Tag: real estate

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“Exceptionally” low mortgage rates for buyers and owners

by Dan Krell
© 2012
DanKrell.com

Last week, the Fed issued a statement from the most recent Federal Open Market Committee meeting indicating that the target rate was to remain between 0 and ¼ percent; and an “exceptionally” low rate is warranted through 2014. Although there were some bright areas of the economy, some sectors remain an obstacle- including housing (which was described as “depressed”).

The Fed’s estimation of the housing market appears contrary to the seemingly upbeat reports issued by the National Association of Realtors®, which recently revised downward several years’ worth of housing data. However, by keeping an ear to the ground, the Fed goes beyond the typical statistical analysis by collecting and analyzing anecdotal data from industry experts around the country. The anecdotes are compiled, analyzed and published eight times a year by the Fed as the “Beige Book.” Formally known as the “Summery of Commentary on Current Economic Conditions by Federal Reserve District,” the most recent report indicated an overall feeling that home sales are sluggish throughout the country. Furthermore, the report from the Richmond District (which covers MD, DC, VA) indicates that although there were a few pockets of “strength,” a softened housing market was depicted citing the sentiment of some local real estate agents.

Getting back to interest rates, the Fed’s monetary policy of “exceptionally” low interest rates for some time could mean cheap mortgage money for you. There’s no telling how much lower mortgage interest rates can go, as we are already seeing some of the lowest interest rates in several generations. The interest rate on your mortgage is tied directly to your monthly mortgage payment; a lower rate typically means a lower monthly payment.

For home buyers, “exceptionally” low interest rates could result in a more affordable home purchase; buying a home today may possibly be cheaper than paying rent. Even if home prices continue at the current level during the next few years, home affordability can drastically change if mortgage rates rise.

If you currently own a home, “exceptionally” low interest rates could mean that you could possibly reduce your monthly mortgage payment. However, refinancing is not for everyone. According to the Federal Reserve Board’s “A Consumer’s Guide to Mortgage Refinancings,” refinancing may not be for you if: you’ve had your mortgage for a long time, your mortgage has a prepayment penalty, or you plan to move in the next few years.

For a typical mortgage, the proportion of the mortgage payment that is applied to principal increases through the life of the loan. So, if you’ve had your mortgage for a while, chances are that you’ve been increasingly paying toward the mortgage principal (and building equity). However, if you refinance, the mortgage life cycle begins anew and much of your payment would be applied to interest.

If your mortgage has a pre-payment penalty, you can be charged for paying off your mortgage early. Any pre-payment penalty should be considered in the total cost of the refinance so as to consider how long it may take to “break even” based on your monthly mortgage savings.

In today’s market, many home owners are putting off a move and refinancing instead. However, if you’re planning to sell your home soon after the refinance, consider the “beak even” point of your monthly mortgage savings. Selling your home shortly after a refinance could make the short term mortgage savings seem short sighted.

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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 January 30, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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SOPA and real estate; Unintended consequences?

If you don’t surf the web very often, you may not have heard about SOPA and PIPA. No, SOPA is not something to wash with nor is PIPA the Duchess’ sister.

SOPA (H.R. 3261: Stop Online Piracy Act) and PIPA (S. 968: Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011; also known as Protect IP Act) were introduced with the intent to stop internet piracy and protect intellectual property. Essentially, the legislation gives the government authority to take down websites if a court finds a site in violation of the legislation; these websites would be considered “rogue” sites.

The main intention of the legislation is to protect intellectual property and revenue; there has been an annual increase of complaints of internet piracy, unauthorized copying, and counterfeit products that proliferates the internet. The bills are in the process of the maneuvering through Congress. H.R. 3261 is in “committee,” which is typically the first step after a bill is introduced in the House of Representatives; while S. 968 was recommended to be voted on by the Senate. Although the bills are the center of controversy, it is possible that they might not pass; but rather the wording could be incorporated in other legislation (much like the Indefinite Detention Without Charge or Trial provision that was included in the National Defense Authorization Act for Fiscal Year 2012, which was signed into law December 31st).

SOPA lists, among other things: expanding the definition of criminal copyright infringement; expanding what constitutes criminal trafficking of inherently dangerous goods or services; as well as increasing penalties for specified trade secret offenses and various other intellectual property offenses.

Supporters for SOPA/PIPA contend that internet theft has reduced corporate earnings; passing this legislation would protect their intellectual property from illegal distribution on the internet by shutting down or restricting access to offending websites, thus protecting revenue and entrepreneurship.

Critics claim that the legislation is an over reach and has the potential for abuse, which if passed could allow larger companies to control internet commerce by forcing competitors to take down competing websites. Some argue that such legislation, which concerns many bloggers and some news outlets, may conflict with the first amendment.

For example: the operators of Craigslist claim that if the legislation passes, they may be ordered to shutdown (http://www.techdirt.com/articles/20111005/10082416208/monster-cable-claims-ebay-craigslist-costco-sears-are-rogue-sites.shtml); Craigslist is listed by Monster Cable® as an “unauthorized dealer” and “blacklisted” along with Sears, Costco, eBay, and many other sites for allegedly selling counterfeit products (http://www.monstercable.com/).

The internet has become a major source of real estate information; consumers and professionals search the internet daily for home listings by brokers and FSBOs, housing and economic news, legislation, public and other related information. The National Association of Realtors® 2010 Profile of Buyers and Sellers indicate that 89% of home buyers use the internet for information and home searching. The number of home buyers, sellers, and owners using the internet to assist them in making a real estate related decision grows annually.

Although the consequences of enacting SOPA/PIPA into law (on the real estate industry) are unclear, it would be undesirable and unfortunate if readily accessible real estate information were to be unduly restricted by some association’s or real estate company’s claim of content ownership. Learn more about SOPA/PIPA, and provide feedback to our Representatives and Senators.

by Dan Krell
© 2012

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.

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Real Estate in review 2011

Since the housing downturn, optimistic predictions the real estate market have been forecasted annually. However, what we have seen in retrospect is that home buyer incentives along with other housing stimulus measures have only acted to maintain an ailing housing sector from deteriorating further. Some still await the market bottom. And although 2011 revealed additional weaknesses in global economic systems as well as the unintentional consequences of policy and regulation, 2011 felt as if it was the most optimistic year in real estate since the downturn.

2011 will be remembered as the year that the National Association of Realtors (NAR) revised existing home sales down 14.3% for estimates between 2007 and 2010 (data released on December 21, 2011 and available on realtor.org). Regardless of the re-benchmarking of data, the NAR has announced that existing home sales in 2011 continue to strengthen as November’s data indicates increased sales from the previous year (really?).

2011 was not the year for home price gains, however. Home prices continued to decline nationwide. However, the Washington DC and Detroit metro areas were the only two regions that posted positive home price gains from the previous year according to the S&P/Case-Shiller Home Price Index.

2011 was the year that housing finance reform continued to crawl forward, while Wall Street reform seemed to move quickly with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Although Dodd-Frank seemed to be focused squarely on Wall Street, it appeared to be far reaching with the requirements such as the 20% down payment Qualified Residential Mortgage (QRM).

2011 will be remembered as the year that the Eurozone almost collapsed. The financial déjà-vu that played out over the summer (and is still yet totally resolved, mind you), threatened markets worldwide- including the U.S. housing market. The sharp economic decline, that some braced for, was averted.

2011 was the year that we saw a bifurcated market become increasingly significant. The upper-bracket/luxury home market appeared to stabilize ahead of other housing, as upper-bracket/luxury housing activity remained strong. In fact two of the most expensive homes in Washington, DC sold this year! Reports that Evermay, the DC mansion that was originally listed for $49 Million, sold for $22 Million in July; while Halcyon House was reported to sell a couple of months later for $12.5 Million.

Regardless of the continued efforts of government preparedness campaigns (remember the Center for Disease Control “Zombie Apocalypse” preparedness campaign on blogs.cdc.gov?); 2011 will be remembered as the year that nature made a point about preparedness. If you weren’t concerned about preparing for the Mayan 2012 prophecy; then enduring hurricanes, floods and an earthquake probably had you at least checking your homeowners’ insurance.

As foreclosures declined in 2011, it seemed as if reports of mortgage lender abuses increased. Lenders appeared to be under fire from class action lawsuits as well as attorneys general for lending practices and foreclosure procedures; Bank of America recently reportedly settled a lawsuit for $335 Million.

Alas, the year is almost over; having us searching for fond memories of 2011 and wondering what will 2012 bring. Some look for home prices to make some gains in the coming year (homepricefutures.com), however more importantly you can probably expect the housing market to be glamorized in the pomp and circumstance of the election cycle of 2012.

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.

by Dan Krell
© 2011

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Understanding the revision of home sale statistics

by Dan Krell
© 2011
DanKrell.com

As the housing market slid, the National Association of Realtors® (NAR) was often criticized for producing home sale data that seemed unrealistic. As criticism seemed to peek, NAR announced earlier this year that they were seeking to “re-benchmark” data for counting the number of homes that sold.

According to a December 13th Reuters report (Existing home sales to be revised down from 2007: NAR), the NAR is “revising down” home sales statistics because of double counting, “indicating a much weaker housing market than previously thought.” The news sparked cries of “fraud!’ and “told you so’s” across the blogosphere; while some used the news as a marketing opportunity to tout their data as unwavering.

However, according to the NAR’s press release, “Q&A on Re-Benchmarking of Home Sales” (economistsoutlook.blogs.realtor.org), the main reason for the re-benchmarking is for data drift that occurred during the housing downturn; re-benchmarking is a common aspect of estimating economic data (much like the government’s GDP and employment figure revisions). The re-benchmarking is only for existing home sales and not home prices.

According to Lawrence Yun, NAR Chief Economist, data drift is to blame for the over estimates. The monthly existing home sales data that is reported by NAR is compiled from MLS boards across the country. Data drift was revealed when comparisons were made with other available home sales data.

Data drift is a term that describes the change of non-constant variables used in statistical measurements. The data drift in NAR’s existing home sale data was described as being caused by several factors: an increasing reliance on Realtors®, double listings, and inconsistencies across MLS boards.

Although MLS data typically tracks Realtor® home sales data, there are homes that are also sold by home builders and for-sale-by owners (fsbo) which are not typically reflected in the MLS. Dr. Yun believes that some of the data drift is due to the increasing reliance on Realtors® as the market deteriorated to sell homes they typically did not sell in the past (by fsbo’s and builders).

Additionally, it was realized that MLS home sale data was duplicated in some instances. In some regions, it is not unusual for Realtors® to belong to more than one MLS board. In some of those instances, Realtors® often input the data in two or more MLS’s; thus resulting in a duplicate sales.

As technology and markets advance, local and regional MLS boards found themselves changing to increase the quality of the MLS data, as well as expanding to provide service in outlying areas. Although many MLS boards attempt to adhere to consistent data standards and practices, compiled home sale data is not always consistent across all the MLS boards. Additionally, as MLS coverage grew, it could have been logically assumed that the quantity of home sales reported for the growing MLS boards would increase because of the wider coverage.

Additionally, Dr. Yun stated that the census data used to benchmark the MLS data has also changed; the U.S. Census changed the data it collected by changing survey forms. In re-benchmarking, the NAR expects a revision of existing home sales to account for the increase of MLS entries of new homes as well as homes that sold multiple times within a 12-month period (flips). The re-benchmarking should also account for fsbo variances that were not previously adjusted.

The revisions are expected this week.

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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 December 19, 2011. Using this article without permission is a violation of copyright laws. Copyright © 2011 Dan Krell.

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It’s time to buy a new home

new homes for sale

The time may be right for you to buy a new home this spring. Low interest rates and reduced prices, combined with builder incentives may make a new home a viable option that many home buyers have forgotten about.

Home builders that survived the culling of the market decline have sought out ways to make homes more affordable. Going with the new trend, some home builders are offering more efficient floor plans, as well as more cost efficient building processes.

Modular homes seem to be more prevalent these days as custom home builders seek to reduce costs to the buyers as well as increasing floor plan flexibility and construction quality. The reason why many home builders are turning to modular designs may be that the modules are built in a controlled environment, which increases quality while reducing weather related delays and damage. In a typical plant, manufactured and modular housing fabrication quality specialists constantly monitor fabrication to ensure the final product meets or exceeds all codes, which is unlike on-site construction where inspections can be random and inconsistent.

One attraction to buying a new home is that everything is new! Along with the new, one expects warranties. Make sure you discuss the warranties that are provided with your purchase with your builder and Realtor®. It is typical for new appliances, fixtures and flooring to have limited manufactures warranties, so make sure you receive all paperwork related to those items.

Additionally, most builders offer a warranty as well; the warranty is most likely guaranteed by a third party. According to a homebuyer’s booklet offered by the Maryland Attorney General’s Office Consumer Protection Division, a home builder warranty in Maryland must include at a minimum: “any defects in materials or workmanship for one year; any defects in the electrical, plumbing, heating, cooling and ventilating systems for two years (not to exceed the period of the manufacturer’s warranty); and defects to any load-bearing structural elements for five years.” The booklet recommends that you contact the third party guaranteeing the warranty, to check if the builder is in good standing.

Although a home may be new, it does not guarantee that it is perfect when delivered to you. It is common to conduct a “final walkthrough” with a builder representative to check the systems and to identify any defects that may need repair or correction. Builders will ask for a “punch list” of items that need correction.

Former president of the American Society of Home Inspectors, Frank Lesh, was on record as saying that “Even new homes have defects that only a professional can detect…” He stated that a home inspector can help ensure that a new home’s major systems (roof, foundation, electrical, plumbing) “are functioning properly and safely before moving in”… “Because many items can’t be inspected after a house has been built, homeowners should consider having a series of phased inspections conducted at key milestone markers. ASHI encourages homebuyers to consider an inspection at the following times: prior to foundation pour; prior to insulation and drywall; prior to the final walkthrough.” (ashi.org)

If you’re considering buying a new home, consider visiting new home resources offered by the National Association of Home Builders (nahb.org) and the American Society of Home Inspectors (ashi.org), as well as the homebuyer’s booklet offered by the Maryland Attorney General’s Office Consumer Protection Division (http://www.marylandattorneygeneral.gov)

By Dan Krell
Copyright © 2011

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.

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