.com/content/foreclosure-market-report/july-2012-us-foreclosure-market-report-7332) report indicated a 3% decrease from June to July and a 10% decrease from the previous year in foreclosure filings; July’s 6% year over year increase in foreclosure starts (initial foreclosure filings) was the third straight month of increases in foreclosure starts.

So, if you’re wondering if housing is better off today than it was four years ago, the answer may be a resounding “maybe;” It all depends on your situation.

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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 September 3 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

February 15, 2012June 29, 2019

Looking beyond inventory and sales: A deeper understanding of current housing market conditions

According to the National Association of Realtors® news release of February 9th, home affordability has increased in the last quarter of 2011 in many metro areas- including the metropolitan Washington DC region. The increase of home affordability is attributed to “softer existing-home prices and record-low mortgage interest rates in the fourth quarter.” The Washington DC region home affordability increased in the last quarter about 5.8% while the region’s home prices for existing homes fell about 5.4% (realtor.org).

Details of the NAR’s fourth quarter market analysis include a continued interest in home ownership among first time home buyers, as 33% of home purchases in the fourth quarter of 2011 were by first time home buyers. Additionally, 29% of the homes purchased in fourth quarter were “all-cash purchases,” which has been relatively unchanged; however, the percentage of “all-cash” real investor purchases was 19% (down from 20% realized in the third quarter).

Greater housing affordability may sound promising, however having more meaningful information may help understand what’s happening in the housing market.

To get a clearer understanding of the housing market, you might consider the February 10th speech given by Federal Reserve Chairman, Ben Bernanke, to the National Association of Home Builders entitled, “Housing Markets In Transistion” (federalreserve.gov). The overview of the housing market was explained as an imbalance in the supply and demand. Supply in the housing market, as Dr. Bernanke described it, greatly exceeded demand in the last few years. Demand for housing, as measured by home vacancy, has considerably decreased; home vacancy is “dramatically” elevated from the number of vacant homes in the first half of the 2000’s. Additionally, a high foreclosure rate is likely to continue; which would not only increase the number of vacant homes, but negatively affect families and communities as well.

Adding to the imbalance is the strengthening of the rental market, which evidently has increased demand.

Dr. Bernanke also described the problems in the housing market as a secondary issue that stems from more pressing economic concerns, such as employment and household formation. 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…”

A stifled housing market has also held back an overall economic recovery. Dr. Bernanke stated that home equity has been reduced about 50% from the housing peak; more than $7 Trillion of equity has been lost which resulted in a decrease of household spending of “$3 to $5 per year for every $100 of housing lost” (which is estimated to be about $200 Billion to $375 Billion per year). Besides the reduced consumer spending, low/negative equity creates other problems for home owners too; such as: restricting the ability to refinance to lower interest rates; reducing or eliminating the ability to cash out home equity for emergency expenses; and possibly preventing a move due to an underwater mortgage.

Dr. Bernanke was clear when stating that housing problems have far-reaching effects on home owners, communities, the financial system, and “the vitality of the economy as a whole.” He continued to state, “…This observation underscores the importance of efforts to improve the condition of the housing market.” He is not the first to say that there is no single solution; however, he is one of the few who has been able to articulate the interconnected factors that need to be addressed.

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

By Dan Krell.
Copyright © 2012

December 15, 2006May 11, 2019

Expectations for the 2007 Market

The past year’s real estate market was not what people expected. With much speculation and pessimistic media reports many expected the worst. The worst never happened and the numbers for 2006 were respectable, as home sales go. What’s expected for the 2007 market?

It was interesting to see the inventory grow as the number of active listings increased through the year. In fact, 2006 has had the most active listings at one time since before 1999! Many home sellers were taken aback by the amount of competition they faced for potential home buyers; while at the same time home buyers were overwhelmed with the amount of choice.

Now that we are heading towards the end of the year, many home sellers are taking their homes of the market after a disappointing fall and many days on the market. These home sellers are anticipating re-listing their homes in the spring. In fact the number of active single family homes listed in Montgomery County has hovered around the 4000 unit mark since June, however recently dropped to about 3000 units in November (which is still more than last year at the same time) (GCAAR.com). While some of those homes did sell, most did not.

Although the average home price has steadily increased in the county, many neighborhoods are seeing depreciation in the form of lowered sales prices. The home price average in Montgomery County is more likely skewed due to the increase of home sales in the million dollar or more range. November showed a decrease in sales in all price ranges except $1.5M or higher. There was an increase of almost twelve percent in sales in November as compared to the same time last year for this price range; there were 296 sales of homes priced $1.5M and higher in November 2006 in Montgomery County.

Many are anticipating a brisker market this upcoming spring. Many forecasters are predicting a nationwide recovery in the real estate market place. While perusing the optimistic reports about the 2007 real estate market don’t expect a huge appreciation in home values. Many forecasters predict a balanced market across the nation. Economists for the National Association of Realtors predict that the number of existing home sales will maintain at the roughly the same level as 2006, however new home sales will continue to slide into 2007 (Realtor.org).

Locally, the outlook is also positive due to a strong economy, relatively low unemployment, and relatively low interest rates. Another positive sign for the market in 2007 is the foreclosure rate. A recent article in the Baltimore Examiner (examiner.com) reported about a 12% drop in Maryland foreclosures from 2005, while the rest of the country realized a 27% increase during the same time!

As the spring market arrives, we will see many homes returning to market along with new listings of existing homes. Adding to the many options available will be the high builder inventory, which has been accumulating through the fall.

Spring will also bring many home buyers to explore the market as well. However, with many choices to consider, the average days on market for listed homes will remain high. Let’s face the truth that the market has slowed; however, the good news is that we are not heading into oblivion.

By Dan Krell
Copyright © 2006

December 15, 2006August 2, 2019

Housing market 2006

In reading some of the real estate forecasts for 2006, I was reminded of H. G. Wells’ novel, “The Shape of Things to Come.” What does H. G. Wells have to do with Real Estate? Nothing. Well almost nothing. Any self respecting science fiction enthusiast knows that the 1933 novel about the future of mankind was eerily prophetic about the outbreak of the Second World War as well as some technological advances. However, the novel was pure science fiction. The housing market 2006 is another matter

So I had to ask myself, “what is it about economic forecasts, real estate market predictions specifically, that seem to be prophetic in one regard and erroneous in other details?” I believe that in order to get a balanced perspective you have to get information from various sources and pull the pertinent plausible statements to form the picture. The same holds true to the coming year in the local real estate market.

So what can we expect from the housing market 2006 ?

The National Association of Realtors predicts 2006 to be the second best year in history for sales activity (Realtor.org). David Lereah, chief economist for the NAR, stated in a NAR press release on December 12 that he feels that economic conditions will be positive for the housing market in the coming year. He states that general economic conditions will be good to help sustain a stable real estate market.

Conversely, the UCLA Anderson Forecast (UCLAForecast.com), the folks who accurately predicted the recession in 2001, predicted in a recent press release that there will be a “weakness” in the national economy due to problems in the housing sector. Their vision is a weaker economy through 2007 because of a slower housing market and loss of construction and housing related jobs. The bottom line is that they believe that there is a rough road the next few years, but there will be no recession.

Interestingly enough you might think that Realtors who are active in the local market would have cohesive and consistent outlook on the future. That is not the case. Local Realtors who are quoted in Realty Times (realtytimes.com) share differing opinions about the state of the present market and offer differing views about the near future.

So, what can we make of all this confusing information? Well, with regard to mortgage interest rates, the Fed is expected to have at least one more increase planed, so it will remain to be seen where mortgage interest rates level off. Currently, mortgage rates are higher than they have been in recent history, but still hover at a respectable 6.25%. Additionally, home sales have dropped off from last year’s pace but prices are still increasing. So economically, it seems as if there is a sense of return to equilibrium.

What people have described as a bubble bust, or a downturn in the real estate market, is actually a return to a more balanced market. The dysfunctional expectation that a home should sell for $25,000 (or more) than the last home sold, and have many home buyers place an offer on one home in a moments notice will change to the more reasonable expectation of selling at market value and having a buyer contract on a home in several (or more) weeks.

Dan Krell, Realtor® DanKrell.com © 2012

So, if you’re wondering if housing is better off today than it was four years ago, the answer may be a resounding “maybe;” It all depends on your situation.

Dan Krell, Realtor®
DanKrell.com
© 2012