The latest pending sales for October came out today. Unfortunately, not in the direction one would hope for: falling 1.8% on a monthly basis and 24.9% down from October 2009.
Looking past the foreclosure mess that came roaring into view last month, most housing activity showed slight growth from the summer's dismal readings. While sales have shown a modest uptick from August, inventory continues to be the weight keeping prices low and buyers on the fence.
Locally, September's monthly sales were down 30% on a year over year basis. Inventory increased by 8% from September, and the inventory to sales ratio was still elevated at 11.5 months.
Regarding existing home sales, the faint glimmer of light was an increase in sales price - but that is attributable mainly to fewer foreclosures and first time buyers as a percentage of overall sales (so, no, sellers - don't get the idea that this means you can raise your asking price).
(See local Cincy MLS-based charts here)
On a national level, the existing home sales drop year over year wasn't quite as sharp, but still high with a 19.2% decrease (seasonally adjusted). One positive sign was in new home sales, rising 6.6% to a seasonally adjusted rate of 307,000 units annually. Not exactly boom times, but moving in a positive direction.
At this stage of any nascent housing recovery, it is hard to see what will inspire potential home buyers back in the market. Low mortgage rates don't seem to be doing the trick. It may be that any real growth will have to wait until unemployment rates have shown a steady decline and the fear of declining house prices has passed.
Friday, November 5, 2010
Monday, November 1, 2010
All fired up
Winter gray is starting to make its presence known and thoughts of a cozy fire may be something you look forward to. The question is, will that fire actually provide some heat, or simply be something nice to look at.
You've probably heard that older style, open masonry wood fireplaces can lose more heat than they provide, but there are ways to address those problems. Here's a few options you might want to consider, gain real benefits from your fireplace, and maybe save a little money too:
For more info on inserts, check out these websites:
You've probably heard that older style, open masonry wood fireplaces can lose more heat than they provide, but there are ways to address those problems. Here's a few options you might want to consider, gain real benefits from your fireplace, and maybe save a little money too:
- Keep the hot side hot / cold side cold. One of the biggest issues with an open fireplace is that they can be extremely drafty. When not in use, find a way to keep your warm indoor air from literally going up the chimney. A piece of batt insulation behind the flue opening or a chimney balloon can be a good way to close the draft - just remember to remove if you actually build a fire.
- Open a window. As counter-intuitive as this may seem, providing a small level of outdoor air for combustion (such as opening a window slightly in the same room and closing off the room from the rest of the house) can help prevent warm air in the rest of your home from being pulled out the chimney while a fire is burning and your flue is open. This option is intended for those looking for ambiance from their fireplace - not heat. Alternatives exist to create a separate air intake that performs the same function without closing off from the rest of the house, but this is a more expensive approach.
- Glass doors. A modest step towards keeping warm air from being pulled from other rooms. Inexpensive and easy to install. However, this is also more of a fix when the fireplace is used for ambiance as opposed to gaining any real heating efficiency.
- Inserts and hearth stoves. There are a wide variety of choices (and prices) for installing a "closed" system that will preserve the heat created from a fire and put it into the living space. These can be as simple as installing a "heat exchanger" that captures the heat and uses a fan to push it into your living area, a "stove" that sits on the hearth and makes use of your existing chimney, or even a fully enclosed firebox that is installed in the existing opening (this last choice usually being the most efficient - but also the priciest).
For more info on inserts, check out these websites:
Friday, October 29, 2010
Can foreclosure mess get worse?
Those of us working in real estate just kind of shake our heads with the latest batch of news regarding foreclosures, bank problems, upset MBS investors, on and on.... Yes, it will eventually sort itself out, but many days it feels like that light at the end of the tunnel is just a bit dimmer and further away.
Much of the information about foreclosure moratoriums is filled with hyperbole from all sides. For a good explanation of the issues surrounding the latest bank problems, check out this video targeted mostly at real estate professionals:
Big risk in buying REOs
Much of the information about foreclosure moratoriums is filled with hyperbole from all sides. For a good explanation of the issues surrounding the latest bank problems, check out this video targeted mostly at real estate professionals:
Big risk in buying REOs
Friday, September 24, 2010
August sales a little less gloomy.
After July sales seemed almost non-existent, August showed signs of only marginal improvement. Many were expecting that we'd see a little better activity given that mortgage rates continued to see new lows. What's surprising perhaps is that home affordability is even better than when the tax credit was in effect, but that doesn't seem to be spurring any new sales.
The headline numbers both locally and nationally seemed to offer a mixed assessment. Highlights included:
Digging into the numbers a little deeper showed some interesting activity. In particular, the average sales price is being impacted by the fact that higher priced homes have seen more buyers vs. the "starter homes" that were selling earlier in the year. For example, a snapshot of sales in the Cincinnati MLS for homes priced over 1 Million showed that from April, May, and June there were only 11 sold. In the 3 months following, there were 22 sales at that level (having a greater impact on averages given the low sales volumes). The $1M+ homes range is perhaps a skewed segment of the market, but the same type of disparity is being seen at mid to upper level price points.
So far, September seems to be experiencing an increased level of activity with more buyer showings taking place. Whether this translates to actual pending sales and closings remains to be seen, but demand at least seems to be returning.
The headline numbers both locally and nationally seemed to offer a mixed assessment. Highlights included:
- New home sales were still anemic, but flat compared to July
- Mortgage applications for both purchases and refinancing declined (suggesting the spurt of refis from rate drops has gone as far as it will go for now).
- Existing home sales nationally increased 7.6% from July (but down 19% year over year)
- Locally, the inventory is still in the stratosphere at 11.4 months given current sales rates. A minor improvement from July, but still 4 months higher than August of '09. The average sales price jumped to $172.4K.
Digging into the numbers a little deeper showed some interesting activity. In particular, the average sales price is being impacted by the fact that higher priced homes have seen more buyers vs. the "starter homes" that were selling earlier in the year. For example, a snapshot of sales in the Cincinnati MLS for homes priced over 1 Million showed that from April, May, and June there were only 11 sold. In the 3 months following, there were 22 sales at that level (having a greater impact on averages given the low sales volumes). The $1M+ homes range is perhaps a skewed segment of the market, but the same type of disparity is being seen at mid to upper level price points.
So far, September seems to be experiencing an increased level of activity with more buyer showings taking place. Whether this translates to actual pending sales and closings remains to be seen, but demand at least seems to be returning.
Tuesday, September 7, 2010
Should energy audits be part of home inspections?
Earlier this year when Congress was discussing an energy bill, the idea of mandating energy audits during a home purchase became a point of contention. While misinformation on the issue did occur, the notion of requiring energy audits during a home sale never saw the light of day.
The idea of requiring energy audits is not new, however. Some localities in the U.S. have already implemented a requirement including the city of Austin, TX and the state of Nevada (beginning in 2011), while other areas have proposed some form of energy audit during a sale.
Why have an audit?
The arguments for performing an energy audit when purchasing a home are much the same as for performing a home inspection. That is, a prospective homeowner is given data about the current status of the home so they can make an informed decision. Where the results of a home inspection identify items in the home that are not up to code, do not work as intended, and even ongoing maintenance issues, the results of an energy audit provide details about areas in the home that are prone to energy loss (such as air leaks and insufficient insulation) and items that could be improved or replaced to save the homeowner money on their utility bills.
One key output of the energy audit is a "score" of the home's energy performance. The Department of Energy has published the E-Scale that would allow a buyer to compare homes on a consistent basis vs. a poor substitute of using old utility bills.
Concerns regarding audits during home purchase:
The most common argument raised is that an energy audit will simply point out negatives when nothing is actually "wrong" with the house. The concern from real estate agents is that this will scare buyers off their intended purchase when there is no reason to, or cause sellers to spend additional money to raise their rating. My opinion - one in the minority I believe - is that this is helping buyers make a fully informed decision about a home and that they can then adjust their budget accordingly.
The issue of whether audits should be mandated is more of a political one and a bit more touchy. Backers point to the ability to reduce overall costs and eliminate the potential need for building new power plants. While the benefits of having energy audit results available to a consumer is undoubtedly worthwhile, there are many situations where it's need is questionable. One such example is when a sale involves a rehab investor. In this case, the investor already knows that they are looking at "distressed" property and are accounting for updates needed to the home. While many rehabbers choose to ignore mechanical and structural updates that would improve efficiency, they nonetheless know what they are getting.
A middle ground?
While there are valid arguments on both sides of the debate, it would seem that a simple compromise is that consumers are educated as to the benefits of an energy audit at the time of purchase in the same manner as home inspections. Specifically, they are provided materials explaining the energy audit process and an option to conduct an audit during the home inspection period. The consumer has the choice at that point of simply waiving the inspection or including it as they see fit. The cost of the audit would be the buyers responsibility. (And yes, they can do that now, but awareness is limited.)
Although I am simplifying for the sake of discussion, I anticipate that we will eventually see the practice of energy audits at the time of home purchase become more common - and will likely result in a few problems along the way including poor quality audits, sales that are terminated, etc. The practice of home inspections took its lumps along the way and had to implement higher standards and certifications. (According to ASHI, the first regulations for home inspectors were instituted in 1985 - and only 32 states regulate home inspectors today.) Even in their current state, results of home inspections are inconsistent and can be a point of contention during the sales transaction.
At least certifications for energy auditors are already ahead of the game. RESNET is the standards base when an energy efficient mortgage is involved, but other groups are making headway as well, including the Building Performance Institute.
The idea of requiring energy audits is not new, however. Some localities in the U.S. have already implemented a requirement including the city of Austin, TX and the state of Nevada (beginning in 2011), while other areas have proposed some form of energy audit during a sale.
Why have an audit?
The arguments for performing an energy audit when purchasing a home are much the same as for performing a home inspection. That is, a prospective homeowner is given data about the current status of the home so they can make an informed decision. Where the results of a home inspection identify items in the home that are not up to code, do not work as intended, and even ongoing maintenance issues, the results of an energy audit provide details about areas in the home that are prone to energy loss (such as air leaks and insufficient insulation) and items that could be improved or replaced to save the homeowner money on their utility bills.
One key output of the energy audit is a "score" of the home's energy performance. The Department of Energy has published the E-Scale that would allow a buyer to compare homes on a consistent basis vs. a poor substitute of using old utility bills.
Concerns regarding audits during home purchase:
The most common argument raised is that an energy audit will simply point out negatives when nothing is actually "wrong" with the house. The concern from real estate agents is that this will scare buyers off their intended purchase when there is no reason to, or cause sellers to spend additional money to raise their rating. My opinion - one in the minority I believe - is that this is helping buyers make a fully informed decision about a home and that they can then adjust their budget accordingly.
The issue of whether audits should be mandated is more of a political one and a bit more touchy. Backers point to the ability to reduce overall costs and eliminate the potential need for building new power plants. While the benefits of having energy audit results available to a consumer is undoubtedly worthwhile, there are many situations where it's need is questionable. One such example is when a sale involves a rehab investor. In this case, the investor already knows that they are looking at "distressed" property and are accounting for updates needed to the home. While many rehabbers choose to ignore mechanical and structural updates that would improve efficiency, they nonetheless know what they are getting.
A middle ground?
While there are valid arguments on both sides of the debate, it would seem that a simple compromise is that consumers are educated as to the benefits of an energy audit at the time of purchase in the same manner as home inspections. Specifically, they are provided materials explaining the energy audit process and an option to conduct an audit during the home inspection period. The consumer has the choice at that point of simply waiving the inspection or including it as they see fit. The cost of the audit would be the buyers responsibility. (And yes, they can do that now, but awareness is limited.)
Although I am simplifying for the sake of discussion, I anticipate that we will eventually see the practice of energy audits at the time of home purchase become more common - and will likely result in a few problems along the way including poor quality audits, sales that are terminated, etc. The practice of home inspections took its lumps along the way and had to implement higher standards and certifications. (According to ASHI, the first regulations for home inspectors were instituted in 1985 - and only 32 states regulate home inspectors today.) Even in their current state, results of home inspections are inconsistent and can be a point of contention during the sales transaction.
At least certifications for energy auditors are already ahead of the game. RESNET is the standards base when an energy efficient mortgage is involved, but other groups are making headway as well, including the Building Performance Institute.
Saturday, August 28, 2010
July sales not a pretty sight
I think we can officially call July sales a little bit ugly. To sellers, it must have seemed like everyone left town for the month.
Based on the Cincinnati MLS numbers, the total number of sales (closings) in July fell 31% from last July. On top of that, the inventory went through the roof - sorry, bad pun - rising to 11.6 months based on the sales rate.
See Cincinnati MLS-based charts here.
The national picture wasn't any better. New home sales tanked to an all-time low of 279,000 homes at an annualized rate. Existing home sales fell 27% on a year over year basis.
The rough July wasn't unexpected, of course. For some time now the message has been that the tax credit pulled sales forward. A look at year-to-date numbers would seem to confirm that as the total sales are slightly ahead of where we were last year at this point. That made agents, title companies, and lenders scramble early in the year while we ended up with a long summer vacation.
Was there any good news in there? Well, yes, actually. As we began to see in last month's report, pricing continued to move up, albeit ever so slightly. It might still take a little while before it all comes together, but stable pricing could be the leading indicator for housing to head back to some kind of normalcy. (If you follow the stock markets, you may have noticed that home builder stocks rose following the recent reports as investors took the numbers as signs of a bottom.)
I don't expect August statistics to be quite so severe given that activity levels seemed to increase this month, but I wouldn't be looking for a quick snap back either. Once the bubble effect from the tax credit clears out, we'll probably see a continued move back to levels of a year ago with some pickup in sales towards the end of the year. My crystal ball isn't terribly reliable, but if I had to guess, I'd say that if mortgage rates remain low then we could see a real spring market next year, not one based on artificial stimulation.
Based on the Cincinnati MLS numbers, the total number of sales (closings) in July fell 31% from last July. On top of that, the inventory went through the roof - sorry, bad pun - rising to 11.6 months based on the sales rate.
See Cincinnati MLS-based charts here.
The national picture wasn't any better. New home sales tanked to an all-time low of 279,000 homes at an annualized rate. Existing home sales fell 27% on a year over year basis.
The rough July wasn't unexpected, of course. For some time now the message has been that the tax credit pulled sales forward. A look at year-to-date numbers would seem to confirm that as the total sales are slightly ahead of where we were last year at this point. That made agents, title companies, and lenders scramble early in the year while we ended up with a long summer vacation.
Was there any good news in there? Well, yes, actually. As we began to see in last month's report, pricing continued to move up, albeit ever so slightly. It might still take a little while before it all comes together, but stable pricing could be the leading indicator for housing to head back to some kind of normalcy. (If you follow the stock markets, you may have noticed that home builder stocks rose following the recent reports as investors took the numbers as signs of a bottom.)
I don't expect August statistics to be quite so severe given that activity levels seemed to increase this month, but I wouldn't be looking for a quick snap back either. Once the bubble effect from the tax credit clears out, we'll probably see a continued move back to levels of a year ago with some pickup in sales towards the end of the year. My crystal ball isn't terribly reliable, but if I had to guess, I'd say that if mortgage rates remain low then we could see a real spring market next year, not one based on artificial stimulation.
Sunday, August 22, 2010
Does a previous owner's utility bills tell us anything?
It's a question real estate agents hear all the time - so, what have the utility bills been like on this house? So common, in fact, that both buyer's agents and listing agents will often have that information in hand before a prospective buyer even asks - especially if it shows the house in a good light.
But what does this data really tell us? Most likely, all it tells us is how much energy the previous family used. What we don't know is how. Do they like to crank up the heat in the winter? Freeze the house in summer? Leave TVs on all night? Perhaps they are miserly. What if they live in one room of the house and wear 5 layers of clothing for cold days?
Other factors might also mislead us into believing the home is more energy efficient than it really is. For example, they may have low bills but travel extensively or used the house on a limited basis in the past year.
How do you determine what the energy use is really like?
I would not completely dismiss the data from these old bills, but factor them into your overall evaluation. What's more likely is they can serve as a red flag. If you find out that the current owners had a $700 heating bill in the winter (not unheard of in a large, older home), then that should alert you to the potential that the house has little to no insulation and an inefficient heating source.
Most people don't take a close look at the mechanical systems and structural items when they are shopping for homes, they are focused on whether the house feels right. Ideally though, you want to take a closer look during that 2nd visit and during inspections. I personally try to point out some especially good or bad things I notice as I'm showing clients a home.
Home inspectors will generally hit the biggies - age of the heating and air conditioning, insulation level and ventilation in the attic, and operating condition of windows and doors are among some of the issues they may point out. The primary goal of the home inspector, however, is to determine whether these are operating adequately - not whether they are efficient for the home.
There are also some easy things you can look for yourself. Check for energy labels on equipment and appliances. If it has a basement, is there any insulation along external walls or in the joists? Do windows, doors, and pipes have good caulking and weatherstripping? Each of these can give you an idea of where improvements may be needed. The Department of Energy EnergySavers website discusses these issues in greater depth.
Factoring energy use into your housing decision
You may have come across a great old house, charm by the bucket loads, and then find out that their utility bills were sky high. Should that scare you off? It shouldn't if everything else about the house is what you are looking for. Consider it in what you plan to pay and do to the house before you move in. You don't want to end up getting a house "on the cheap," and then find out the money you thought you saved is lost paying the utility company.
This is where an energy audit can pay for itself - at least with an older home in need of some updates. An auditor will go through the home and prepare a detailed analysis of the energy usage and what cost-effective improvements can be made. My personal preference would be for buyers to take this step during their inspection period so that they can make a more fully informed decision about the home before purchase, but my opinion on this issue is a bit of an exception among real estate agents - a discussion I leave for another day.
But what does this data really tell us? Most likely, all it tells us is how much energy the previous family used. What we don't know is how. Do they like to crank up the heat in the winter? Freeze the house in summer? Leave TVs on all night? Perhaps they are miserly. What if they live in one room of the house and wear 5 layers of clothing for cold days?
Other factors might also mislead us into believing the home is more energy efficient than it really is. For example, they may have low bills but travel extensively or used the house on a limited basis in the past year.
How do you determine what the energy use is really like?
I would not completely dismiss the data from these old bills, but factor them into your overall evaluation. What's more likely is they can serve as a red flag. If you find out that the current owners had a $700 heating bill in the winter (not unheard of in a large, older home), then that should alert you to the potential that the house has little to no insulation and an inefficient heating source.
Most people don't take a close look at the mechanical systems and structural items when they are shopping for homes, they are focused on whether the house feels right. Ideally though, you want to take a closer look during that 2nd visit and during inspections. I personally try to point out some especially good or bad things I notice as I'm showing clients a home.
Home inspectors will generally hit the biggies - age of the heating and air conditioning, insulation level and ventilation in the attic, and operating condition of windows and doors are among some of the issues they may point out. The primary goal of the home inspector, however, is to determine whether these are operating adequately - not whether they are efficient for the home.
There are also some easy things you can look for yourself. Check for energy labels on equipment and appliances. If it has a basement, is there any insulation along external walls or in the joists? Do windows, doors, and pipes have good caulking and weatherstripping? Each of these can give you an idea of where improvements may be needed. The Department of Energy EnergySavers website discusses these issues in greater depth.
Factoring energy use into your housing decision
You may have come across a great old house, charm by the bucket loads, and then find out that their utility bills were sky high. Should that scare you off? It shouldn't if everything else about the house is what you are looking for. Consider it in what you plan to pay and do to the house before you move in. You don't want to end up getting a house "on the cheap," and then find out the money you thought you saved is lost paying the utility company.
This is where an energy audit can pay for itself - at least with an older home in need of some updates. An auditor will go through the home and prepare a detailed analysis of the energy usage and what cost-effective improvements can be made. My personal preference would be for buyers to take this step during their inspection period so that they can make a more fully informed decision about the home before purchase, but my opinion on this issue is a bit of an exception among real estate agents - a discussion I leave for another day.
Sunday, August 15, 2010
How low can they go? (Mortgage rates that is...)
So, mortgage rates dropped to an average of 4.4% last week. The lowest in 40 years, with no expectation that they will increase significantly in the near future.
It was just a few months ago that the published conventional wisdom thought rates could increase from their already low rate of around 5% to 5.5 or even 6% by the end of the year because the Federal Reserve was ending their purchases of mortgage-backed securities. Then all kinds of goofy things took hold: Greece and Spain debt problems caused investors to rush into Treasuries, causing rates to take a step down, then sluggishness in job creation and fears of a double dip recession pushed them down a bit more.
The latest move down was spurred in part by last week's Federal Reserve announcement that they would buy Treasuries as some of the mortgage securities matured. That took the fear level up a notch and now the only thing it seems people want to buy are Treasuries. I'm not sure whether that was the intended effect of the announcement, but it did manage to take rates to their current lows.
Gauging effects
For those in position to do so, the rush to refinance is on. Lenders across the area are handling high volumes of refi applications. Purchase applications on the other hand - not so much - but at least rising a bit.
One of the positive effects is that lower rates increase housing "affordability." That is, more individuals qualify for higher loan amounts. With underwriting standards the tightest they've been in at least a decade, that is no doubt beneficial. The follow on impact is that as more people qualify for higher loan amounts, it increases the potential number of buyers at any particular price point - thus helping stabilize home prices via increased demand.
All of this also helps begin to balance out rising rental rates. As more people have been shut out of the mortgage market (or have been through a foreclosure), rents have been on the rise. This pushes the demand cycle for home ownership even more as rising rents cause people to assess whether renting vs. owning is the best financial option.
Can rates go lower?
In "effective rate" terms, mortgage rates were lower in the early 70's. That's because the difference between the inflation rate and mortgage rates were less. Several economists do suggest that we could still see rates go down a bit further, but that they probably don't have too much room left. Banks are already borrowing at stunningly low rates (i.e., from 0 - .25%), and to lend out money on mortgages they probably have to make at least a couple of points above what they can make buying Treasuries to account for the risk factor.
In May of this year, the National Association of Realtors reported that the home affordaboility index had neared an all time high. It has since pulled back a little bit, but will likely head higher with the summer slowdown in activity and dropping rates. As the economy eventually picks up steam, the stimulus effect being pushed through low rates will probably be withdrawn and rates will start to rise again. The million dollar question, of course, is when that might actually happen.
It was just a few months ago that the published conventional wisdom thought rates could increase from their already low rate of around 5% to 5.5 or even 6% by the end of the year because the Federal Reserve was ending their purchases of mortgage-backed securities. Then all kinds of goofy things took hold: Greece and Spain debt problems caused investors to rush into Treasuries, causing rates to take a step down, then sluggishness in job creation and fears of a double dip recession pushed them down a bit more.
The latest move down was spurred in part by last week's Federal Reserve announcement that they would buy Treasuries as some of the mortgage securities matured. That took the fear level up a notch and now the only thing it seems people want to buy are Treasuries. I'm not sure whether that was the intended effect of the announcement, but it did manage to take rates to their current lows.
Gauging effects
For those in position to do so, the rush to refinance is on. Lenders across the area are handling high volumes of refi applications. Purchase applications on the other hand - not so much - but at least rising a bit.
One of the positive effects is that lower rates increase housing "affordability." That is, more individuals qualify for higher loan amounts. With underwriting standards the tightest they've been in at least a decade, that is no doubt beneficial. The follow on impact is that as more people qualify for higher loan amounts, it increases the potential number of buyers at any particular price point - thus helping stabilize home prices via increased demand.
All of this also helps begin to balance out rising rental rates. As more people have been shut out of the mortgage market (or have been through a foreclosure), rents have been on the rise. This pushes the demand cycle for home ownership even more as rising rents cause people to assess whether renting vs. owning is the best financial option.
Can rates go lower?
In "effective rate" terms, mortgage rates were lower in the early 70's. That's because the difference between the inflation rate and mortgage rates were less. Several economists do suggest that we could still see rates go down a bit further, but that they probably don't have too much room left. Banks are already borrowing at stunningly low rates (i.e., from 0 - .25%), and to lend out money on mortgages they probably have to make at least a couple of points above what they can make buying Treasuries to account for the risk factor.
In May of this year, the National Association of Realtors reported that the home affordaboility index had neared an all time high. It has since pulled back a little bit, but will likely head higher with the summer slowdown in activity and dropping rates. As the economy eventually picks up steam, the stimulus effect being pushed through low rates will probably be withdrawn and rates will start to rise again. The million dollar question, of course, is when that might actually happen.
Tuesday, July 27, 2010
Last remnants of tax credit show up in June reports
What are we to make of June's market reports? Closings of existing homes were up from last year, the Case-Shiller price index increased 1.3% from April to May, and new home sales jumped 24% over May's lows. Yet pending sales dipped, purchase mortgage applications continued to decline, and inventory is back on the rise.
See Cincinnati MLS based charts for June
The "conventional wisdom" suggests that what we are seeing is the result of home sales brought forward with the tax credit and the inevitable fall off once it ended. That may ultimately prove true. I can say from my own experience that buyer activity seemed to fall off a cliff in May and June, but has since taken a recent uptick as more buyer calls come in and open house activity increases.
A somewhat unexpected change in the market is that the average sales price of homes being shown is taking an upturn. The cause for this is that we are no longer seeing the first-time buyers chasing the low end of the market as we did earlier in the year. Buyers now tend to be those of necessity (such as those relocating for work) and are more comfortable at higher price points. While foreclosures will continue to pressure prices for the foreseeable future, don't be surprised if the average sales price for existing home sales increases significantly over the next few months.
See Cincinnati MLS based charts for June
The "conventional wisdom" suggests that what we are seeing is the result of home sales brought forward with the tax credit and the inevitable fall off once it ended. That may ultimately prove true. I can say from my own experience that buyer activity seemed to fall off a cliff in May and June, but has since taken a recent uptick as more buyer calls come in and open house activity increases.
A somewhat unexpected change in the market is that the average sales price of homes being shown is taking an upturn. The cause for this is that we are no longer seeing the first-time buyers chasing the low end of the market as we did earlier in the year. Buyers now tend to be those of necessity (such as those relocating for work) and are more comfortable at higher price points. While foreclosures will continue to pressure prices for the foreseeable future, don't be surprised if the average sales price for existing home sales increases significantly over the next few months.
Tuesday, July 20, 2010
Priced to show, or priced to sell?
A somewhat flip question that agents sometimes ask their clients these days is: do you want to price your house to show it or sell it? While it may be harsh, the question is often valid. Even as we enter a 4th year of a buyer's market, many sellers still have an inflated sense of what their home is worth.
Last month I discussed how many buyers are looking to make lowball offers when that may not be justified or in their best interests. On the opposite end of the spectrum, sellers paint themselves into a corner by thinking they can price high and then wait for "someone to make an offer and negotiate." Sorry, won't happen. Too many homes to choose from. Instead, buyers will simply pass yours by for one that seems more fairly priced. Price opens the door, value gets the offer.
While no seller seems to be happy today, I've seen too many times sellers cost themselves money by starting out too high, then lowering their price again and again, sometimes chasing a declining market while they continue to carry a mortgage they can't afford.
So what factors influence price?
While the above fits the large majority of homes, there are some houses that are truly unique and determining the value can be extremely difficult - as well as their expected time on market. Excluding multi-million dollar estates, other methods that may help determine value include the cost to build or, if rental property, from the net income produced. In a few situations, it becomes a bit of a guess and you wait to see the reaction from potential buyers and adjust accordingly. Although that is an infrequent occurrence, it nonetheless can and does happen.
All that said, it is still the homeowner that sets the list price when it goes on the market. The agent is your adviser offering their assessment. If the two parties are far apart on where it should be priced, then they probably should stop and consider if it will be a good working relationship.
Real estate agents will sometimes debate whether to take a listing that the homeowner wants to price too high. Many (myself included) won't take a listing where we believe the homeowner has an unreasonable expectation of what they can get - a situation which can eventually lead to hard feelings between the agent and client. Others will give it a shot and hope for the best. As it's often said though: hope is not a strategy.
Last month I discussed how many buyers are looking to make lowball offers when that may not be justified or in their best interests. On the opposite end of the spectrum, sellers paint themselves into a corner by thinking they can price high and then wait for "someone to make an offer and negotiate." Sorry, won't happen. Too many homes to choose from. Instead, buyers will simply pass yours by for one that seems more fairly priced. Price opens the door, value gets the offer.
While no seller seems to be happy today, I've seen too many times sellers cost themselves money by starting out too high, then lowering their price again and again, sometimes chasing a declining market while they continue to carry a mortgage they can't afford.
So what factors influence price?
- Condition. How up-to-date is the home? Has their been significant "deferred maintenance?" How well the property will show to prospective buyers will greatly influence whether you get above or below the area average.
- Location. Yes, that old chestnut plays a huge factor. It is indeed true that people will pay more for the same house depending on access to jobs, schools, and other nearby amenities.
- Market trends and competition. This element probably plays a larger role today than it has in years past, particularly in areas where there may be a lot of foreclosures. Further, if an area has been experiencing declining values, then you don't want to get caught in the trap of trying to catch up to falling prices the longer your home sits on the market.
- What you paid. Just like any asset, the market value can fluctuate up and down over time.
- Cost of maintenance or improvements. Yes, certain improvements do add value to a home, but you should not immediately expect to get out what you put in (unless it's a rehab).
- What you need. This is the one that trips up a lot of people - they "need" to get x dollars out of the house. But buyers don't care, they view your house just like every other one on the block and will seek the best value available. This is a cold reality to many homeowners who believe others should love their house as they do.
While the above fits the large majority of homes, there are some houses that are truly unique and determining the value can be extremely difficult - as well as their expected time on market. Excluding multi-million dollar estates, other methods that may help determine value include the cost to build or, if rental property, from the net income produced. In a few situations, it becomes a bit of a guess and you wait to see the reaction from potential buyers and adjust accordingly. Although that is an infrequent occurrence, it nonetheless can and does happen.
All that said, it is still the homeowner that sets the list price when it goes on the market. The agent is your adviser offering their assessment. If the two parties are far apart on where it should be priced, then they probably should stop and consider if it will be a good working relationship.
Real estate agents will sometimes debate whether to take a listing that the homeowner wants to price too high. Many (myself included) won't take a listing where we believe the homeowner has an unreasonable expectation of what they can get - a situation which can eventually lead to hard feelings between the agent and client. Others will give it a shot and hope for the best. As it's often said though: hope is not a strategy.
Tuesday, July 13, 2010
Aggregate programs and consumer choice set to lower electric bills
If you live in one of the several townships or cities in the area that have established an electric "aggregate" program, you may start seeing lower utility bills soon. In West Chester, where I personally reside, my electric rate is set to drop to 6.2 cents / kWh on my next bill as compared my Duke Energy "rate to compare" of 9.2 cents / kWh.
Aggregate programs vs. Consumer Choice options
You may have received a lot of mail recently from your local governing body, Duke, and even other electric suppliers trying to get you to either sign-up or opt-out of a particular program. As is often the case with mailings of this sort, much of the material seemed to purposely obscure or confuse the options available (in my opinion).
The Ohio Consumer Choice program has been around for some time and allows residents in Ohio to pick suppliers for gas and electric with distribution costs remaining the purview of your local utility.
Cities and Townships throughout Ohio have the option to create a governmental aggregation program in order to negotiate for lower rates from suppliers. Residents in the area are automatically included unless they directly opt-out. Suppliers, on the other hand, must get residents to "opt-in" to their program. A resident who opts-out of the aggregate program, but does not select another supplier would continue to pay the local utility rate as regulated by the Public Utility Commission of Ohio (PUCO).
This year, we seem to be experiencing a much more competitive environment due to the recession, increasing the significance in a choice of supplier. Both First Energy and Dominion have made available special offers for current Duke customers that will be less than the standard Duke "price to compare". Duke Energy has also created its own subsidiary unit that can be selected as a supplier at reduced prices (figure than one out, eh?).
Generally speaking, you'll receive some level of discount by signing up for a specific period of time - usually 1 year or longer. Some of these will have automatic re-enrollment, so you'll need to review your pricing again when the period expires. For those of you who are concerned with the source of energy (i.e., coal, gas, renewables, etc.), you may need to do a bit more research of an individual company to identify the makeup of the supply.
Be aware that pricing varies based on your personal energy usage, but you will likely benefit by making a choice of some sort from among the current offers. You can find a list of locally available suppliers on the Duke website. You can also visit the PUCO site that discusses the choice programs along with a list of cities and townships that have aggregation programs here.
Aggregate programs vs. Consumer Choice options
You may have received a lot of mail recently from your local governing body, Duke, and even other electric suppliers trying to get you to either sign-up or opt-out of a particular program. As is often the case with mailings of this sort, much of the material seemed to purposely obscure or confuse the options available (in my opinion).
The Ohio Consumer Choice program has been around for some time and allows residents in Ohio to pick suppliers for gas and electric with distribution costs remaining the purview of your local utility.
Cities and Townships throughout Ohio have the option to create a governmental aggregation program in order to negotiate for lower rates from suppliers. Residents in the area are automatically included unless they directly opt-out. Suppliers, on the other hand, must get residents to "opt-in" to their program. A resident who opts-out of the aggregate program, but does not select another supplier would continue to pay the local utility rate as regulated by the Public Utility Commission of Ohio (PUCO).
This year, we seem to be experiencing a much more competitive environment due to the recession, increasing the significance in a choice of supplier. Both First Energy and Dominion have made available special offers for current Duke customers that will be less than the standard Duke "price to compare". Duke Energy has also created its own subsidiary unit that can be selected as a supplier at reduced prices (figure than one out, eh?).
Generally speaking, you'll receive some level of discount by signing up for a specific period of time - usually 1 year or longer. Some of these will have automatic re-enrollment, so you'll need to review your pricing again when the period expires. For those of you who are concerned with the source of energy (i.e., coal, gas, renewables, etc.), you may need to do a bit more research of an individual company to identify the makeup of the supply.
Be aware that pricing varies based on your personal energy usage, but you will likely benefit by making a choice of some sort from among the current offers. You can find a list of locally available suppliers on the Duke website. You can also visit the PUCO site that discusses the choice programs along with a list of cities and townships that have aggregation programs here.
Monday, June 28, 2010
May housing stats cause some hand wringing
Are we doomed to see a second dip in housing? Although the number of closings continued to increase in May, some of the future indicators for sales dropped on a month to month basis which had many financial pundits forecasting that lagging home sales could weigh on the broader economy.
That said, we continued to see some positive trends in Cincinnati that bodes well for the rest of the year. Some of the key statistics include:
On the national front, the items causing the most commotion were new mortgage purchase applications, adjusted existing home sales, and new home sales. Existing home sales raised concern when the "seasonally adjusted" month over month figures showed a 2.2% decrease from April when most expected an increase. The rate was still 19.2% over May of 2009.
(June 1 update: the latest release for May's pending home sales illustrated that buyers have gone back into wait mode as the rate fell 30% in May from April, and even fell 15.9% on a year over year basis.)
Mortgage purchase applications continued to fall even as rates are at the lowest since 1970. In the latest weekly update, purchase applications decreased another 3.3%
The hardest hit area continues to be new construction. New home sales were at an all time low to an adjusted rate of 300,000 even as builders continue to make adjustments in pricing and home size. Construction is likely to lag historical norms until inventory balances with "new household formation" (i.e., the need for new homes due to population growth, new buyers entering the market, etc.). Not surprisingly, new home formation has fallen sharply during the recession (between 2008 and 2009, the rate fell to an estimated 398,000 for the year from over 1 million in previous years).
On the plus side, the latest Case-Shiller price index continued to show a slight gain which was perhaps a bit of surprise to many. If nothing else, this suggests that while sales may be off for the next few months, we may not see significant further deterioration in pricing while the market rebuilds.
That said, we continued to see some positive trends in Cincinnati that bodes well for the rest of the year. Some of the key statistics include:
- Closings were up 25.43% on a yearly basis.
- Inventory to sales dropped to 6.8 months. This is the lowest we've seen since 2006.
- The average sales price increased to $159.1K
On the national front, the items causing the most commotion were new mortgage purchase applications, adjusted existing home sales, and new home sales. Existing home sales raised concern when the "seasonally adjusted" month over month figures showed a 2.2% decrease from April when most expected an increase. The rate was still 19.2% over May of 2009.
(June 1 update: the latest release for May's pending home sales illustrated that buyers have gone back into wait mode as the rate fell 30% in May from April, and even fell 15.9% on a year over year basis.)
Mortgage purchase applications continued to fall even as rates are at the lowest since 1970. In the latest weekly update, purchase applications decreased another 3.3%
The hardest hit area continues to be new construction. New home sales were at an all time low to an adjusted rate of 300,000 even as builders continue to make adjustments in pricing and home size. Construction is likely to lag historical norms until inventory balances with "new household formation" (i.e., the need for new homes due to population growth, new buyers entering the market, etc.). Not surprisingly, new home formation has fallen sharply during the recession (between 2008 and 2009, the rate fell to an estimated 398,000 for the year from over 1 million in previous years).
On the plus side, the latest Case-Shiller price index continued to show a slight gain which was perhaps a bit of surprise to many. If nothing else, this suggests that while sales may be off for the next few months, we may not see significant further deterioration in pricing while the market rebuilds.
Sunday, June 20, 2010
Smart meters come to Cincinnati. Will you benefit?
Duke Energy has started to roll out implementation of smart meters throughout the Cincinnati metro area. Terrace Park was a "pre-deployment" site in December 2009, but installation began in earnest this year and will move out to the suburbs over the next few years.
From a consumer's perspective, the smart meter should allow you to better monitor your usage throughout the month and perhaps make adjustments to reduce your bill. Other touted benefits include the ability to identify and target outages more quickly.
In a coordinated move, manufacturers are looking at the development of "programmable" appliances and equipment. Some scenarios where this could occur might be a washer and dryer that only operates when the cost of electricity is at "non-peak rates" or your thermostat automatically adjusts if rates go above a certain amount. This would require two-way communication between the utility and the home which is possible today, but will likely take a few years before it moves beyond the development and test stage.
So, bottom line? We probably won't see any immediate savings. The most likely scenario is that electricity costs will rise more slowly than in years past - perhaps running less than the overall inflation rate. Should dynamic pricing be implemented, those who are willing to modify their behavior and adapt usage to non-peak periods should be able to benefit the most.
- See the Duke deployment map here
From a consumer's perspective, the smart meter should allow you to better monitor your usage throughout the month and perhaps make adjustments to reduce your bill. Other touted benefits include the ability to identify and target outages more quickly.
- See the Department of Energy's discussion on smart grid technology.
In a coordinated move, manufacturers are looking at the development of "programmable" appliances and equipment. Some scenarios where this could occur might be a washer and dryer that only operates when the cost of electricity is at "non-peak rates" or your thermostat automatically adjusts if rates go above a certain amount. This would require two-way communication between the utility and the home which is possible today, but will likely take a few years before it moves beyond the development and test stage.
So, bottom line? We probably won't see any immediate savings. The most likely scenario is that electricity costs will rise more slowly than in years past - perhaps running less than the overall inflation rate. Should dynamic pricing be implemented, those who are willing to modify their behavior and adapt usage to non-peak periods should be able to benefit the most.
Thursday, June 10, 2010
Are you getting a housing bargain or bad advice?
Have you heard the so-called "financial gurus" that suggest making offers on homes that are 60% or 75% or whatever figure they choose relative to the asking price? And then tell you to just keep shopping for a home until someone accepts your lowball offer? Sounds like a good way to get a bargain, right?
Well - maybe. One of the biggest reality checks I received after working real estate full time is how pricing really works and the true meaning of market value. I admit that before I became an agent, I thought that 75% rule was a good one for investing in property even though that might not work for a house that you really liked and wanted to live in.
Here's the problem: if all houses were priced according to their true market value, then that 75% rule would work fine. But if you offer 75% of the asking price for a home that's way overpriced, then what have you got? Probably about what the house was really worth anyway. Secondly, even for investment property, can you make that lowball offer for a foreclosure that's priced to sell and expect to get it? Not likely. Even in today's market, foreclosures that are priced correctly can get multiple offers within days of being listed and often go over the asking price. Many banks and investors have learned how to move 'em quickly.
The makings of an offer
Price is ultimately what most people think about on a house, but that's far from the only component of an offer. I'll sideline other issues for the moment and focus on market value. One very telling statistic that I get as an agent using the MLS is what a house sold for relative to the asking price. In the Cincinnati market, the average sales price to list price is around 94%, with the expected bell curve around that figure.
Here's the kicker though - that's relative to the LAST listing price, after all those price reductions a seller goes through to reach the asking price where they should have started to begin with. Market value really boils down to what homes have been selling for in a particular area relative to their condition - asking price is what gets buyers in the door.
This is one area where an agent should really be earning their money for you. When you decide to make an offer on a house, your agent should provide you with information about comparable sales in the area so that you can get a feel for the price range you want to offer and whether that particular area is trending up or down. Other factors such as condition of the property, whether the seller will pay closing costs, even the seller's motivation (if it can be determined) may be part of your calculation.
Does this mean that you can sometimes offer full asking price and still get a bargain? Absolutely! But knowing whether it is requires good, solid analysis of the local market as opposed to basing decisions on some arbitrary percentage. Frankly, I won't work long with someone who just wants to throw out lowball offers until they strike gold. It's simply a waste of my time and theirs.
All that said, part of negotiation is still an art form. Other components of an offer like home warranties, owners title policy insurance, inspections and other contingencies can be critical in reaching an agreement. Especially in today's market where buyers feel they have leverage to ask for a low price and then beat the seller up on everything found during a home inspection. If the seller isn't in financial position to make corrections on the house, or you lost all goodwill while driving hard to get the lowest price possible, the deal you thought you had could come apart when an issue comes up. If it's truly a house that you want, then be prepared to let your agent work for you in helping reach an agreement that works for all parties.
Next month I'll discuss pricing your house correctly and what makes a comparable property, along with some common mistakes sellers make that ends up costing them.
Well - maybe. One of the biggest reality checks I received after working real estate full time is how pricing really works and the true meaning of market value. I admit that before I became an agent, I thought that 75% rule was a good one for investing in property even though that might not work for a house that you really liked and wanted to live in.
Here's the problem: if all houses were priced according to their true market value, then that 75% rule would work fine. But if you offer 75% of the asking price for a home that's way overpriced, then what have you got? Probably about what the house was really worth anyway. Secondly, even for investment property, can you make that lowball offer for a foreclosure that's priced to sell and expect to get it? Not likely. Even in today's market, foreclosures that are priced correctly can get multiple offers within days of being listed and often go over the asking price. Many banks and investors have learned how to move 'em quickly.
The makings of an offer
Price is ultimately what most people think about on a house, but that's far from the only component of an offer. I'll sideline other issues for the moment and focus on market value. One very telling statistic that I get as an agent using the MLS is what a house sold for relative to the asking price. In the Cincinnati market, the average sales price to list price is around 94%, with the expected bell curve around that figure.
Here's the kicker though - that's relative to the LAST listing price, after all those price reductions a seller goes through to reach the asking price where they should have started to begin with. Market value really boils down to what homes have been selling for in a particular area relative to their condition - asking price is what gets buyers in the door.
This is one area where an agent should really be earning their money for you. When you decide to make an offer on a house, your agent should provide you with information about comparable sales in the area so that you can get a feel for the price range you want to offer and whether that particular area is trending up or down. Other factors such as condition of the property, whether the seller will pay closing costs, even the seller's motivation (if it can be determined) may be part of your calculation.
Does this mean that you can sometimes offer full asking price and still get a bargain? Absolutely! But knowing whether it is requires good, solid analysis of the local market as opposed to basing decisions on some arbitrary percentage. Frankly, I won't work long with someone who just wants to throw out lowball offers until they strike gold. It's simply a waste of my time and theirs.
All that said, part of negotiation is still an art form. Other components of an offer like home warranties, owners title policy insurance, inspections and other contingencies can be critical in reaching an agreement. Especially in today's market where buyers feel they have leverage to ask for a low price and then beat the seller up on everything found during a home inspection. If the seller isn't in financial position to make corrections on the house, or you lost all goodwill while driving hard to get the lowest price possible, the deal you thought you had could come apart when an issue comes up. If it's truly a house that you want, then be prepared to let your agent work for you in helping reach an agreement that works for all parties.
Next month I'll discuss pricing your house correctly and what makes a comparable property, along with some common mistakes sellers make that ends up costing them.
Monday, May 31, 2010
April sales jump, but warning signs flashing ahead
The expected rush towards the end of the tax credit period was reflected in a whopping 32% year over year increase in Cincinnati area sales, 22% on a national basis. And the hits just kept on coming:
But with all the feel good news, there are telling signals that the road to a stable housing market will be bumpy. Some of the caution flags include:
- Sales from January to April are up 8.34% over last year
- Total dollar volume of Cincinnati MLS sales through April is up 21.98%
- The local inventory to sales rate fell to 7.52 months, the lowest April rate since 2006.
- Nationally, new home sales increased 14.8% and the inventory of new homes fell 5.8%
- Pending sales rose 5.3% nationally
- The median sales price increased to $173,100 nationally, $150.3K locally.
But with all the feel good news, there are telling signals that the road to a stable housing market will be bumpy. Some of the caution flags include:
- The inventory level inched back up. If pending sales drop off after April, we are likely to see the absorption rate move back higher and increase the duration that homes are on the market.
- Although housing starts increased, building permits, a forward looking indicator of construction activity, declined 11.5% from March.
- Foreclosures and delinquencies continued to increase. While we may be nearing a peak, this will also continue to pressure prices. (One positive - a lot of investors are snapping up properties at the low end which creates a pricing floor while clearing inventory.)
Sunday, May 30, 2010
Mortgage rate fall in May a bit of surprise
The drop in mortgage rates in May just goes to show you how unpredictable markets can be. Nearly all the "experts" were expecting for mortgage rates to start heading higher this month given the fact that the US Treasury ended its program to buy mortgage-backed securities in April.
For a few days, rates did rise. Then, rather suddenly, some events occurred - including the "flash crash" and concerns over Greek bonds and the sustainability of the Euro - which had everyone scurrying to buy all the Treasuries they could get their hands on. The correlation between Treasury rates and mortgage rates is not perfect, but is definitely strong. Here at the end of May we are seeing mortgage rates back down to some of the lowest in 25 years. I am getting notices from lenders of rates at 4.75% on standard 30-year mortgages and hovering just a notch above 4% on 15-year loans.
Refinancing on the rise, purchase applications fall:
As happens when rates take a significant drop, refinancing applications had double digit percentage increases. The more troublesome statistic, however, is that new purchase applications have fallen from previous weeks. That fall off was expected, at least partly, given the end of the home buyer tax credit. Nevertheless, with such a significant drop in rates one would hope that purchase applications would be stable and signal that there are still home buyers out there looking to take advantage of lower prices.
While we obviously can't predict what the future holds, there is some likelihood that what we've experienced this past month is somewhat temporary and that rates will begin to head upwards sometime later this year. It may be worth a look to determine if you can take advantage of the rates as they are now. One place to start is to check these rate monitors and refinance calculators:
For a few days, rates did rise. Then, rather suddenly, some events occurred - including the "flash crash" and concerns over Greek bonds and the sustainability of the Euro - which had everyone scurrying to buy all the Treasuries they could get their hands on. The correlation between Treasury rates and mortgage rates is not perfect, but is definitely strong. Here at the end of May we are seeing mortgage rates back down to some of the lowest in 25 years. I am getting notices from lenders of rates at 4.75% on standard 30-year mortgages and hovering just a notch above 4% on 15-year loans.
Refinancing on the rise, purchase applications fall:
As happens when rates take a significant drop, refinancing applications had double digit percentage increases. The more troublesome statistic, however, is that new purchase applications have fallen from previous weeks. That fall off was expected, at least partly, given the end of the home buyer tax credit. Nevertheless, with such a significant drop in rates one would hope that purchase applications would be stable and signal that there are still home buyers out there looking to take advantage of lower prices.
While we obviously can't predict what the future holds, there is some likelihood that what we've experienced this past month is somewhat temporary and that rates will begin to head upwards sometime later this year. It may be worth a look to determine if you can take advantage of the rates as they are now. One place to start is to check these rate monitors and refinance calculators:
- Yahoo! Real Estate Information
- Java Calculator at Dinkytown (this shows a lot of good information - just takes a minute to load)
Tuesday, May 11, 2010
Lennox product lets homeowners take baby steps to solar
Lennox is expected to make available a second generation of its solar-powered heat pump or "SunSource Comfort System" sometime later this year, currently introducing it at trade shows and reseller venues.
Essentially a high-efficiency heat pump adapted to operate with assistance from solar panels, the product offers a way for homeowners to take a modest step towards offsetting some of their energy usage.
The first-generation product, which the company still has posted on their website, is interesting in concept but fairly limited in features. The 2nd generation product, on the other hand, has expanded its capabilities which are likely to draw in a wider market. Some highlights of this product I noticed include:
At the time I saw their presentation, company reps that I spoke with were not yet ready to define a typical installation cost. But from what I gathered, a 3-panel installation with heat pump may cost 3 - 4 times a standard installation. Some of this cost would be offset through a 30% tax credit for renewable energy, yet there is still some question as to whether the entire system would count towards the credit or only the solar panel portion. It is also likely to face strong competition from geothermal systems which are also eligible for the renewable energy credit and have become extremely cost competitive with traditional systems when operational costs are factored in.
While it may not be ready to recommend from a cost-efficiency standpoint, it is nonetheless something to keep an eye on in future generations of its development. What may be of most interest is whether a relatively household brand name like Lennox can open doors for more solar power installations.
Essentially a high-efficiency heat pump adapted to operate with assistance from solar panels, the product offers a way for homeowners to take a modest step towards offsetting some of their energy usage.
The first-generation product, which the company still has posted on their website, is interesting in concept but fairly limited in features. The 2nd generation product, on the other hand, has expanded its capabilities which are likely to draw in a wider market. Some highlights of this product I noticed include:
- Installation of solar panels is "expandable." That is, you can add panels as need and budget dictate. The first generation product used only a single panel.
- It appears to simplify a tie-in to your electric provider (e.g., Duke) so that electricity produced when the heat pump is not in use can offset your other household electric usage.
- A 3-panel installation is effectively "net zero" relative to the energy used by the heat pump, i.e., the energy produced by 3 panels over a year will offset the amount needed to heat and cool your house. Of course, that is based on expected averages and an individual installation could deviate significantly.
At the time I saw their presentation, company reps that I spoke with were not yet ready to define a typical installation cost. But from what I gathered, a 3-panel installation with heat pump may cost 3 - 4 times a standard installation. Some of this cost would be offset through a 30% tax credit for renewable energy, yet there is still some question as to whether the entire system would count towards the credit or only the solar panel portion. It is also likely to face strong competition from geothermal systems which are also eligible for the renewable energy credit and have become extremely cost competitive with traditional systems when operational costs are factored in.
While it may not be ready to recommend from a cost-efficiency standpoint, it is nonetheless something to keep an eye on in future generations of its development. What may be of most interest is whether a relatively household brand name like Lennox can open doors for more solar power installations.
Sunday, April 25, 2010
March sees a big bounce in sales. Will it hold?
Great fanfare was being made over the March housing industry statistics as positive numbers came in across the board. Yet the celebration remains contained as everyone waits to see what happens once the tax credit finally expires.
Nevertheless, there was reason to cheer the feeling that a modest level of confidence has been restored. Some of the positive stats included:
About the only negative in March was that distressed sales (short sales and foreclosures) were 35% of sales nationally, but even that percentage is down from prior months.
April numbers will likely continue the positive trend. However, new home sales figures may be the number to watch. Since there is a lead time involved with new construction it could act as a leading indicator of the market, post tax credit. If the numbers there hold up then you'll probably hear a big sigh of relief.
Nevertheless, there was reason to cheer the feeling that a modest level of confidence has been restored. Some of the positive stats included:
- New home sales jumped nearly 27% (from a record low in February). Although, the Midwest saw only a 4.3% increase in typically low key fashion.
- In the Cincinnati area, existing home sales were up 14% year over year. Sales rose 16% nationally for the same period.
- Local pending sales were over 30% higher in March.
- The average sales price rose to $152,287 for all Cincy MLS residential closings
- The inventory absorption rate for the Cincinnati area took a huge drop from over 13 months in February to 8.6 months for March - that's even with the expected increase in March inventory as new sellers come into the Spring market.
About the only negative in March was that distressed sales (short sales and foreclosures) were 35% of sales nationally, but even that percentage is down from prior months.
April numbers will likely continue the positive trend. However, new home sales figures may be the number to watch. Since there is a lead time involved with new construction it could act as a leading indicator of the market, post tax credit. If the numbers there hold up then you'll probably hear a big sigh of relief.
Tuesday, April 20, 2010
Mortgage delinquencies fall. Will foreclosures follow?
The subprime loan 60-day delinquency rate saw its first decline since 2006 in March. The rate fell from 46.9% to 46.3%. Not exactly an earth shattering decline, but nevertheless noteworthy. (Before starting a steady rise in 2006, the delinquency rate was 6.2%.) This follows a "seasonally adjusted" quarterly decline for all types of mortgages in February according to the Mortgage Bankers Association.
While some rates of delinquency are still showing an increase, this could represent a turning point for future foreclosures. If the delinquency rate has finally peaked, what might this mean for the market at large?
While some rates of delinquency are still showing an increase, this could represent a turning point for future foreclosures. If the delinquency rate has finally peaked, what might this mean for the market at large?
- The foreclosure rate has been projected to peak anywhere from the end of 2010 to early 2012. If delinquencies continue to fall, then foreclosures may peak towards the earlier part of that range.
- RealtyTrac reported the slowest rate of increase in 4 years for foreclosures in their April newsletter. However, the number of foreclosures is projected to be near 1.6 million homes in 2010 and again in 2011 before starting to drop off in 2012.
- Distress sales are expected to remain more than 30% of the market through 2011, putting continued pressure on home prices (estimates of a 5% decline over the next year or two is anticipated in some of the hardest hit areas).
Wednesday, April 14, 2010
Hidden costs lurk in a stuffy attic
A recent experience during a sale reminded me once again how homeowners unknowingly cost themselves money (and create potential health issues) by overlooking proper ventilation in attics.
I've previously noted how the Cincinnati area is full of homes where the upper level gets significantly warmer than the main level, prompting homeowners to jack up the AC more than necessary. The main culprits is that many homes have 1) insufficient ventilation to clear hot air from the attic, and 2) lack enough insulation to keep the conditioned air from escaping into the attic.
In the most recent encounter with a ventilation problem, the insufficient ventilation was compounded by bathroom fans venting into the attic rather than out of the house. This combination likely created an ideal climate for mold to begin growing on the roof sheathing. Not only does this create a potential health hazard, the normal lifetime of the roof can be compromised. So, in this case, not only does the homeowner have to spend a significant amount for cleaning up the mold situation, but was potentially causing a shortened roof life along with additional expense to heat and cool their home.
This situation is not as unusual as you might think and is not limited to multiple story homes. There are plenty of ranch houses that lack sufficient airflow as well. In many homes, the only ventilation are one or two passive vents or a ridge vent on the rooftop that are supposed to work in tandem with air coming from soffit or gable vents. Unfortunately, the soffit or gable vents have often been covered up (e.g,. when siding was added or boarded up to keep animals out).
If this sounds like a situation that could exist in your home, here's some suggestions:
I've previously noted how the Cincinnati area is full of homes where the upper level gets significantly warmer than the main level, prompting homeowners to jack up the AC more than necessary. The main culprits is that many homes have 1) insufficient ventilation to clear hot air from the attic, and 2) lack enough insulation to keep the conditioned air from escaping into the attic.
In the most recent encounter with a ventilation problem, the insufficient ventilation was compounded by bathroom fans venting into the attic rather than out of the house. This combination likely created an ideal climate for mold to begin growing on the roof sheathing. Not only does this create a potential health hazard, the normal lifetime of the roof can be compromised. So, in this case, not only does the homeowner have to spend a significant amount for cleaning up the mold situation, but was potentially causing a shortened roof life along with additional expense to heat and cool their home.
This situation is not as unusual as you might think and is not limited to multiple story homes. There are plenty of ranch houses that lack sufficient airflow as well. In many homes, the only ventilation are one or two passive vents or a ridge vent on the rooftop that are supposed to work in tandem with air coming from soffit or gable vents. Unfortunately, the soffit or gable vents have often been covered up (e.g,. when siding was added or boarded up to keep animals out).
If this sounds like a situation that could exist in your home, here's some suggestions:
- Ideally, have a roofing or other building professional check the airflow in your attic to determine if it is sufficient for the home and identify corrective actions.
- Check that vents have not been inadvertently covered by siding or other items.
- Add attic fans to help draw hot air out if appropriate. I'm personally fond of solar fans which can be installed without the need to run electric wiring to the attic and don't have any operational expense.
- Ensure proper attic insulation and air sealing between the attic and living space. This is critical when using powered ventilation that could pull conditioned air out of the house.
Thursday, April 1, 2010
February housing a see-saw ride
February sales were full of ups and downs as the market tried to find some balance. Some of the local highlights include:
If you were looking for the market to gain a more solid footing locally, there wasn't much to go on. The weather was likely a factor in causing some sales slowdown, but there are still enough areas of concern that no one is ready to say that the market has fully stabilized.
One indicator to keep an eye on in March and April will be the inventory levels. After seeing inventory to sales levels work their way down last year, the rate has popped back up significantly (13.4 months in February compared to < 12 at this time last year). While it may be a temporary blip on the radar, a sustained high level will begin pressuring prices once again and - as noted above - the average sales price has been one of the positive statistics we've seen.
On a national level, the news was somewhat similar. Existing sales slipped slightly on a monthly basis, but were 7% higher than Feb. '09. Inventory levels actually increased from January whereas the local inventory rate dropped slightly month over month.
New home sales remained bleak, falling 2.2% to a new record low, but most continue to see this as a good thing as it is the only way to clear out the existing inventory.
One trend that has gotten a bit more news recently: the number of households has actually fallen as more families are living in multi-generational homes and singles are doubling up whether buying or renting. This is no doubt related to the extended recessionary period and high unemployment rates. The question will be how long this trend continues.
- Sales down by 17%
- Average price up by 13%
- Lender-controlled sales down by 15%
- Housing supply up by 1.5 months
- Average days on market down 11%
- Pending sales up by 8%
If you were looking for the market to gain a more solid footing locally, there wasn't much to go on. The weather was likely a factor in causing some sales slowdown, but there are still enough areas of concern that no one is ready to say that the market has fully stabilized.
One indicator to keep an eye on in March and April will be the inventory levels. After seeing inventory to sales levels work their way down last year, the rate has popped back up significantly (13.4 months in February compared to < 12 at this time last year). While it may be a temporary blip on the radar, a sustained high level will begin pressuring prices once again and - as noted above - the average sales price has been one of the positive statistics we've seen.
On a national level, the news was somewhat similar. Existing sales slipped slightly on a monthly basis, but were 7% higher than Feb. '09. Inventory levels actually increased from January whereas the local inventory rate dropped slightly month over month.
New home sales remained bleak, falling 2.2% to a new record low, but most continue to see this as a good thing as it is the only way to clear out the existing inventory.
One trend that has gotten a bit more news recently: the number of households has actually fallen as more families are living in multi-generational homes and singles are doubling up whether buying or renting. This is no doubt related to the extended recessionary period and high unemployment rates. The question will be how long this trend continues.
Sunday, March 21, 2010
Mortgage financing changes on tap as Spring market gets underway
The Treasury's program to buy Mortgage-backed securities comes to an end in March with an uncertain forecast of the resulting impact. Most predictions suggest mortgage rates are likely to rise somewhere between 1/2% to 1% by the end of the year, putting some pressure on the nascent housing recovery. Additionally, the homebuyer tax credit ends in April with virtually no chance (or expectation) of it being extended again.
These are just a couple of the significant factors at play as lenders, homeowners, and real estate practitioners look for increased signs of stabilization and a return to "normalcy." Other current and upcoming finance changes include:
These are just a couple of the significant factors at play as lenders, homeowners, and real estate practitioners look for increased signs of stabilization and a return to "normalcy." Other current and upcoming finance changes include:
- FHA will increase the mortgage insurance premium from 1.75% to 2.25% of the loan amount as of April 5th. Other actions are expected later this year, including increasing the down payment requirement for those with credit scores less than 580 and reducing the allowable seller concessions (e.g., closing costs) from 6% to 3%.
- Also on April 5th, a new program referred to as HAFA will begin that aims to ease the short sale process. Shifting rules and incentives to promote short sales and reduce foreclosures will likely continue for several more months. Many banks (and struggling homeowners) have been confused by the available options and oft-changing guidelines causing delays in closings and disrupting sales with potential buyers.
- Banks will write down loan balances. Bank of America was the first to come out and state that they will begin modifying the principal on its loans. This is a controversial move to be sure, but may enable some to keep their home that might otherwise end up in foreclosure. (Click to see the Wall Street Journal article.)
- Jumbo loans are getting a little easier. When the market for securities backed by jumbo loans broke down, the interest rate on these mortgages jumped, severely impacting the high end market. The door is beginning to open a little which should help sales and perk up pricing. In early March, jumbo rates fell to a 5-year low of 5.79%.
Saturday, March 13, 2010
Natural gas gets cheap with new technology
If you're a homeowner that uses a natural gas furnace to heat your home, you may have noticed your bills being a little lower this year (or at least offsetting the cost of this year's colder winter). Because of new technology to extract natural gas, there's now an overabundance of supply. So much so that all the surplus is difficult to store.
Surplus expected to continue
The expanded use of "fracking" to retrieve natural gas has caused a significant shift in the economics associated with the fuel. The huge finds of deposits already found in Texas and Louisiana have some predicting that natural gas supplies could easily last for 100 years and provide the means for reducing the need for importing energy resources - a strong national security argument.
Additional deposits are being targeted along the Marcellus shale from West Virginia to New York. While some concerns have been raised that the new extraction methods have uncertain environmental impact, there's no indications yet that they will halt this extraction process. Furthermore, since natural gas is cleaner burning than either coal or oil, many are suggesting its use as a "stepping stone" towards more advanced clean technologies.
Effect on homeowners
Those using natural gas furnaces, water heaters, and other gas appliances are likely to benefit in the near term from lower supply costs. However, we don't see the full extent of price drops due to additional "service fees" and other costs that get added onto our bills. Perhaps unfortunately, this is likely to reduce the incentive for homeowners to move towards more efficient appliances such as heat pumps and geothermal heating systems.
From a strictly cost saving standpoint, homeowners who have dual fuel furnace systems may be able to benefit a bit more by adjusting the temperature where the gas backup kicks in from the heat pump. I don't have any statistics to back this up, but my own experience did suggest I was able to reduce bills this year by selecting when to use the gas furnace during colder periods. If you have a hybrid system, you may want to check with your HVAC company about what temperature change point will work best for your home.
Lasting impact
If the supply continues as expected, you can probably expect power suppliers to look at it as an alternative to building coal-powered generation plants. Here in the Midwest, the use of coal is extremely cheap for electricity, but pending regulations and other factors could make use of natural gas an attractive alternative. Natural gas has also been touted as a possible fuel for cars and trucks in place of gasoline. (The well known oil magnate T. Boone Pickens has been stumping his plan to use natural gas for about a year).
Surplus expected to continue
The expanded use of "fracking" to retrieve natural gas has caused a significant shift in the economics associated with the fuel. The huge finds of deposits already found in Texas and Louisiana have some predicting that natural gas supplies could easily last for 100 years and provide the means for reducing the need for importing energy resources - a strong national security argument.
Additional deposits are being targeted along the Marcellus shale from West Virginia to New York. While some concerns have been raised that the new extraction methods have uncertain environmental impact, there's no indications yet that they will halt this extraction process. Furthermore, since natural gas is cleaner burning than either coal or oil, many are suggesting its use as a "stepping stone" towards more advanced clean technologies.
Effect on homeowners
Those using natural gas furnaces, water heaters, and other gas appliances are likely to benefit in the near term from lower supply costs. However, we don't see the full extent of price drops due to additional "service fees" and other costs that get added onto our bills. Perhaps unfortunately, this is likely to reduce the incentive for homeowners to move towards more efficient appliances such as heat pumps and geothermal heating systems.
From a strictly cost saving standpoint, homeowners who have dual fuel furnace systems may be able to benefit a bit more by adjusting the temperature where the gas backup kicks in from the heat pump. I don't have any statistics to back this up, but my own experience did suggest I was able to reduce bills this year by selecting when to use the gas furnace during colder periods. If you have a hybrid system, you may want to check with your HVAC company about what temperature change point will work best for your home.
Lasting impact
If the supply continues as expected, you can probably expect power suppliers to look at it as an alternative to building coal-powered generation plants. Here in the Midwest, the use of coal is extremely cheap for electricity, but pending regulations and other factors could make use of natural gas an attractive alternative. Natural gas has also been touted as a possible fuel for cars and trucks in place of gasoline. (The well known oil magnate T. Boone Pickens has been stumping his plan to use natural gas for about a year).
Saturday, February 27, 2010
January market gets the Winter blahs
Local sales activity seemed to take a vacation in January. While there were a few good things that suggested the market continues to stabilize such as increasing prices and a lower percentage of distressed sales, the activity level dropped off significantly from last January.
Here's a look at some of the key local statistics: (Click to see January charts)
It's certainly not unusual to see sales drop off in Winter months and it is difficult to know how much can be attributed to weather. Given the amount of snow and cold weather we saw in February, I'm anticipating that we will see another drop when those statistics come out. I know many looking to move soon are hoping for warmer days ahead.
Here's a look at some of the key local statistics: (Click to see January charts)
- Local sales fell 7.8% from last January, while national sales saw an 11.5% increase from last year. This is an unusual disparity between Cincinnati and national statistics.
- Average sales price for January 2010 - $150,558; an 18.5% increase from January 2009's average of $127,018
- Last January, over 49% of sales were distressed properties, this year the percentage fell to 35.11%
- The absorption rate (ratio of sales to listed homes) jumped to 14.4 months - about the same as last January, but a big increase from December.
It's certainly not unusual to see sales drop off in Winter months and it is difficult to know how much can be attributed to weather. Given the amount of snow and cold weather we saw in February, I'm anticipating that we will see another drop when those statistics come out. I know many looking to move soon are hoping for warmer days ahead.
Thursday, February 11, 2010
Latest home improvement study shows buyers focus on curb appeal
Remodeling Magazine released its latest evaluation of home improvements and the biggest returns suggest buyers are focused on the exterior curb appeal.
The current online report includes results nationally, by region, and you can also narrow down to the Cincinnati area specifically (see Cincinnati stats here).
One question someone might have is why they would make an improvement before they sell their home if it only gets a portion of the money back. Well - the big reason is the ability to sell the house quickly in a market like we have today. Buyers are expecting homes to be in near-perfect condition or will otherwise expect the price to be steeply discounted. Those who try to get full market value when the house is dated end up staying on the market longer, making more price reductions, and taking a lower price when they finally sell.
I would note that this report tends to focus primarily on major "cosmetic" elements with remodeling of a home as opposed to structural and mechanical updates (such as a new furnace or appliances). I'll keep a lookout for similar studies and point them out when available.
The current online report includes results nationally, by region, and you can also narrow down to the Cincinnati area specifically (see Cincinnati stats here).
One question someone might have is why they would make an improvement before they sell their home if it only gets a portion of the money back. Well - the big reason is the ability to sell the house quickly in a market like we have today. Buyers are expecting homes to be in near-perfect condition or will otherwise expect the price to be steeply discounted. Those who try to get full market value when the house is dated end up staying on the market longer, making more price reductions, and taking a lower price when they finally sell.
I would note that this report tends to focus primarily on major "cosmetic" elements with remodeling of a home as opposed to structural and mechanical updates (such as a new furnace or appliances). I'll keep a lookout for similar studies and point them out when available.
Tuesday, February 9, 2010
A hybrid water heater? Really?
I recently received an e-mail touting the all-new "Hybrid Water Heater" from GE. You may have seen these advertised during the Olympics too.
Well - I had to do a little research on this. First off - what the heck is a "hybrid water heater"? Beyond that, my question is always - does it save money? If so, how does it compare to other types of water heaters?
The "hybrid" water heater is essentially an electric water heater that utilizes heat pump technology to achieve high efficiency. I would say that's a pretty clever approach. I'm not sure about the "hybrid" label, but GE didn't get where they are because of bad marketing. I did find on the Energy Star site that this is a fairly recent technology and that there are a handful of these systems available from major plumbing suppliers.
It takes a little bit of digging, but according to the research so far the operational savings are real and compare favorably to other types of high-efficiency water heaters that operate via natural gas (or propane) - even tankless water heaters.
The upfront cost are a little higher though. The GE version retails for about $1600 and others appear to fall in the same range. When you factor in installation costs, you'll probably run a tad higher than a tankless system and maybe 1/2 the cost of a solar water heater (which, of course, has no operational cost unless a backup system is used).
Generally speaking, this technology looks like it could be a promising option for many homeowners, particularly if they do not have gas service to their home. I would certainly recommend any of my clients consider it if they are building a new home or when replacing an older system.
You can check out a couple of these new water heaters at the following websites:
GE "Hybrid" water heater
RUUD heat pump water heater
Well - I had to do a little research on this. First off - what the heck is a "hybrid water heater"? Beyond that, my question is always - does it save money? If so, how does it compare to other types of water heaters?
The "hybrid" water heater is essentially an electric water heater that utilizes heat pump technology to achieve high efficiency. I would say that's a pretty clever approach. I'm not sure about the "hybrid" label, but GE didn't get where they are because of bad marketing. I did find on the Energy Star site that this is a fairly recent technology and that there are a handful of these systems available from major plumbing suppliers.
It takes a little bit of digging, but according to the research so far the operational savings are real and compare favorably to other types of high-efficiency water heaters that operate via natural gas (or propane) - even tankless water heaters.
The upfront cost are a little higher though. The GE version retails for about $1600 and others appear to fall in the same range. When you factor in installation costs, you'll probably run a tad higher than a tankless system and maybe 1/2 the cost of a solar water heater (which, of course, has no operational cost unless a backup system is used).
Generally speaking, this technology looks like it could be a promising option for many homeowners, particularly if they do not have gas service to their home. I would certainly recommend any of my clients consider it if they are building a new home or when replacing an older system.
You can check out a couple of these new water heaters at the following websites:
GE "Hybrid" water heater
RUUD heat pump water heater
Friday, January 29, 2010
December market is all over the map
Anyone looking at December's market statistics would be hard pressed to decipher whether it's good news or bad. Home builders are still having a tough slog, but existing homeowners can take some solace that pricing has appeared to stabilize.
Nationally, the numbers raised fears that the housing market will begin falling again when the tax credit expires. Several stats highlighted the concerns:
No doubt it is and will be a buyer's market for some time yet. However, I do see some balance returning to the market. Buyers continue to ask for as much as 20 - 30% off list prices, but banks, builders, and even homeowners have begun to hold more firmly on pricing. For their part, banks have learned where to price houses to get them sold quickly and at full asking price (or more).
Nationally, the numbers raised fears that the housing market will begin falling again when the tax credit expires. Several stats highlighted the concerns:
- Pending home sales dropped 16% from November, but was up 15.5% on a year over year basis
- Existing homes sales dropped 16.7% on a monthly basis, but up 15% on a yearly basis
- New home sales fell 7.6% (with a 41% decline in the Midwest region)
- The Case-Shiller price index was still showing a slight decline nationally, but the price curve shows prices flattening.
- On a full year basis, the number of sales increased modestly over 2008. However, the average sales price was lower as first time buyers were an outsized portion of the market.
- Average sales price increased from Dec. '08 to '09 from $141.6K to $152.8K. The number of sales year over year also increased from 1,271 to 1,306 for the month.
- Overall inventory continued to fall. The absorption rate (ratio of sales to inventory) continued to remain below '07 and '08 at 8.9 months. There was probably a bit more increase from November to December (8.0 to 8.9) than we'd like to see, but was typical going into winter.
No doubt it is and will be a buyer's market for some time yet. However, I do see some balance returning to the market. Buyers continue to ask for as much as 20 - 30% off list prices, but banks, builders, and even homeowners have begun to hold more firmly on pricing. For their part, banks have learned where to price houses to get them sold quickly and at full asking price (or more).
Wednesday, January 27, 2010
FHA loosens restrictions that may help investors
Effective February 1st, the FHA will waive its "90 day rule" for 1 year. In its current form, this rule prevents a potential buyer from buying a property that has been owned for less than 90 days by the current owner. The initial basis of this rule was to eliminate "flipping" properties (that is, buying the property only for the purpose of reselling it quickly in a hot market).
This temporary waiver of the rule should help legitimate investors who can rehab a property quickly without imposing an arbitrary timeline before they can sell again. In some cases, this has held back investors looking at buying a low-priced foreclosure "as is" that could be fixed up and sold again quickly due to the additional costs associated with sitting on the property for a time - or alternately - if a rehab was well done and priced to sell quickly, then buyers eligible for an FHA loan were effectively eliminated from bidding on the property.
While this change will help in certain situations, there are still some constraints a potential investor has to consider, including:
Click here to see the full FHA press release.
This temporary waiver of the rule should help legitimate investors who can rehab a property quickly without imposing an arbitrary timeline before they can sell again. In some cases, this has held back investors looking at buying a low-priced foreclosure "as is" that could be fixed up and sold again quickly due to the additional costs associated with sitting on the property for a time - or alternately - if a rehab was well done and priced to sell quickly, then buyers eligible for an FHA loan were effectively eliminated from bidding on the property.
While this change will help in certain situations, there are still some constraints a potential investor has to consider, including:
- Transactions must be arms-length, i.e., the buyer and seller must be unrelated
- A new requirement has been added that if the sales price is 20% more than what it was bought for previously, it requires supporting documentation of improvements, and possibly 2 appraisals.
- It is not applicable to "reverse mortgages" (or an HECM mortgage as it is officially referred to).
Click here to see the full FHA press release.
Friday, January 22, 2010
FHA changes likely to impact first time and median income buyers
FHA loans have been a significant part of home sales over the past couple of years after 100% loans went away. While these low down payment loans have no doubt help stabilize the housing market, the burden on the FHA has grown relative to their presence in the market.
This week, the clamps began to tighten down. While some are concerned that this will cause home sales to drop off again, it nonetheless is probably a good thing for the longer term return to normalcy. Changes for buyers include:
This week, the clamps began to tighten down. While some are concerned that this will cause home sales to drop off again, it nonetheless is probably a good thing for the longer term return to normalcy. Changes for buyers include:
- Increased mortgage insurance from 1.5% of loan amount to 2.25%
- Increased down payment requirements based on credit score
- Reducing the amount a seller can pay towards a buyer's closing cost from 6% to 3%
Wednesday, January 20, 2010
Snapshot of buyers shows focus on energy costs
This chart came across my desk today which some may find interesting. Not surprisingly, many homebuyers focus on the energy saving features available in a home if they are considering "green" features. Midwest and Northeast buyers probably focused on this the most due to high winter heating bills.
Other items that are "environmentally friendly" or even those that may improve indoor air quality are currently important to only a small segment of buyers, likely due to either limited awareness or the perceived low value relative to cost.
Copyright REAL ESTATE BUYER'S COUNCIL. Reprinted from Green REsource Council.net with permission.
Other items that are "environmentally friendly" or even those that may improve indoor air quality are currently important to only a small segment of buyers, likely due to either limited awareness or the perceived low value relative to cost.
Copyright REAL ESTATE BUYER'S COUNCIL. Reprinted from Green REsource Council.net with permission.
Monday, January 18, 2010
Tax Abatement Program spurs LEED-certified homes
A recent search for LEED (Leadership in Energy and Environmental Design) certified homes in the Cincinnati MLS showed awareness among builders and buyers has grown considerably within the past year. Prior to 1/1/09, only 3 homes were marketed and sold as LEED certified in the MLS database. In the year since, 15 homes have sold with 24 actively being marketed.
While these numbers aren't overwhelming by any means, they do suggest that a market for these homes is evolving - keeping in mind that this is new construction during a year when few new homes have been built. I believe the #1 factor for the increase is Cincinnati's property tax abatement program that incentivizes new development with a big push for LEED construction.
It's critical to note that any homeowner living within Cincinnati's borders can potentially take advantage of this tax program. The tax abatement has been around for a good while, initially neighborhood specific but growing city-wide over the years. The program was augmented with increased time and value benefits for LEED-certified property in 2007.
Some of the highlights of the program include:
Not surprisingly, the majority of new construction that is targeted as LEED certified is heavily concentrated in Hyde Park, Columbia-Tusculum, and nearby areas with a couple of projects associated with Over-the-Rhine development. In discussions with builders, these are the areas that support the higher price for LEED certification and enough home buyers that actively seek out "green" construction.
As one builder pointed out to me, at a certain price point home buyers are simply leaving money on the table if they don't get the certification. While you don't have to be LEED certified to achieve the energy savings available, the tax abatement ultimately pays for the additional costs one might incur - as well as being a possible plus when you sell the home down the road.
A couple of adventurous souls have attempted to bring in lower-priced LEED homes in other areas, but indications so far are that the profitability isn't quite there yet for the builder. Likewise, taking an existing home and getting LEED certification may not to get over the cost-benefit hurdles. That, however, doesn't mean improvements focused on energy and environmental savings can't still have a big payoff.
While these numbers aren't overwhelming by any means, they do suggest that a market for these homes is evolving - keeping in mind that this is new construction during a year when few new homes have been built. I believe the #1 factor for the increase is Cincinnati's property tax abatement program that incentivizes new development with a big push for LEED construction.
It's critical to note that any homeowner living within Cincinnati's borders can potentially take advantage of this tax program. The tax abatement has been around for a good while, initially neighborhood specific but growing city-wide over the years. The program was augmented with increased time and value benefits for LEED-certified property in 2007.
Some of the highlights of the program include:
- Tax abatement is 10 years for regular improvements or new construction, 15 years if LEED certified.
- The current amount eligible for abatement is $291,750; a whopping $530,450 if LEED certified.
- It applies to any 1 - 4 unit residential construction. For improvements, you must be able to show at least $2500 of work for 1 or 2 unit housing, $5000 for 3 - 4 units.
- For improvements, the value applies only to construction aspects, it does not impact the tax on the land value.
- The actual value of the construction / improvements is determined by the auditor's office (and yes, there is an appeals process).
Not surprisingly, the majority of new construction that is targeted as LEED certified is heavily concentrated in Hyde Park, Columbia-Tusculum, and nearby areas with a couple of projects associated with Over-the-Rhine development. In discussions with builders, these are the areas that support the higher price for LEED certification and enough home buyers that actively seek out "green" construction.
As one builder pointed out to me, at a certain price point home buyers are simply leaving money on the table if they don't get the certification. While you don't have to be LEED certified to achieve the energy savings available, the tax abatement ultimately pays for the additional costs one might incur - as well as being a possible plus when you sell the home down the road.
A couple of adventurous souls have attempted to bring in lower-priced LEED homes in other areas, but indications so far are that the profitability isn't quite there yet for the builder. Likewise, taking an existing home and getting LEED certification may not to get over the cost-benefit hurdles. That, however, doesn't mean improvements focused on energy and environmental savings can't still have a big payoff.
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