pent up demand Archives - Real Estate News and Commentary

The “Long Slog:” Although analysts disagree about the date of the housing market bottom, most agree that the national housing market bottomed out sometime time in 2009-2010. Many looked forward toward 2012 to be a phenomenal year for housing and a return to normalcy. Certainly 2012 housing figures were better than those of 2011, but in many areas of the country (including locally), the market fell short of outperforming 2010.

Unlike the occasional Pollyanna story about the local housing market, analysts expect “the long slog” or “the long grind” that will take years (emphasis on the plural) to get back to normalcy. No matter how you articulate it, and barring future economic setbacks, experts describe the climb out from the bottom as a long, slow trudge that will have high and low points along the journey.

Home sale prices: When real estate fell into a seemingly endless downward spiral in 2008, some sectors continued to do well. Homes priced at and above one million dollars continued to outperform other sectors of the housing market through 2011. The “upper bracket” sector began to show weaknesses in the early part of 2012; as luxury home sales slowed, mid-range home sales picked up momentum. However, activity flipped toward the end of 2012; as upper bracket activity increased significantly, while activity in other price sectors decreased. Until fiscal cliff, debt ceiling, and other government budget debates are resolved; local upper bracket home sales will be inconsistent during 2013. This market bifurcation can skew local monthly average home sales figures, as well as possibly distorting monthly marketplace snapshots.

Hyper-local real estate: Regional and local variances in home sale prices will require home buyers and sellers to continue to focus on hyper-local data to determine selling prices. One of the best ways for you to clarify neighborhood sales trends is to consult a local real estate agent for recent neighborhood comparables.

Mortgages & Appraisals: Getting a mortgage may become be increasing difficult in 2013. Recent reports of FHA losses and a possible bailout could force new guideline changes to help the venerable mortgage program. Because of increased foreclosures and delinquencies, there is talk about FHA becoming increasingly credit score reliant, and increasing mortgage insurance premiums for riskier borrowers.

Appraisals will continue to be a lightening rod of criticism and a source frustration. Since its inception, the Home Valuation Code of Conduct was confusing to everyone, and eventually became a scapegoat for many seemingly inconsistent valuations. However, a low sales volume due to lack of resale inventory will also create issues with appraisals.

Pent-up demand: No need to worry about interest rates – yet. Keeping mortgage interest rates low, the Federal Reserve has commented on continued purchases of mortgage backed securities as part of a larger stimulus program. However, continued low mortgage interest rates may not be the reason for home buyer activity as much as pent up demand. However, home buyers waiting on the sidelines to purchase a home have been met with low resale inventories during 2012. For many home owners, the general lack of home equity remains the major reason to not sell a home; and it’s also a reason for low resale inventories to continue through 2013. Continued low inventory environment will create a competitive environment for home buyers.

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by Dan Krell © 2012
DanKrell.com

The National Association of Realtors® latest news release of April 26th stated that March’s increased pending home sales figures is an indication that the housing market is recovering. The NAR reported that March’s Pending Home Sale Index (the PHSI is a “forward looking number indicating contracts signed”) increased from February’s PHSI and is much higher than the PHSI a year ago. Lawrence Yun, NAR Chief Economist, claimed; “The housing market has clearly turned the corner. Rising sales are bringing down inventory and creating much more balanced conditions around the county, which means home prices, will be rising in more areas as the year progresses…” (realtor.org).

Regardless of the newly sparked optimism for the housing market, a news release of one week prior (April 19th) indicated although March’s existing home sales were better than the previous year, the number of home sales declined from February’s totals. Dr. Yun cautioned that, “We were expecting a seasonal increase in home listings, but a lack of inventory has suddenly become an issue in several markets with not enough homes for sale in relation to buyer interest”…“Home sales could be held back because of supply factors and not by demand…”

My local market (Montgomery County MD, which includes Bethesda, MD, Chevy Chase MD, and Rockville MD) is part of the one of the stronger housing markets in the country, and pending sales are strong. The April 2012 Montgomery County Single Family Home Housing Report released by the Greater Capital Area Association of Realtors (gcaar.com) indicated that the number of contracts increased 12.4% compared to the same time last year, as well as increasing 8.5% year-to-date compared to the same time last year.

However, when looking at closing sales, pending sales may not be converting. Although the number of settlements of single family homes in Montgomery County is reported to have increased 5.8% in April 2012 from April 2011, the number of settlements year-to-date has decreased 1.6% from the same time last year.

Additionally, housing inventory continues to pose a problem for the market. Montgomery County single family home new listings decreased 14.6% in April 2012 from April 2011; while total actives reported for year-to-date through April 2012 decreased 15.1% for the same time last year. A diminished housing inventory is not so much an issue of meeting an increased buyer demand, as Dr. Yun has stated; but rather the issue may be that the declining housing supply may be lowering to meet buyer demand.

However, if housing inventories were not meeting an increased buyer demand, then we might be experiencing something akin to what occurred 2005 through 2006 (when homes sold relatively quickly, the average time on market was less than 30 days, and home prices were increasing). But we’re not experiencing the activity of 2005-2006. Additionally, the average single family home sale price for Montgomery County as reported by GCAAR is $496,144 for the month of April 2012 (compared to $515,161 for the same time last year).

I remember (and reported) similar optimisms declared in recent years; for example, an October 2009 report indicated that the PHSI was proclaimed to be at the highest level since March 2007. Enthusiasm for a market turning point would surely be welcome; but the data is inconsistent. And in fact, maybe current reports of pent up home buyer demand may be indicative of something else- a projection of pent up optimism.

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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 7, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.