real estate market Archives - Page 8 of 14 - Real Estate News and Commentary

November 17, 2016November 23, 2021

It’s Mr. Trump’s housing market now

Change is not always easy. Sometimes we choose to change and other times we are forced to change. The Great Recession forced massive change to many aspects of our lives – mostly financial. Many found themselves out of work because of the recession, and many home owners lost their homes to foreclosure; while the rest of us searched for ways to cope. It’s Mr. Trump’s housing market now.

As a result, the Dodd–Frank Wall Street Reform and Consumer Protection Act was quickly pieced together and signed into law in 2010. “Dodd-Frank”, contained over two-thousand pages of regulations and rules, many of which were to be created at a later time by many agencies and unelected bureaucrats. Dodd-Frank also created the Consumer Financial Protection Bureau, which took over RESPA, lending and consumer finance markets enforcement responsibilities. The CFPB created the “Qualified Residential Mortgage” and “Know Before You Owe” rules that significantly impacted the mortgage and housing industries.

The purpose of Dodd-Frank and the CFPB was well intentioned as Congress sought a solution to prohibit future crises. In the uncertain financial atmosphere that ensued, consumers wanted accountability from Wall Street and mortgage lenders. While some continue to generally blame Wall Street and the mortgage industry for the financial crisis, the reality is that the dynamics that created the financial crises were complex. And one can surmise from the many hearings, books, dissertations, and working papers that the crux of the financial crisis was widespread fraud that took advantage of a hot real estate market and easy money.

Six years after Dodd-Frank, the rules and regulations keep coming. Writing for the US Chamber of Commerce’s “Above the Fold,” J.D. Harrison pointed out that Dodd-Frank has created over 27,000 new federal regulations by thirty-two federal agencies impacting many industries (Dodd-Frank’s Regulatory Nightmare in One Rather Mesmerizing Illustration; uschamber.com). Compared to the previous Wall Street reform in 2002, which had two agencies issuing regulations to only five industries. Harrison stated that the Sarbanes-Oxley Act “basically sought more corporate transparency and accountability.”

Many have associated Dodd-Frank with the ongoing slow economic recovery, citing increased consumer costs and restricted lending – which effects the housing market, home buyers and sellers.

An example of increasing consumer costs is the CFPB’s TILA-RESPA Integrated Disclosure. The Mortgage Bankers Association (mba.org) recently reported that compliance with TRID costs on average $210 per mortgage, some of which is recouped from the consumer. The rule is also responsible for “slower application to closing times.”

A recent appellate case highlighted some of these Dodd-Frank outcomes. The CFPB sought fines against a mortgage lender for their years of compliance with HUD’s interpretation of a rule; the fines were imposed retroactively for not complying with a new CFPB reinterpretation of the same rule. Additionally, the court focused on the CFPB’s unilateral ability to impose rules and fines without oversight.

It’s Mr. Trump’s housing market now.

Repeal and Replace is a talking point that is not exclusively for the Affordable Care Act. Shortly after Donald Trump’s election as the forty-fifth President of the United States, many industry insiders and pundits are already anticipating the future of Dodd-Frank and the CFPB. Mr. Trump’s plan for financial services is posted to the President-Elect’s site (greatagain.gov) stating: “The Dodd-Frank economy does not work for working people. Bureaucratic red tape and Washington mandates are not the answer. The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.”

If you like this post, do not copy; instead please:
reference the article,
like it at facebook
or re-tweet.

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.

August 19, 2016November 23, 2021

Home sale timing – sell for more

Everyone wants to know the future, especially when it comes to the home sale timing. Home sellers and buyers want to predict home prices. Home sellers want to know the best time to sell. While Home buyers want to know if they’re getting a good price. And apparently there may be a fairly reliable predictor to home prices, however it’s not what you think it is.

Several empirical studies have attempted to provide a methodology for predicting the housing market (home sale timing). Of course there is the familiar of forecasting real estate through divorce and premarital agreements. Back in 2013, the American Academy of Matrimonial Lawyer (AAML.org) issued a press release citing the increase of prenuptial agreements as sign of the improving economy. The increase in prenuptial agreements meant that people felt there was value in their assets. And this was meant to be a good sign in for housing market.

Of course there was also a spike in divorces that year, leading some to believe this to also be a good sign that people felt better about the economy because of their willingness to begin anew. But as University of Maryland sociologist Philip N. Cohen pointed out in his November 2015 blog post (Divorce rate plunge continues; familyinequality.wordpress.com) the increased divorce activity of 2013 was a just a recession related “bump” and in actuality the divorce rate decreased in 2014.

Then there was predicting housing through internet search data, which sounds more like fortune-telling than research to be honest. However, Beracha and Wintoki (Forecasting Residential Real Estate Price Changes from Online Search Activity; The Journal of Real Estate Research 35.3 (2013): 283-312.) concluded that, indeed, you can gauge regional housing trends through specific keyword search volume. Given this method, I used Google Trends to look up the keyword “home for sale” for the Washington DC metro region – and it is bound to become a hot market in the next six months (maybe a Presidential election has something to do with that?).

But a better indicator of where home prices will go may be the availability of credit. Most would argue that mortgage lending is a matter of housing demand. However, a working paper by Manuel Adelino, Antoinette Schoar, and Felipe Severino (Credit Supply and House Prices: Evidence from Mortgage Market Segmentation; February 19, 2014) concluded that “easy credit supply leads to an increase in house prices.” They contend that higher conforming loan limits and low interest rates benefit home sellers in the form of higher sale prices.

Adelino, Schoar, and Severino’s premise can be witnessed in hindsight as the pre-recession housing boom seemed to be fueled on easy credit. As credit became increasingly available, home value appreciation took off. Likewise, housing stabilized and home values appreciated post-recession as home lending requirements loosened.

Of course, many associate easy credit policies with recessions, and even the Great Depression. However, it’s not necessarily the easy credit that precipitates the recession – but rather it’s the tightening of credit. Stephen Gandel (This is When You’ll Know it’s Time to Panic About a Recession; fortune.com; March 8,2016) said it succinctly, “Tightening credit doesn’t always lead to a recession. But every recession starts with that.”

One may infer from Adelino, Schoar, and Severino’s research that a home seller can gauge their home sale price based on the lending environment. Lower interest rates and loose credit points to a higher sale price. However, tightening credit policies may point to flat or even lower home prices.

If you like this post, do not copy; instead please:
reference the article,
like it at facebook
or re-tweet.

June 30, 2016July 11, 2019

Brexit benefits US housing

International home buyers (infographic from realtor.org)

The immediate response of Great Britain’s referendum to exit from the European Union was one of anxiety and fear. Some thought the separation would set off a global recession, matching the financial crisis of 2008. While others believed it would be a blip on the financial radar. Of course, the housing industry is watching to see how if the aftermath of the Brexit will affect home buyers and sellers. And it looks as if Brexit benefits US housing.

If you remember, last summer’s US market gyrations were attributed to China’s stock market declines. As a result, many home buyers who relied on their 401k’s (or other investments) for their down payments had to make other plans. Some were unable to buy. At that time, the National Association of Realtors® reported a decline in last August’s existing home sales, only to rebound in September (realtor.org). Will the aftermath of last week’s Brexit have a similar effect? Or maybe Brexit benefits US housing.

Some expect that British home prices will fall as a result of the Brexit, which could affect our housing market. Foreign home buyer investment in US housing will withdraw as foreign cash will look to the UK for housing bargains. This will most likely affect the luxury home sector of the market, where many foreign home buyers have parked their money.

In the meantime, initial reactions indicate that the Brexit benefits US housing! AnnaMaria Andriotis, writing for The Wall Street Journal (Mortgage Rates: How Low Can They Go?; wsj.com; June 28,2016) reported that mortgage interest rates may go lower as a result of the Brexit. Lower interest rates could make housing more affordable for home buyers, while home owners continue to have opportunities to lower their mortgage payments.

The housing market has already been brisk. The NAR reported on June 22^nd that existing home sales increased to its highest levels in nine years! Additionally, the S&P/Case-Shiller Home Price Index (spindices.com) reported June 28^th revealed an additional 5% year-over-year increase for April 2016.

NAR chief economist Lawrence Yun concluded that low mortgage rates are an incentive for many home buyers. Although he stated that first time home buyers are finding it difficult to enter the market for various reasons, repeat home buyers make up the majority of home sales. As home prices increase, many repeat home buyers are finding down payment funds in the form of the proceeds of their home sales.

Yun felt that first time home buyers may find that increasing home prices will be a continuing obstacle. This is compounded by the enduring low housing inventory. However, new home construction may add other options for home buyers.

Aside from the interest rate benefit to home buyers, mortgage lenders are finding new programs to help those with little down payment funds! Of course, the venerable FHA mortgage has been the go-to mortgage for those who qualify, because the down payment can be as low as 3.5%. The downside to the FHA mortgage is the mortgage insurance premium. To compete, Fannie Mae and Freddie Mac offer a 3% down payment program to those who qualify. Like its FHA counterpart, the conventional 3% down payment program has also required private mortgage insurance.

However, HousingWire (hosuingwire.com) has reported that a few lenders offer a 3% down payment mortgage program without the PMI. And within the last seven days, HousingWire reported that Quicken Loans and Guaranteed Rate Mortgage offer a 1% down payment mortgage program to those who qualify!

By Dan Krell
Copyright © 2016

If you like this post, do not copy; instead please:
reference the article,
like it at facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector

June 3, 2016November 23, 2021

Housing bubble countdown

The March S&P/Case-Shiller U.S. National Home Price Index (spindices.com) was announced May 31^st to reveal a 5.2% increase in home prices. Although down from last March’s 5.3% increase, home prices seem to be appreciating at a regular pace, with the metro areas of Portland, Seattle, and Denver leading the way with double digit gains (year-over-year price increases of 12.3%, 10.8%, 10.0% respectively). As home prices climb, so too are the claims that we are experiencing a housing bubble.

Those concerned about the next bubble have been ringing the alarm bells since last fall, when the combination of limited inventory, multiple offers, and rising prices created an environment in some regions that was reminiscent of the go-go market just prior to the last market bust. And like the broken watch that is correct twice a day, those naysayers may eventually be correct – but it may not be for another eight years.

How to predict a housing bubble

According to Ted Nicolais, the real estate cycle has been steady since 1800 (How to Use Real Estate Trends to Predict the Next Housing Bubble; dce.harvard.edu; February 20, 2014). Writing for the Harvard University’s Department of Continuing Education’s The Language of Business blog, Nicolais maps out Homer Hoyt’s cycles and found a regular 18-year cycle to the bubble and bust housing market (albeit two exceptions).

The 18-year cycle, as it turns out can be observed by analyzing trends. An applying Henry George’s four phases of the real estate cycle (as modernized by Glenn R. Mueller), Nicolais can determine how and when the next housing bubble will occur. (Henry George was a nineteenth century economist who studied the boom-bust cycle of the economy).

The first phase is the “recovery.” Home prices are at the bottom, and demand increases. Real estate vacancies decrease as economic activity increases, which fuels the economy.

The second phase is the “expansion.” Housing inventories dwindle, there is little is available to buy, and finding a rental becomes difficult. Nicolais explains that an issue with real estate is that once demand increases, filling inventory takes a long time. New development can take two to five years. Until new inventory is added, price growth accelerates; and rather than valued at market conditions, real estate becomes priced to future gains. During a real estate boom, people buy into the prospect of “future growth” and believe the escalating prices are reasonable.

Phase three is “hyper supply.” When the completion of new development begins to satisfy demand, inventories fist stabilizes and then swells. Price growth begins to slow. Nicolais stated that the amount of continued development will determine the severity of the impending recession; while demand is satiated, new inventory comes to market and vacancies increase. He asserted that “wise” developers stop building during this phase.

Phase four is the “recession.” New development is stopped, while projects coming to completion add to a growing inventory. Occupancy rates and prices fall; property values and profits dwindle. Developments in mid-construction may not be completed because they are no longer financially feasible.

Following the four phases and the 18-year cycle; Nicolais stated that the great recession was not caused by external forces, but rather occurred on schedule! He figures that the current housing market is transitioning from recovery to an expansion phase. And with the exception of the occasional slow down, he predicts that the next housing bubble will be in 2024.

Original published at https://dankrell.com/blog/2016/06/03/housing-bubble-countdown/

If you like this post, do not copy; instead please:
reference the article,
like it at facebook
or re-tweet.

January 13, 2016December 13, 2022

Real estate bargains

The typical real estate investor and the average home buyer have something in common – they both are looking for a home that makes financial sense, a bargain if you will. After all, who wants to overpay for their home? Although the investor’s priority is purely financial, a home buyer’s priority is a mix of lifestyle requirements that fits a budget. Even with priorities in line, both investors and home buyers don’t always recognize a bargain when it presents itself.

Finding a bargain home is not as easy as some will have you believe. Bargain hunters typically look for distressed properties such as foreclosures (also known as “bank owned” or REO homes) and short sales. Although there was abundant opportunity to buying such homes immediately after the housing crash, many were hesitant due to lack of market confidence. However, as confidence was revived in the housing market, the courthouse real estate auctions were once again attended home buyers and investors looking for good buys. And as home prices increased, so did the price for distressed properties; making it more difficult to find the bargain home. Even “motivated” home owners may not be as motivated as you think in today’s market.

This phenomenon is corroborated by a recent study of “bargain homes” by Trulia’s research blog. Ralph McLaughlin reported on January 7^th (Where Is A “Bargain” Really A Bargain?; trulia.com) that advertised bargains were actually good buys in 55 of 100 housing markets. Furthermore, hot markets tend to offer less price discounting than cooler markets; home sellers are less inclined to make price reductions in markets where there is increased buyer competition. Locally, the Baltimore metro region was found to be in the top discounted markets for bargain homes (with an average discount of 11.3%); while the Washington DC metro region was found to be in bottom of discounted markets with an average of 4% discount on a bargain home.

It’s clear now that home prices were at the bottom during 2008-2009. At that time, home inventories swelled and there was an abundance of (what would seem today) “cheap” homes for sale. I wrote at that time (If Cheap isn’t Selling, What is?; May 28, 2008) about how cheap homes were not selling, and how home buyers changed their focus from “buy anything” to buying quality homes that impart value. Of course, one of the main reasons cheap homes were not selling quickly was that there was an additional cost associated with the purchase; most of the cheap homes were distressed and required rehab, or at the very least needed updates and minor renovations.

For most investors, the concept of a bargain home is strictly the result of numbers in a formula; and for some home buyers, the bargain may be about getting a good price. However, a bargain home could be more than just the price tag. Maybe the bargain home is also the “value added” home. Rather than just focusing on price, buyers should also be aware of a home’s potential. Of course there is always risk when buying a home, which we experienced during the financial meltdown eight years ago.

Regardless, many lament having not bought homes at or near the price bottom. But hindsight is 20/20. And what didn’t seem like a bargain just a few years ago, is in comparison to today’s increasing home prices and an active housing market, a missed opportunity.

If you like this post, do not copy; instead please:
reference the article,
like it at facebook
or re-tweet.