Sunday, December 25, 2005
Friday, December 23, 2005
More on "Affordable Housing"
Study: Economic Benefits of Affordable Housing(December 23, 2005) --
Affordable housing can fuel local and regional economies and raise property values in surrounding communities, according to an economic impact survey by Econsult Corp.
The findings of the survey, which was commissioned by the Philadelphia Housing Authority, anticipate a positive effect from the $519 million investment by PHA in capital construction spending on nine sites in Philladelphia. When fully completed, the project is estimated to add $1.3 billion to the state’s economy and $788 million to Philadelphia’s economy.
The economic benefits are generated by increased residential property market value in adjacent neighborhoods, which in turn generate increased property tax revenue, along with an increase in jobs and earnings.
“These numbers show that high-quality affordable housing, when developed and managed thoughtfully, presents a tremendous long-term investment opportunity for Philadelphia and the state,” says Carl Greene, PHA’s executive director.
The results of this survey are consistent with the conclusions of two surveys conducted earlier this year by Econsult and Applied Real Estate Analysis Inc. regarding six affordable housing sites already developed by PHA, according to the agency. Those surveys revealed that property values around the sites grew by 142 percent from 1999 to 2004, more than 2.5 times the citywide rate of 55 percent. Econsult estimated that PHA investments have raised residential market value in adjacent neighborhoods by $200 million, generating more than $4 million in increased property tax revenue for Philadelphia.
“In addition to the much needed PHA projects, the City of Philadelphia enjoyed record housing growth for a number of reasons,” says Al Perry, president of The Greater Philadelphia Association of REALTORS®. “Growing popularity of and investment in our Center City District, low mortgage interest rates, a 10-year tax abatement for new construction and property improvements, and the mobilization of a growing real estate professional population targeting empty-nesters and recent college graduates from one of our many premier colleges and universities contributed as well.”
PHA’s affordable housing developments feature architecture similar to market-rate residences, open spaces, and reconfigured streets, which join neighboring communities and encourage private construction. Mixed-income households and opportunities for home ownership contribute to the stability of the neighborhoods.
—By Michele Lerner for REALTOR® Magazine Online
Affordable housing can fuel local and regional economies and raise property values in surrounding communities, according to an economic impact survey by Econsult Corp.
The findings of the survey, which was commissioned by the Philadelphia Housing Authority, anticipate a positive effect from the $519 million investment by PHA in capital construction spending on nine sites in Philladelphia. When fully completed, the project is estimated to add $1.3 billion to the state’s economy and $788 million to Philadelphia’s economy.
The economic benefits are generated by increased residential property market value in adjacent neighborhoods, which in turn generate increased property tax revenue, along with an increase in jobs and earnings.
“These numbers show that high-quality affordable housing, when developed and managed thoughtfully, presents a tremendous long-term investment opportunity for Philadelphia and the state,” says Carl Greene, PHA’s executive director.
The results of this survey are consistent with the conclusions of two surveys conducted earlier this year by Econsult and Applied Real Estate Analysis Inc. regarding six affordable housing sites already developed by PHA, according to the agency. Those surveys revealed that property values around the sites grew by 142 percent from 1999 to 2004, more than 2.5 times the citywide rate of 55 percent. Econsult estimated that PHA investments have raised residential market value in adjacent neighborhoods by $200 million, generating more than $4 million in increased property tax revenue for Philadelphia.
“In addition to the much needed PHA projects, the City of Philadelphia enjoyed record housing growth for a number of reasons,” says Al Perry, president of The Greater Philadelphia Association of REALTORS®. “Growing popularity of and investment in our Center City District, low mortgage interest rates, a 10-year tax abatement for new construction and property improvements, and the mobilization of a growing real estate professional population targeting empty-nesters and recent college graduates from one of our many premier colleges and universities contributed as well.”
PHA’s affordable housing developments feature architecture similar to market-rate residences, open spaces, and reconfigured streets, which join neighboring communities and encourage private construction. Mixed-income households and opportunities for home ownership contribute to the stability of the neighborhoods.
—By Michele Lerner for REALTOR® Magazine Online
Interest Rate Update
Fixed Mortgage Rates Fall Again(December 23, 2005) --
The national average commitment rate on a 30-year, fixed mortgage hit 6.26 percent this week, a decline from 6.30 percent a week ago, according to Freddie Mac.
The national average commitment rate on a 15-year, fixed mortgage slipped as well to 5.79 percent from 5.85 percent last week; however, The average rate on a one-year, adjustable-rate mortgage and five-year adjustable mortgage were up—5.82 percent this week from 5.77 percent and 5.22 percent this week from 5.15 percent last week, respectively.
"Although mortgage rates by and large are higher than they were at the start of the year, they've only risen about 1 percentage point since hitting a four-decade low in June of 2004," says Freddie Mac chief economist Frank Nothaft.
Analysts generally agree that the Federal Reserve will raise rates once again at policy-setting meetings on Jan. 31 and March 28.
Source: Detroit Free Press (12/23/05); Crutsinger, Martin
The national average commitment rate on a 30-year, fixed mortgage hit 6.26 percent this week, a decline from 6.30 percent a week ago, according to Freddie Mac.
The national average commitment rate on a 15-year, fixed mortgage slipped as well to 5.79 percent from 5.85 percent last week; however, The average rate on a one-year, adjustable-rate mortgage and five-year adjustable mortgage were up—5.82 percent this week from 5.77 percent and 5.22 percent this week from 5.15 percent last week, respectively.
"Although mortgage rates by and large are higher than they were at the start of the year, they've only risen about 1 percentage point since hitting a four-decade low in June of 2004," says Freddie Mac chief economist Frank Nothaft.
Analysts generally agree that the Federal Reserve will raise rates once again at policy-setting meetings on Jan. 31 and March 28.
Source: Detroit Free Press (12/23/05); Crutsinger, Martin
Christmas Thirds
3rd Home Comes Within Reach(December 23, 2005) --
Third homes once were owned only by millionaires, but a growing number of mainstream buyers are taking advantage of low interest rates and the equity in their first and second residences to make such a purchase.
A 2004 NATIONAL ASSOCIATION OF REALTORS® survey of 8,206 home owners found that 14 percent of respondents owned at least two homes; while 4.3 percent and 1.2 percent of those polled owned at least three and four homes, respectively.
Centex Destination Properties, for instance, reports that 8 percent to 38 percent of the residents of its Dallas communities own three or more properties. Third-home ownership can be difficult, as owners spend three times as much on repairs, maintenance, and other expenses.
Source: The New York Times (12/23/05); Blau, Melinda
Third homes once were owned only by millionaires, but a growing number of mainstream buyers are taking advantage of low interest rates and the equity in their first and second residences to make such a purchase.
A 2004 NATIONAL ASSOCIATION OF REALTORS® survey of 8,206 home owners found that 14 percent of respondents owned at least two homes; while 4.3 percent and 1.2 percent of those polled owned at least three and four homes, respectively.
Centex Destination Properties, for instance, reports that 8 percent to 38 percent of the residents of its Dallas communities own three or more properties. Third-home ownership can be difficult, as owners spend three times as much on repairs, maintenance, and other expenses.
Source: The New York Times (12/23/05); Blau, Melinda
Thursday, December 22, 2005
Appraisal Fraud
Coalition Aims to Stop Home-Appraisal Fraud(December 22, 2005) --
A code of conduct is needed to crack down on home-appraisal fraud, according to the National Community Reinvestment Coalition, a Washington, D.C., nonprofit group that advocates for more capital for underserved communities.
The group has called on the real estate industry, including lenders such as Countrywide Financial Corp. and groups like the CALIFORNIA ASSOCIATION OF REALTORS®, to back the idea. The California Association of Real Estate Appraisers in San Jose, Calif., already has thrown its support behind the plan.
"It's a severe problem and one that's been masked by rising values in housing," says John Taylor, president of the National Community Reinvestment Coalition, which says that rising consumer complaints of appraisal fraud and overvaluation have prompted its effort.
Source: Daily News of Los Angeles (12/22/05); Wilcox, Gregory J.
Ed.'s Note: This is a topic with no shortage of blame to go around. For some reason, however, it's easiest to blame the appraisers.
Without question, there are plenty of "goosed up" appraisals floating around out there, however, does anyone really believe that another creed or code of ethics will really do the trick in deterring the bad apples from churning out lies in the form of inflated appraisal reports? I certainly don't. I do believe that if more punishment was handed out when these "number hitters" are caught red handed then less fraudulent activity would occur. Instead, a code of ethics is a much less accusing way of going about it. At least it makes those who are insistent about its enactment feel good about their efforts.
What garbage! If fraudulent appraisals on which banks & lenders are basing lending decisions on is such a cause for concern, then the first thing that ought to happen is the individual governing bodies should either start enforcing the disciplinary actions that are in place or make the penalties stiffer. Prescribing another three extra hours of continuing education as a means of punishment obviously is not working.
A code of conduct is needed to crack down on home-appraisal fraud, according to the National Community Reinvestment Coalition, a Washington, D.C., nonprofit group that advocates for more capital for underserved communities.
The group has called on the real estate industry, including lenders such as Countrywide Financial Corp. and groups like the CALIFORNIA ASSOCIATION OF REALTORS®, to back the idea. The California Association of Real Estate Appraisers in San Jose, Calif., already has thrown its support behind the plan.
"It's a severe problem and one that's been masked by rising values in housing," says John Taylor, president of the National Community Reinvestment Coalition, which says that rising consumer complaints of appraisal fraud and overvaluation have prompted its effort.
Source: Daily News of Los Angeles (12/22/05); Wilcox, Gregory J.
Ed.'s Note: This is a topic with no shortage of blame to go around. For some reason, however, it's easiest to blame the appraisers.
Without question, there are plenty of "goosed up" appraisals floating around out there, however, does anyone really believe that another creed or code of ethics will really do the trick in deterring the bad apples from churning out lies in the form of inflated appraisal reports? I certainly don't. I do believe that if more punishment was handed out when these "number hitters" are caught red handed then less fraudulent activity would occur. Instead, a code of ethics is a much less accusing way of going about it. At least it makes those who are insistent about its enactment feel good about their efforts.
What garbage! If fraudulent appraisals on which banks & lenders are basing lending decisions on is such a cause for concern, then the first thing that ought to happen is the individual governing bodies should either start enforcing the disciplinary actions that are in place or make the penalties stiffer. Prescribing another three extra hours of continuing education as a means of punishment obviously is not working.
Housing Affordability Lower
Housing Affordability Hits 14-Year Low(December 22, 2005) --
At 68.7 percent in the third quarter, the U.S. homeownership rate has not strayed far from the peak of 69.4 percent recorded in the 2004 second quarter; however, Americans' ability to afford a home purchase in October sank to the lowest level in 14 years.
While innovative financing products, such as interest-only mortgages and piggyback loans have helped many borrowers bridge the affordability gap, increasing short-term interest rates have made many of these loans more costly; and the rollout of creative financing products has slowed considerably.
As a result, housing affordability retreated 9 percent in the third quarter, with California markets such as Salinas, Santa Cruz, San Francisco, and Los Angeles weighing in as the nation's most expensive destinations.
While affordability remains good in other locales, including Pittsburgh and Winston-Salem, N.C., other markets—including Phoenix; Spokane, Wash.; Cape Coral, Fla.; Orlando, Fla.; and Saginaw, Mich.—saw affordability plummet substantially, by triple digits in some cases.
Source: The Wall Street Journal (12/22/05); Simon, Ruth
Ed.'s Note: I've never really understood the rationale of housing costs rising to a level that makes them "unaffordable" to own a home. The beauty of the housing market is that the market works. It decides what is affordable & what isn't. While housing asking prices may appear unaffordable in some markets, those asking prices are merely a starting point. The sale price is what most closely resembles value, not the asking price. Which brings me to the conclusion that if a house sells for what seemingly is an "unaffordable" price, then why did it sell? Unbelievably to some, there are those who can somehow afford the unaffordable.
At 68.7 percent in the third quarter, the U.S. homeownership rate has not strayed far from the peak of 69.4 percent recorded in the 2004 second quarter; however, Americans' ability to afford a home purchase in October sank to the lowest level in 14 years.
While innovative financing products, such as interest-only mortgages and piggyback loans have helped many borrowers bridge the affordability gap, increasing short-term interest rates have made many of these loans more costly; and the rollout of creative financing products has slowed considerably.
As a result, housing affordability retreated 9 percent in the third quarter, with California markets such as Salinas, Santa Cruz, San Francisco, and Los Angeles weighing in as the nation's most expensive destinations.
While affordability remains good in other locales, including Pittsburgh and Winston-Salem, N.C., other markets—including Phoenix; Spokane, Wash.; Cape Coral, Fla.; Orlando, Fla.; and Saginaw, Mich.—saw affordability plummet substantially, by triple digits in some cases.
Source: The Wall Street Journal (12/22/05); Simon, Ruth
Ed.'s Note: I've never really understood the rationale of housing costs rising to a level that makes them "unaffordable" to own a home. The beauty of the housing market is that the market works. It decides what is affordable & what isn't. While housing asking prices may appear unaffordable in some markets, those asking prices are merely a starting point. The sale price is what most closely resembles value, not the asking price. Which brings me to the conclusion that if a house sells for what seemingly is an "unaffordable" price, then why did it sell? Unbelievably to some, there are those who can somehow afford the unaffordable.
Homeowners Favor Keeping Interest Rate Tax Deduction...Well, Duh!
Survey: 85% Oppose Cutting Mortgage Interest Deduction(December 22, 2005) --
A recent e-mail survey by HouseHunt reveals that a whopping 85 percent of U.S. home owners oppose a proposal by President Bush's Advisory Panel on Federal Tax Reform to have a 15 percent tax credit replace the home mortgage interest deduction.
Only 6 percent of respondents favored the proposal, while the remaining 9 percent were undecided.
The NATIONAL ASSOCIATION OF REALTORS® has fought hard against the proposal, as has the National Association of Home Builders.
"Our survey represents a random sampling of home owners," says HouseHunt President and CEO Michael Bearden. "While not scientifically designed, we feel that our survey results accurately reflect home-owner sentiment."
Source: Inman News Features (12/22/05)
Ed.'s Note: My only question is, who are the six percent, and what is their rationale?
A recent e-mail survey by HouseHunt reveals that a whopping 85 percent of U.S. home owners oppose a proposal by President Bush's Advisory Panel on Federal Tax Reform to have a 15 percent tax credit replace the home mortgage interest deduction.
Only 6 percent of respondents favored the proposal, while the remaining 9 percent were undecided.
The NATIONAL ASSOCIATION OF REALTORS® has fought hard against the proposal, as has the National Association of Home Builders.
"Our survey represents a random sampling of home owners," says HouseHunt President and CEO Michael Bearden. "While not scientifically designed, we feel that our survey results accurately reflect home-owner sentiment."
Source: Inman News Features (12/22/05)
Ed.'s Note: My only question is, who are the six percent, and what is their rationale?
Wednesday, December 21, 2005
Housing Starts Up Again
Housing Starts Rise 5.3% in November(December 21, 2005) --
Residential construction jumped 5.3 percent from October to November, according to the U.S. Commerce Department, while home-building permits climbed 2.5 percent over the same period. Year-over-year, starts and permits were up 17.5 percent and 3 percent, respectively.
Regionally, housing starts edged up 12.3 percent in the Midwest, 11.5 percent in the West, and 11 percent in the Northeast but slipped 1.3 percent in the South. David Seiders, chief economist for the National Association of Home Builders, was surprised by the gains, but he attributes them to builders constructing units that have been in the works for six months.
Source: Washington Post (12/21/05); Downey, Kirstin
Residential construction jumped 5.3 percent from October to November, according to the U.S. Commerce Department, while home-building permits climbed 2.5 percent over the same period. Year-over-year, starts and permits were up 17.5 percent and 3 percent, respectively.
Regionally, housing starts edged up 12.3 percent in the Midwest, 11.5 percent in the West, and 11 percent in the Northeast but slipped 1.3 percent in the South. David Seiders, chief economist for the National Association of Home Builders, was surprised by the gains, but he attributes them to builders constructing units that have been in the works for six months.
Source: Washington Post (12/21/05); Downey, Kirstin
Consumer Spending: Another Take
Survey: Home Spending for the Holidays(December 21, 2005) -- Consumers plan to spend $2,348 on average during the holidays, with 27 percent of the money put toward residential upgrades, according to a survey by Deloitte & Touche.
Consumers will spend an average of $628 on various improvements—from new furniture to remodeling—marking a gain of 84 percent from $341 in 2003.
However, Kermit Baker, director of Harvard University's Joint Center for Housing Studies, says construction-related improvements usually are undertaken in the spring and summer. Baker reports that third-quarter expenditures totaled $139 million, rising 4.4 percent from the July-through-September period of 2004.
Double-digit gains were reported during the final quarter of 2004 and the first quarter of 2005, leading Baker to believe that home-improvement spending may be on the brink of weakening somewhat in response to a slowdown in the overall housing market.
Source: MarketWatch (12/20/05); Coombes, Andrea
Consumers will spend an average of $628 on various improvements—from new furniture to remodeling—marking a gain of 84 percent from $341 in 2003.
However, Kermit Baker, director of Harvard University's Joint Center for Housing Studies, says construction-related improvements usually are undertaken in the spring and summer. Baker reports that third-quarter expenditures totaled $139 million, rising 4.4 percent from the July-through-September period of 2004.
Double-digit gains were reported during the final quarter of 2004 and the first quarter of 2005, leading Baker to believe that home-improvement spending may be on the brink of weakening somewhat in response to a slowdown in the overall housing market.
Source: MarketWatch (12/20/05); Coombes, Andrea
Fannie: Sales to Slow Down
Fannie Mae Predicts Home-Sale Slowdown(December 21, 2005) --
Fannie Mae expects rising interest rates and concerns about a weakening housing market to push home sales down by upwards of 10 percent in the coming year.
Although it would mark the first decline in five years, sales would still reach the third-highest level on record. In the mortgage arena, Fannie Mae economists David Berson and Molly Boesel anticipate a 2.3 percent drop in originations to $1.45 trillion, with refinancing down 51.6 percent to $653 billion.
They also predict an end to double-digit home-price gains, with the national appreciation rate falling to a more modest 3 percent.
Source: Miami Herald (12/21/05)
Fannie Mae expects rising interest rates and concerns about a weakening housing market to push home sales down by upwards of 10 percent in the coming year.
Although it would mark the first decline in five years, sales would still reach the third-highest level on record. In the mortgage arena, Fannie Mae economists David Berson and Molly Boesel anticipate a 2.3 percent drop in originations to $1.45 trillion, with refinancing down 51.6 percent to $653 billion.
They also predict an end to double-digit home-price gains, with the national appreciation rate falling to a more modest 3 percent.
Source: Miami Herald (12/21/05)
Tuesday, December 20, 2005
Wealthy Homeowners Expect Gains
Rich Families Foresee Higher Home Values(December 20, 2005) --
A new survey from PNC Financial Services Group Inc. reveals that 65 percent of the wealthy home owners expect the value of their primary homes to grow by at least 10 percent over the next five years, 31 percent anticipate an increase of more than 20 percent, and only 7 percent believe a decline will occur.
Wealthy homeowners in Florida were the most optimistic, with half expecting an increase in home value of more than 20 percent; while those in New England were most cautious, with 18 percent forecasting a decline.
Buyers who were looking at real estate as a way to get rich quick are likely to be disappointed as the housing market slows.
"But, in general, established wealthy Americans haven't been speculative buyers, and they remain solidly confident in the long-term value of their real estate holdings," says Nicholas Buss, research director of PNC's real estate division.
Source: Wall Street Journal (12/20/05); Hagerty, James R.
A new survey from PNC Financial Services Group Inc. reveals that 65 percent of the wealthy home owners expect the value of their primary homes to grow by at least 10 percent over the next five years, 31 percent anticipate an increase of more than 20 percent, and only 7 percent believe a decline will occur.
Wealthy homeowners in Florida were the most optimistic, with half expecting an increase in home value of more than 20 percent; while those in New England were most cautious, with 18 percent forecasting a decline.
Buyers who were looking at real estate as a way to get rich quick are likely to be disappointed as the housing market slows.
"But, in general, established wealthy Americans haven't been speculative buyers, and they remain solidly confident in the long-term value of their real estate holdings," says Nicholas Buss, research director of PNC's real estate division.
Source: Wall Street Journal (12/20/05); Hagerty, James R.
Friday, December 16, 2005
Automated Appraisals...If it were only that Easy!
For What It's Worth, Appraisals Go High-Tech(December 16, 2005) --
The growing adoption of automated collateral management systems by lenders and other parties who use valuation reports is bringing down the cost of residential appraisals while accelerating the process.
The technology's reach not only is expanding to more users, but today there also are more varieties. All work around computers, databases, and sophisticated software programs, but some produce evaluations that are accompanied by an insurance policy; while others combine the technology with the human touch of an appraisal professional.
"You're now seeing a blend of insured and cascading models arising to make the systems more reliable," explains a spokesman for MortgageFlex. "Appraiser-assisted programs are a good middle ground, assuming you can get a quality appraiser. The need to maintain the human element in this process is clear. Going forward, you'll see a true blend using a variety of methods like insurance."
The benefits of automated appraisals—the process takes seconds, compared to a minimum of 24 hours even for the fastest conventional appraisal—are clear in a highly competitive industry that flourishes on fast turnaround times. Moreover, the technology provides a quality-control opportunity to flush out live appraisers who are turning in fraudulent reports.
Source: Copley News Service (12/16/05); Woodard, Jim
It will be interesting to see the effect of automated appraisals on such things as the foreclosure rate & accuracy when the properties go to market. I am quite skeptical for one main reason: An appraisal, when performed properly, is not as easy as running a Comparitive Market Annalysis (CMA), which is probably a cousin of these relatively new automated "appraisals". I guess if lenders want to base their decisions on what a computer/software system says the collateral is worth, it's their risk & their money, but I hardly see how a matter of hours difference in turnaround time is worth that risk. More likely, it's a way to cut costs, and this is not good news for appraisers. Even more ironic is that at least in my state (Kentucky), appraisal fees have remained stagnant or even decreased in the last ten or so years! During the refi boom earlier this decade, some banks with high volume were able to cut deals with appraisers at a clip of around $175 per full appraisal report. That's nearly half off of what was the norm prior to the boom. The only way I see appraisers getting back at these new "presto" valuations is to charge through the roof for appraisals of properties that do not conform in such a way that the automated format can even remotely estimate the value. As there will be less appraisers--which I am the first to admit probably would be a good thing--the good (or crazy) ones who persist will could be able to charge a nice fee for their hard work. This is worth keeping an eye on.
The growing adoption of automated collateral management systems by lenders and other parties who use valuation reports is bringing down the cost of residential appraisals while accelerating the process.
The technology's reach not only is expanding to more users, but today there also are more varieties. All work around computers, databases, and sophisticated software programs, but some produce evaluations that are accompanied by an insurance policy; while others combine the technology with the human touch of an appraisal professional.
"You're now seeing a blend of insured and cascading models arising to make the systems more reliable," explains a spokesman for MortgageFlex. "Appraiser-assisted programs are a good middle ground, assuming you can get a quality appraiser. The need to maintain the human element in this process is clear. Going forward, you'll see a true blend using a variety of methods like insurance."
The benefits of automated appraisals—the process takes seconds, compared to a minimum of 24 hours even for the fastest conventional appraisal—are clear in a highly competitive industry that flourishes on fast turnaround times. Moreover, the technology provides a quality-control opportunity to flush out live appraisers who are turning in fraudulent reports.
Source: Copley News Service (12/16/05); Woodard, Jim
It will be interesting to see the effect of automated appraisals on such things as the foreclosure rate & accuracy when the properties go to market. I am quite skeptical for one main reason: An appraisal, when performed properly, is not as easy as running a Comparitive Market Annalysis (CMA), which is probably a cousin of these relatively new automated "appraisals". I guess if lenders want to base their decisions on what a computer/software system says the collateral is worth, it's their risk & their money, but I hardly see how a matter of hours difference in turnaround time is worth that risk. More likely, it's a way to cut costs, and this is not good news for appraisers. Even more ironic is that at least in my state (Kentucky), appraisal fees have remained stagnant or even decreased in the last ten or so years! During the refi boom earlier this decade, some banks with high volume were able to cut deals with appraisers at a clip of around $175 per full appraisal report. That's nearly half off of what was the norm prior to the boom. The only way I see appraisers getting back at these new "presto" valuations is to charge through the roof for appraisals of properties that do not conform in such a way that the automated format can even remotely estimate the value. As there will be less appraisers--which I am the first to admit probably would be a good thing--the good (or crazy) ones who persist will could be able to charge a nice fee for their hard work. This is worth keeping an eye on.
Rates Fall
Home Mortgage Rates Fell in Latest Week(December 16, 2005)
-- Freddie Mac reports a slight decline in the national average commitment rate on a 30-year, fixed mortgage to 6.30 percent from 6.32 percent during the past week, while the national average commitment rate on a 15-year loan slipped to 5.85 percent from 5.87 percent over the same time span.
The average rate on a one-year, adjustable-rate mortgage fell to 5.15 percent, and the five-year hybrid ARM dipped to 5.77 percent from 5.78 percent.
Freddie Mac chief economist Frank Nothaft attributes the modest decreases to hints from the Federal Reserve that it may soon stop hiking rates. Nothaft notes that "the financial market breathed a sigh of relief, and rates eased somewhat."
Source: The Wall Street Journal (12/16/05)
-- Freddie Mac reports a slight decline in the national average commitment rate on a 30-year, fixed mortgage to 6.30 percent from 6.32 percent during the past week, while the national average commitment rate on a 15-year loan slipped to 5.85 percent from 5.87 percent over the same time span.
The average rate on a one-year, adjustable-rate mortgage fell to 5.15 percent, and the five-year hybrid ARM dipped to 5.77 percent from 5.78 percent.
Freddie Mac chief economist Frank Nothaft attributes the modest decreases to hints from the Federal Reserve that it may soon stop hiking rates. Nothaft notes that "the financial market breathed a sigh of relief, and rates eased somewhat."
Source: The Wall Street Journal (12/16/05)
Thursday, December 15, 2005
Mortgage Aps Decline
Mortgage Applications, Refinancings Dip(December 15, 2005)
-- Applications for home loans slipped 5.7 percent during the week ended Dec. 9, reports the Mortgage Bankers Association.
Refinancing requests declined 9.7 percent last week, while applications for purchase loans fell 3.5 percent.
Rising mortgage rates are to blame, with interest on a 30-year loan now comfortably above 6 percent.
Source: Investor's Business Daily (12/15/05)
My own note: I always get a kick out of these types of statistics. Stating that applications were down a certain percentage doesn't mean much unless the aricle tells the reader what the comparison is. For example, if the applications declined from the prior week, not only have there been rate increases, but it's also winter, and the holiday season is in full force. Seasonality undoubtedly affects the real estate & lending industries.
On the other hand, if the comparison is regarding last year's figures, that is a legitimate point.
-- Applications for home loans slipped 5.7 percent during the week ended Dec. 9, reports the Mortgage Bankers Association.
Refinancing requests declined 9.7 percent last week, while applications for purchase loans fell 3.5 percent.
Rising mortgage rates are to blame, with interest on a 30-year loan now comfortably above 6 percent.
Source: Investor's Business Daily (12/15/05)
My own note: I always get a kick out of these types of statistics. Stating that applications were down a certain percentage doesn't mean much unless the aricle tells the reader what the comparison is. For example, if the applications declined from the prior week, not only have there been rate increases, but it's also winter, and the holiday season is in full force. Seasonality undoubtedly affects the real estate & lending industries.
On the other hand, if the comparison is regarding last year's figures, that is a legitimate point.
Mortgage Fraud Update
FBI Vows to Crack Down on Mortgage Fraud(December 15, 2005)
-- Savvy criminals targeting home buyers and real estate investors have transformed mortgage fraud into a "growing epidemic," the FBI says.
Law enforcement officials with the federal government have announced that the number of reports of suspicious activity involving real estate transactions has risen to 21,994 in fiscal 2005 from 17,127 a year ago.
Additionally, the FBI is investigating 721 pending mortgage fraud cases, up from 534 last year.
"Lenders have come to the conclusion that mortgage fraud is a threat to their business," says Mortgage Bankers Association official Tim Doyle, who notes that the group has worked closely with the FBI in recent years on the issue of mortgage fraud.
Still, FBI officials say the real estate and banking industries are not doing enough, such as checking for legitimate Social Security numbers and forged signatures, verifying the value of property in appraisals, and regulating mortgage brokers.
Source: Washington Post (12/15/05); Downey, Kirstin
-- Savvy criminals targeting home buyers and real estate investors have transformed mortgage fraud into a "growing epidemic," the FBI says.
Law enforcement officials with the federal government have announced that the number of reports of suspicious activity involving real estate transactions has risen to 21,994 in fiscal 2005 from 17,127 a year ago.
Additionally, the FBI is investigating 721 pending mortgage fraud cases, up from 534 last year.
"Lenders have come to the conclusion that mortgage fraud is a threat to their business," says Mortgage Bankers Association official Tim Doyle, who notes that the group has worked closely with the FBI in recent years on the issue of mortgage fraud.
Still, FBI officials say the real estate and banking industries are not doing enough, such as checking for legitimate Social Security numbers and forged signatures, verifying the value of property in appraisals, and regulating mortgage brokers.
Source: Washington Post (12/15/05); Downey, Kirstin
Tuesday, December 13, 2005
Charm vs. New
Personally, I am an old house kind of guy. I love the charm, the variety, the quality, & the quirks many older homes have to offer. For many good reasons, not everyone is even remotely like this. According to THE 2005 GREATER LOUISVILLE ASSOCIATION OF REALTORS PROFILE OF HOME BUYERS & SELLERS, 28% of respondents who purchased a home in 2004 bought a new one. In my view, new construction offers modern (open) floor plans, better use of square footage, and piece of mind. Having said that, the problem I see with new construction is a lack of charm. In order to get high quality materials from a new home purchase, expect to pay a lot. Mass produced new construction usually includes allowances for "upgrades" such as hardwood floors, ceramic tile bath floors/wainscotting, & woodwork like crown molding. New construction "upgrades" are standard fare in many older homes.
The flipside of the charm coin is that obviously, older homes are, well, old. Efficency is a typical sacrifice for old home buyers, and be prepared to spend either money or sweat in refurbishing the charm of older materials. Questions often arise with regard to decisions on whether to replace a cracked tile floor with a more resillient (and less expensive) floor covering or to replace the original double hung wood windows with vinyl thermal panes windows. The debate is endless regarding these decisions. My best advice is to look deeply at what you want to accomplish by the improvement & how long you plan to stay.
Many buyers want new construction for the piece of mind it can offer, however, it's important to seek feedback from builders' customers as to whether or not their "new" home is performing up to expectations. I've found many new home buyers to be more than willing to share their satisfaction--or disgust--with their particular builder.
It is common to assume that real estate always increases in value, however, that assumption can prove fatal when the boss decides to relocate an employee who, within the last six to twelve months, purchased a home and now must scramble to break even. Such a situation can force the buyer-turned-seller to take a loss. This risk is typically higher for purchasers of new construction in an area where building is ongoing. The logic is simple: Why would a buyer spend more on a resale home in an area where he/she can buy brand new for less? It's important to consider how far along the development in the area is, and to keep an eye on new construction pricing. A builder with an eye for the future will increase his/her costs for new homes periodically, thus building in some measure of appreciation during the completion of the project. However, for example, if a builder decides to continue to offer new homes at the same price over the course of a two year project, resales will not realize much, if any, growth. In some areas, this scenario is not applicable, however, in a vast majority of markets, an eye for the future should outweigh the quest to buy new.
Please feel free to email me with any questions.
The flipside of the charm coin is that obviously, older homes are, well, old. Efficency is a typical sacrifice for old home buyers, and be prepared to spend either money or sweat in refurbishing the charm of older materials. Questions often arise with regard to decisions on whether to replace a cracked tile floor with a more resillient (and less expensive) floor covering or to replace the original double hung wood windows with vinyl thermal panes windows. The debate is endless regarding these decisions. My best advice is to look deeply at what you want to accomplish by the improvement & how long you plan to stay.
Many buyers want new construction for the piece of mind it can offer, however, it's important to seek feedback from builders' customers as to whether or not their "new" home is performing up to expectations. I've found many new home buyers to be more than willing to share their satisfaction--or disgust--with their particular builder.
It is common to assume that real estate always increases in value, however, that assumption can prove fatal when the boss decides to relocate an employee who, within the last six to twelve months, purchased a home and now must scramble to break even. Such a situation can force the buyer-turned-seller to take a loss. This risk is typically higher for purchasers of new construction in an area where building is ongoing. The logic is simple: Why would a buyer spend more on a resale home in an area where he/she can buy brand new for less? It's important to consider how far along the development in the area is, and to keep an eye on new construction pricing. A builder with an eye for the future will increase his/her costs for new homes periodically, thus building in some measure of appreciation during the completion of the project. However, for example, if a builder decides to continue to offer new homes at the same price over the course of a two year project, resales will not realize much, if any, growth. In some areas, this scenario is not applicable, however, in a vast majority of markets, an eye for the future should outweigh the quest to buy new.
Please feel free to email me with any questions.
U. S. Court Rules No. KY MLS is not Anti-Competitive
MLS Membership Not Anticompetitive, U.S. Court Rules(December 13, 2005) --
In a decision that reaffirms the integrity of the country's REALTOR®-owned and operated multiple listing services, the U.S. District Court for the Eastern District of Kentucky dismissed an antitrust lawsuit brought by a real estate brokerage in northern Kentucky against the Northern Kentucky Association of REALTORS® and its subsidiary, the Northern Kentucky Multiple Listing Service.
The brokerage, Buyer's Corner Realty Inc. in Florence, Ky., and the firm's principal broker, Sherry Edwards—who served as plaintiffs in the case—claimed NKAR's rule requiring membership in a local REALTOR® association to access services of the MLS constitutes an unlawful tying arrangement and a group boycott that violates the federal Sherman Antitrust Act.
In its ruling, Judge William O. Bertelsman said the plaintiffs lack standing to bring an antitrust tying claim against the association because the harm the brokerage received—being forced to purchase membership in the REALTOR® association to gain access to the local MLS—doesn't rise to the level of antitrust injury. "Plaintiffs fail to explain how they have been harmed by any restrained competition in the tied product market," the judge said.
The plaintiffs also failed to show foreclosure in the market for the tied product, because the brokerage failed to show that other associations compete in the same product market as the REALTOR® association. The plaintiffs also failed to show the membership rule constituted an unlawful group boycott, because belonging to a REALTOR® association does not have an anticompetitive effect in the market for real estate association services.
To read the complete decision, go to Antitrust Lawsuit Against REALTOR® Association Dismissed at REALTOR.org. To learn more about a similar case in Wisconsin, see Federal Ruling in Wisconsin Finds No Evidence That MLS Membership Requirement Is Anti-Competitive, also at REALTOR.org.
Source: NAR
In a decision that reaffirms the integrity of the country's REALTOR®-owned and operated multiple listing services, the U.S. District Court for the Eastern District of Kentucky dismissed an antitrust lawsuit brought by a real estate brokerage in northern Kentucky against the Northern Kentucky Association of REALTORS® and its subsidiary, the Northern Kentucky Multiple Listing Service.
The brokerage, Buyer's Corner Realty Inc. in Florence, Ky., and the firm's principal broker, Sherry Edwards—who served as plaintiffs in the case—claimed NKAR's rule requiring membership in a local REALTOR® association to access services of the MLS constitutes an unlawful tying arrangement and a group boycott that violates the federal Sherman Antitrust Act.
In its ruling, Judge William O. Bertelsman said the plaintiffs lack standing to bring an antitrust tying claim against the association because the harm the brokerage received—being forced to purchase membership in the REALTOR® association to gain access to the local MLS—doesn't rise to the level of antitrust injury. "Plaintiffs fail to explain how they have been harmed by any restrained competition in the tied product market," the judge said.
The plaintiffs also failed to show foreclosure in the market for the tied product, because the brokerage failed to show that other associations compete in the same product market as the REALTOR® association. The plaintiffs also failed to show the membership rule constituted an unlawful group boycott, because belonging to a REALTOR® association does not have an anticompetitive effect in the market for real estate association services.
To read the complete decision, go to Antitrust Lawsuit Against REALTOR® Association Dismissed at REALTOR.org. To learn more about a similar case in Wisconsin, see Federal Ruling in Wisconsin Finds No Evidence That MLS Membership Requirement Is Anti-Competitive, also at REALTOR.org.
Source: NAR
Monday, December 12, 2005
Fed Considers Rate Hike Tuesday
Federal Reserve Expected to Boost Interest Rates(December 12, 2005) -- If the Federal Reserve cooperates, Wall Street could revive its sluggish rally this week, analysts say.
The Fed's Open Market Committee is set to meet tomorrow, with the expectation that it will raise the nation's benchmark interest rate to 4.25 percent. Wall Street is prepared for such a move but is also hoping that the policymakers will give some indication in their accompanying economic assessment that this series of hikes is coming to an end. If the central bank hints at inflation stabilizing and the economy improving, Wall Street likely will be re-energized to the point where investors can expect better returns by the end of the year.
Source: Cincinnati Enquirer (12/12/05); Martinez, Michael J.
The Fed's Open Market Committee is set to meet tomorrow, with the expectation that it will raise the nation's benchmark interest rate to 4.25 percent. Wall Street is prepared for such a move but is also hoping that the policymakers will give some indication in their accompanying economic assessment that this series of hikes is coming to an end. If the central bank hints at inflation stabilizing and the economy improving, Wall Street likely will be re-energized to the point where investors can expect better returns by the end of the year.
Source: Cincinnati Enquirer (12/12/05); Martinez, Michael J.
2006: Market Looks Historically Strong, but Settling
Historically Strong Home Sales Expected in 2006
(December 12, 2005) -- The housing market for 2005 is headed for a fifth consecutive annual record, and sales activity in 2006 is expected to be the second best year in history, according to the NATIONAL ASSOCIATION OF REALTORS®.
David Lereah, NAR’s chief economist, said that market conditions are still favorable for housing. “The slowdown amounts to a tapping of the brakes on a hot market,” said Lereah. “Home sales are coming down from the mountain peak, but they will level-out at a high plateau – a plateau that is higher than previous peaks in the housing cycle. This transition to a more normal and balanced market is a good thing.”
The 30-year fixed-rate mortgage should trend up modestly and reach 6.6 percent during the second half of 2006.
Existing-home sales, expected to rise 4.7 percent to 7.10 million this year, are likely to decline 3.7 percent in 2006 to 6.84 million. New-home sales, projected to increase 7.0 percent to 1.29 million this year, are forecast to drop 4.8 percent to 1.23 million in 2006 – also the second best on record. Total housing starts for 2005 should grow 5.8 percent to 2.06 million units, the highest since 1972, and then decline 4.8 percent to 1.92 million next year.
NAR President Thomas M. Stevens from Vienna, Va., said that housing has always been the soundest investment for most families. “As the old saying goes, homeownership beats the heck out of a drawer full of rent receipts,” said Stevens, senior vice president of NRT Inc. According to the Federal Reserve Survey of Consumer Finances, the median net wealth of a homeowner household is 36 times higher than a renter household.
Stevens said that the national median home price has never declined since good recordkeeping began in 1968. “Although there can always be a temporary decline in a given area if jobs are weak and there is an oversupply of homes on the market, people who stay in their homes for a normal period of homeownership generally see healthy returns over time. There are no guarantees, but there are very good odds.”
The national median existing-home price for all housing types, which is experiencing a surge estimated at 12.7 percent to $208,800 for 2005, is expected to rise another 6.1 percent in 2006 to $221,400. The median new-home price is likely to rise 5.5 percent to $233,100 in 2005, and then grow by 7.3 percent next year to $250,100 as higher construction costs impact the market.
The U.S. gross domestic product should grow 3.7 percent for 2005 and 4.1 percent next year. The unemployment rate is expected to decline to 4.9 percent by second quarter of 2006, and then stabilize.
The Consumer Price Index is projected to rise 3.4 percent for 2005, and 2.9 percent next year. Inflation-adjusted disposable personal income is forecast to increase 1.4 percent in 2005 and 4.5 percent in 2006.
Source: NAR
(December 12, 2005) -- The housing market for 2005 is headed for a fifth consecutive annual record, and sales activity in 2006 is expected to be the second best year in history, according to the NATIONAL ASSOCIATION OF REALTORS®.
David Lereah, NAR’s chief economist, said that market conditions are still favorable for housing. “The slowdown amounts to a tapping of the brakes on a hot market,” said Lereah. “Home sales are coming down from the mountain peak, but they will level-out at a high plateau – a plateau that is higher than previous peaks in the housing cycle. This transition to a more normal and balanced market is a good thing.”
The 30-year fixed-rate mortgage should trend up modestly and reach 6.6 percent during the second half of 2006.
Existing-home sales, expected to rise 4.7 percent to 7.10 million this year, are likely to decline 3.7 percent in 2006 to 6.84 million. New-home sales, projected to increase 7.0 percent to 1.29 million this year, are forecast to drop 4.8 percent to 1.23 million in 2006 – also the second best on record. Total housing starts for 2005 should grow 5.8 percent to 2.06 million units, the highest since 1972, and then decline 4.8 percent to 1.92 million next year.
NAR President Thomas M. Stevens from Vienna, Va., said that housing has always been the soundest investment for most families. “As the old saying goes, homeownership beats the heck out of a drawer full of rent receipts,” said Stevens, senior vice president of NRT Inc. According to the Federal Reserve Survey of Consumer Finances, the median net wealth of a homeowner household is 36 times higher than a renter household.
Stevens said that the national median home price has never declined since good recordkeeping began in 1968. “Although there can always be a temporary decline in a given area if jobs are weak and there is an oversupply of homes on the market, people who stay in their homes for a normal period of homeownership generally see healthy returns over time. There are no guarantees, but there are very good odds.”
The national median existing-home price for all housing types, which is experiencing a surge estimated at 12.7 percent to $208,800 for 2005, is expected to rise another 6.1 percent in 2006 to $221,400. The median new-home price is likely to rise 5.5 percent to $233,100 in 2005, and then grow by 7.3 percent next year to $250,100 as higher construction costs impact the market.
The U.S. gross domestic product should grow 3.7 percent for 2005 and 4.1 percent next year. The unemployment rate is expected to decline to 4.9 percent by second quarter of 2006, and then stabilize.
The Consumer Price Index is projected to rise 3.4 percent for 2005, and 2.9 percent next year. Inflation-adjusted disposable personal income is forecast to increase 1.4 percent in 2005 and 4.5 percent in 2006.
Source: NAR
Friday, December 09, 2005
Record Wealth...and Record Debt
Wealth, Debt of U.S. Households Grow(December 9, 2005) -- Household real estate assets rose by $615 billion during the third quarter, according to the Federal Reserve in its quarterly Flow of Funds report.The increase, along with gains of $959.3 billion in financial assets, pushed the net wealth of U.S. households to $51.09 trillion—up from a revised $49.77 trillion during the second quarter. At the same time, however, household debt rose at an annual rate of 11.6 percent—the fastest clip since 1987—to $338 billion. Mortgage debt rose to $8.2 trillion—a gain of about $289.5 billion, according to the central bank.
Source: Los Angeles Times (12/09/05)
Source: Los Angeles Times (12/09/05)
Christmas Cash?
Refinancing Boosts Home-Loan Applications(December 8, 2005) -- Despite higher interest rates, mortgage applications jumped last week for the first time in a month, the Mortgage Bankers Association reports.Mortgage applications rose 5.2 percent to 656.7. The increase was driven by a 7 percent hike in refinancing requests. It was the first time in seven weeks that refinancing figures rose.Meanwhile, demand for purchase applications climbed 4 percent, marking the second straight weekly increase.Borrowing costs on 30-year fixed-rate mortgages averaged 6.32 percent, up from 6.20 percent the week before.
Source: Investor's Business Daily (12/08/05)
Source: Investor's Business Daily (12/08/05)
Consumer Spending to Decrease?
Consumer Spending Expected to Decline(December 7, 2005) -- With the residential real estate market starting to show signs of cooling, consumer spending is also expected to take a hit. Consumer spending has been bolstered in recent years by Americans using their soaring property values to spend beyond their means. Federal Reserve Chairman Alan Greenspan recently calculated that Americans mined $599 billion in equity from their residences in 2004 alone via home-equity loans, home refinancings, and capital gains on property sales. And since so much was spent in recent years on home improvements, retailers such as Home Depot and Lowe's could be affected. However, the stores argue that most Americans will continue to view their dwellings as investments and still will spend in order to protect those investments. Source:
Wall Street Journal (12/07/05); Lahart, Justin
Wall Street Journal (12/07/05); Lahart, Justin
Speculative Investment Cools in Hot Markets
Investors Retreat From Hottest Markets(December 7, 2005) -- While residential property investment continues to thrive in many parts of the country, investor activity is waning in what had been some of the hottest markets for housing speculation, including Las Vegas, Miami, and certain California destinations. A slowdown in the pace of home appreciation has made it more difficult for investors to turn a fast profit, prompting some to reconsider their strategies. The signs include: investors owning up to 30 percent of properties for sale in the Phoenix area, increasing cancellation rates for new condominium units in the District of Columbia and Florida, and a nearly 50-percent drop in the number of investors purchasing property in San Diego. Experts say the trend is certain to accentuate any downturn in home sales. Without the increased contributions of investors to the housing market over the past two years, according to Fannie Mae chief economist David Berson, home sales probably would have been more than 7 percent lower. He expects that the pullback in investor activity will play heavily into the anticipated 10.4-percent decline in home sales over the coming two years.
Source: Wall Street Journal (12/07/05); Simon, Ruth
Source: Wall Street Journal (12/07/05); Simon, Ruth
Wednesday, December 07, 2005
Remodeling for Value
Realtor Magazine just published its "2005 Cost vs. Value Report: Remodeling's Payoff", and it reveals some interesting statistics. The magazine gathered remodeling data from a report originated by HomeTech Information Systems, a remodeling estimating software company. HomeTech's report was published in conjunction with Remodeling magazine, and then picked up by Realtor Magazine.
Personally, I am a little skeptical of the data given the small number of email survey respondents (just over 1,600 responded to survey requests out of 20,000 requests) & the complexity of the issue. Regardless, I have included some of the data below, and I believe the results supply some direction when making investment-based decisions on home remodeling projects.
Ten of the eighteen remodeling projects included in the report were published in the magazine. The ten projects & their corresponding percentage returns nationally (N) & for Louisville, KY (L) are as follows:
Bathroom remodel: 102.2% (N) 90.3% (L)
Minor kitchen remodel: 98.5% (N) 80.7% (L)
Siding replacement: 95.5% (N) 78.5% (L)
Attic bedroom: 93.5% (N) 78.2% (L)
Deck addition: 90.3% (N) 71.5% (L)
Basement remodel: 90.1% (N) 74.4% (L)
Window replacement: 89.6% (N) 70.0% (L)
Roofing replacement: 84.7% (N) 54.2% (L)
Family room addition: 83.0% (N) 68.1% (L)
Home office remodel: 72.8% (N) 50.6% (L)
*Realtor Magazine states national & South Region (Louisville's region) percentage returns have a margin of +/-4%.
You can read more of the article here .
Personally, I am a little skeptical of the data given the small number of email survey respondents (just over 1,600 responded to survey requests out of 20,000 requests) & the complexity of the issue. Regardless, I have included some of the data below, and I believe the results supply some direction when making investment-based decisions on home remodeling projects.
Ten of the eighteen remodeling projects included in the report were published in the magazine. The ten projects & their corresponding percentage returns nationally (N) & for Louisville, KY (L) are as follows:
Bathroom remodel: 102.2% (N) 90.3% (L)
Minor kitchen remodel: 98.5% (N) 80.7% (L)
Siding replacement: 95.5% (N) 78.5% (L)
Attic bedroom: 93.5% (N) 78.2% (L)
Deck addition: 90.3% (N) 71.5% (L)
Basement remodel: 90.1% (N) 74.4% (L)
Window replacement: 89.6% (N) 70.0% (L)
Roofing replacement: 84.7% (N) 54.2% (L)
Family room addition: 83.0% (N) 68.1% (L)
Home office remodel: 72.8% (N) 50.6% (L)
*Realtor Magazine states national & South Region (Louisville's region) percentage returns have a margin of +/-4%.
You can read more of the article here .
Saturday, November 26, 2005
Measuring Value: Package Price
In speaking to a client the other day, I realized how much stock many folks are putting into "package price." Package price is the average dollar amount per square foot of dwelling. The price can be arrived at by taking the asking/selling price of a home & dividing by the square footage. This method of measuring value is very common, but more times than not, it is unreliable.
The question my client posed was regarding two different sized homes on the same street. The larger home was approximately 3,000 square feet, the smaller was around 1,800 s/f. The question: Why such a huge difference in price per square foot between two houses located on the same street? It's a great question, and anyone can imagine how this might skew a consumer's view about a particular home as being over-priced/under-priced. There is no shortage of variables as to why package price can differ substantially between two or more similar looking pieces of property. I will attempt to address a few reasons.
First off, in the above example, a 3,000 s/f home & a 1,800 s/f home have nearly too much difference in size to even make a fair comparison. However, for the purpose of illustration, the example is perfect. Typically, when comparing houses of similar style, age, & location, as the gross living area increases, the price per square foot decreases. It's the same principal that governs buying a single can of your favorite softdrink vs. buying a case of 24 cans: The price per can is lower when bought in bulk.
Another more obvious reason is condition of the improvements. Obviously, the better the condition, the higher the price per square foot. This is an important variable with regard to older housing. The higher the actual age of the dwelling, the more condition plays a role in pricing.
The quality of finish/materials in one dwelling versus another is also important to note. The more sophisticated a market, the more important this aspect becomes. Some markets are content with, perhaps, even prefer plush carpeting & vinyl to hardwood & ceramic/granite/marble tile floor coverings. Also, sophisticated markets provide the seller with more opportunity to make a nice return on investing in more expensive materials & finishes. Conversely, a market that does not recognize the value in more expensive quality finishes will not be willing to pay for it, which leads to much confusion and discontent for those sellers who go all out with regard to quality only to have the market disapprove of the results.
Another possible reason for the substantial disparity between the package price of two similar looking pieces of property is functionality. A 3,000 square foot dwelling could have a mess of a floorplan. It could be choppy, or the rooms might have poor placement. A 1,800 s/f house on the other hand might be open, and its floor plan might be so functional that the dwelling actually "lives larger" than its gross living area might suggest. In order to compensate for the lack of functionality of the 3,000 s/f house, a seller must discount his/her package price because the market is not willing to pay the same amount per s/f for disfunctional living space.
It's also important to look at whether a house has a basement or not, whether the basement is finished in any way, and how much land the dwelling has. These are all somewhat hidden features that get figured into package price, and these features probably contribute the most to the larger disparities in package price. For instance, if the typical building site in an area is a quarter of an acre, but a smaller house on just under a half acre is priced above the subdivision's top sale price, its package price may look high when in reality, the value difference lies in the extra land.
I hope whatever I lack in clarity on this subject can be made up by offering to answer any questions on the subject via email. Please feel free to ask away.
The question my client posed was regarding two different sized homes on the same street. The larger home was approximately 3,000 square feet, the smaller was around 1,800 s/f. The question: Why such a huge difference in price per square foot between two houses located on the same street? It's a great question, and anyone can imagine how this might skew a consumer's view about a particular home as being over-priced/under-priced. There is no shortage of variables as to why package price can differ substantially between two or more similar looking pieces of property. I will attempt to address a few reasons.
First off, in the above example, a 3,000 s/f home & a 1,800 s/f home have nearly too much difference in size to even make a fair comparison. However, for the purpose of illustration, the example is perfect. Typically, when comparing houses of similar style, age, & location, as the gross living area increases, the price per square foot decreases. It's the same principal that governs buying a single can of your favorite softdrink vs. buying a case of 24 cans: The price per can is lower when bought in bulk.
Another more obvious reason is condition of the improvements. Obviously, the better the condition, the higher the price per square foot. This is an important variable with regard to older housing. The higher the actual age of the dwelling, the more condition plays a role in pricing.
The quality of finish/materials in one dwelling versus another is also important to note. The more sophisticated a market, the more important this aspect becomes. Some markets are content with, perhaps, even prefer plush carpeting & vinyl to hardwood & ceramic/granite/marble tile floor coverings. Also, sophisticated markets provide the seller with more opportunity to make a nice return on investing in more expensive materials & finishes. Conversely, a market that does not recognize the value in more expensive quality finishes will not be willing to pay for it, which leads to much confusion and discontent for those sellers who go all out with regard to quality only to have the market disapprove of the results.
Another possible reason for the substantial disparity between the package price of two similar looking pieces of property is functionality. A 3,000 square foot dwelling could have a mess of a floorplan. It could be choppy, or the rooms might have poor placement. A 1,800 s/f house on the other hand might be open, and its floor plan might be so functional that the dwelling actually "lives larger" than its gross living area might suggest. In order to compensate for the lack of functionality of the 3,000 s/f house, a seller must discount his/her package price because the market is not willing to pay the same amount per s/f for disfunctional living space.
It's also important to look at whether a house has a basement or not, whether the basement is finished in any way, and how much land the dwelling has. These are all somewhat hidden features that get figured into package price, and these features probably contribute the most to the larger disparities in package price. For instance, if the typical building site in an area is a quarter of an acre, but a smaller house on just under a half acre is priced above the subdivision's top sale price, its package price may look high when in reality, the value difference lies in the extra land.
I hope whatever I lack in clarity on this subject can be made up by offering to answer any questions on the subject via email. Please feel free to ask away.
Tuesday, November 22, 2005
The Housing Bubble
Is anyone buying this garbage? I have a cousin in real estate in Southern California, and I recently apologized to him that the appreciation rate out there was going to dip below 30%. Of course I was kidding, but what's so bad about a more stable 15% appreciation rate or 20% or 8%? My question is, what constitutes a true burst of the real estate bubble? A slowing of uncanny appreciation does not. Sure, many will look back at the last five years as the "golden era" of real estate, but in the context of the more expensive financing costs of the previous three decades, it is ridiculous to assume the sky is falling. The cost of home loans remains quite low, and there's little reason to believe that rates will all of a sudden explode upwards of 7% for a 30-year fixed rate mortgage. Even if they do, 7% rates were all the rage at the beginning of the decade & began the home refinance boom. It's still "cheap" money.
I heard a humorous AP report yesterday that housing starts (new construction) decreased by a shade above 5.5% last month. Does this mean the real estate market is doomed? I don't believe so. My response is it's about time. I think some builders will have difficulty selling off their inventory in a relatively short period of time, but this result has more to do with the viability of the building project in an optimal market as opposed to interest rates meandering into the low sixes. Some projects will see longer marketing times, however, such projects probably wouldn't have flown off the shelf even with sub-6% interest rates.
Without question the market is softening, and listings of pre-existing homes are starting to creep upward. This, however, does not signal the end of good returns provided the product being offered is legitimate. In other words, some sellers won't like the return they get because they are used to realizing a certain percentage for substandard quality of work, but in all honesty we reap what we sow. A year ago investors pushed crap, and a willing & able public scooped it up like roses. Now, it's not as easy to make a buck. All in all, this is not bad news for the fairly educated consumer.
The Louisville market in particular has seen some record gains, however, unlike red hot markets such as California & Las Vegas, the discrepancy between gains a year ago & those of today won't feel like much of a difference in the pocket book. The local newspaper, The Courier-Journal, just did a story on the high end home market in Louisville and the recent influx of listings above $1 Million in the market. The article does a fair job of discussing the reasons this segment of the market will likely fill its inventory & experience some difficulty in unloading it. It's a new "problem" in a market that is unaccustomed to this level of pricing. Despite the increased inventory of high end homes, it's not likely that sellers will shy away pricing homes in the million dollar range. The market will do its job in assessing value, and some sellers will be required to lower their prices or stubbornly wait out an accepting buyer.
I heard a humorous AP report yesterday that housing starts (new construction) decreased by a shade above 5.5% last month. Does this mean the real estate market is doomed? I don't believe so. My response is it's about time. I think some builders will have difficulty selling off their inventory in a relatively short period of time, but this result has more to do with the viability of the building project in an optimal market as opposed to interest rates meandering into the low sixes. Some projects will see longer marketing times, however, such projects probably wouldn't have flown off the shelf even with sub-6% interest rates.
Without question the market is softening, and listings of pre-existing homes are starting to creep upward. This, however, does not signal the end of good returns provided the product being offered is legitimate. In other words, some sellers won't like the return they get because they are used to realizing a certain percentage for substandard quality of work, but in all honesty we reap what we sow. A year ago investors pushed crap, and a willing & able public scooped it up like roses. Now, it's not as easy to make a buck. All in all, this is not bad news for the fairly educated consumer.
The Louisville market in particular has seen some record gains, however, unlike red hot markets such as California & Las Vegas, the discrepancy between gains a year ago & those of today won't feel like much of a difference in the pocket book. The local newspaper, The Courier-Journal, just did a story on the high end home market in Louisville and the recent influx of listings above $1 Million in the market. The article does a fair job of discussing the reasons this segment of the market will likely fill its inventory & experience some difficulty in unloading it. It's a new "problem" in a market that is unaccustomed to this level of pricing. Despite the increased inventory of high end homes, it's not likely that sellers will shy away pricing homes in the million dollar range. The market will do its job in assessing value, and some sellers will be required to lower their prices or stubbornly wait out an accepting buyer.
Wednesday, November 16, 2005
I couldn't help it...
I initially enlisted my brother to build me a real estate website when I decided to shift my focus from residential real estate appraising to sales, but he took a new job leaving little time for such a small-time web client as myself. So here I am trying this blog thing out.
My name is Chris Thomas. I am a real estate agent with Mulloy Properties, Inc. in Louisville, KY. I specialize in the residential side of the business, however, the company with which I am affiliated does its fair share of commercial sales, leasing, & management. I still enjoy and perform appraisals when it fits into the schedule, and I owe much of what I have learned about real estate to my two year stint focusing on appraising as well as an eight month "career" as a mortgage loan originator.
Working as a mortgage originator, I was able to observe a field I was not at all familiar with: real estate appraisal. It was during this time of long hours & evening cold calling that I decided I liked the real estate field. I left originating, and entered appraisal school shortly thereafter. I was enthralled by the process & the elements of value. Plus, I liked the idea of getting out & being in the field.
I've now had my real estate license since March. I've been fortunate to have sold enough that I can primarily focus on it as a true career as opposed to an extra job. I like how sales & appraisal compliment each other. Appraising gave me a leg up on many agents, and showing houses gives me new perspectives every day on what makes a piece of property more or less valuable than another piece of property.
My name is Chris Thomas. I am a real estate agent with Mulloy Properties, Inc. in Louisville, KY. I specialize in the residential side of the business, however, the company with which I am affiliated does its fair share of commercial sales, leasing, & management. I still enjoy and perform appraisals when it fits into the schedule, and I owe much of what I have learned about real estate to my two year stint focusing on appraising as well as an eight month "career" as a mortgage loan originator.
Working as a mortgage originator, I was able to observe a field I was not at all familiar with: real estate appraisal. It was during this time of long hours & evening cold calling that I decided I liked the real estate field. I left originating, and entered appraisal school shortly thereafter. I was enthralled by the process & the elements of value. Plus, I liked the idea of getting out & being in the field.
I've now had my real estate license since March. I've been fortunate to have sold enough that I can primarily focus on it as a true career as opposed to an extra job. I like how sales & appraisal compliment each other. Appraising gave me a leg up on many agents, and showing houses gives me new perspectives every day on what makes a piece of property more or less valuable than another piece of property.
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