Just passing along an interesting article from today's Cincinnati Enquirer that many of you might find interesting. It discusses how area zoning commissions are tackling growing use of solar panels and wind turbines in residential areas....
Cincinnati Enquirer article
Friday, April 1, 2011
Saturday, February 5, 2011
SAVE act aims to factor energy efficiency in mortgages
Many in the real estate industry have for some time been trying to make the argument to consumers about "total home ownership costs". That is, considering not only your initial costs, but ongoing maintenance and utility costs in the equation. While banks seem to be a little behind the curve on this, proposed regulation known as the Sensible Accounting to Value Energy act (the "SAVE" act) would have federally backed mortgages, such as FHA loans, apply energy efficiency as part of the overall appraisal and underwriting standards when purchasing a home.
This is not necessarily a new concept, as energy-efficient mortgages (EEM) have been around for years. However EEMs have seen little use during their existence due in large part from a lack of understanding or familiarity by either consumers or lenders along with certain requirements that can be somewhat burdensome during a purchase transaction.
The SAVE act, on the other hand, seems to be gaining wide industry support to incorporate efficiency standards directly in the mortgage process. As one industry professional noted on current methods: "This means that a $5,000 upgrade for granite countertops is reflected in appraisals, while a $5,000 upgrade for a highly-efficient HVAC system is not." From a lender's risk management perspective, it only makes sense to include energy use in evaluating a mortgage as the hidden costs of high utility bills are a potential risk factor in a borrowers ability to repay.
I would anticipate that there will be some negative reaction in a few corners, most likely from those who would see their home as being the "loser" when compared to newer or more updated homes. However, whether these folks know it or not, buyers already discount the value of their homes as they become ever more savvy about looking past just the pretty face and seeing what lies beneath.
To learn more about the proposed standards and status of the regulations, see the Institute for Market Tranformation's SAVE act website.
This is not necessarily a new concept, as energy-efficient mortgages (EEM) have been around for years. However EEMs have seen little use during their existence due in large part from a lack of understanding or familiarity by either consumers or lenders along with certain requirements that can be somewhat burdensome during a purchase transaction.
The SAVE act, on the other hand, seems to be gaining wide industry support to incorporate efficiency standards directly in the mortgage process. As one industry professional noted on current methods: "This means that a $5,000 upgrade for granite countertops is reflected in appraisals, while a $5,000 upgrade for a highly-efficient HVAC system is not." From a lender's risk management perspective, it only makes sense to include energy use in evaluating a mortgage as the hidden costs of high utility bills are a potential risk factor in a borrowers ability to repay.
I would anticipate that there will be some negative reaction in a few corners, most likely from those who would see their home as being the "loser" when compared to newer or more updated homes. However, whether these folks know it or not, buyers already discount the value of their homes as they become ever more savvy about looking past just the pretty face and seeing what lies beneath.
To learn more about the proposed standards and status of the regulations, see the Institute for Market Tranformation's SAVE act website.
Wednesday, February 2, 2011
Snapshot of 2005 - 2010 sales shows tax credit impact
Last month, I discussed the challenge for 2010 sales and how the tax credit pushed sales forward from later months. Thanks to our broker's sales manager, I now have a chart that shows how sales after July 2010 almost literally fell off a cliff.
Stay tuned for January numbers coming out in a couple of weeks. Based on the increased showing activity, we might just get a slightly pleasant surprise in year over year comparisons.
- View chart
Stay tuned for January numbers coming out in a couple of weeks. Based on the increased showing activity, we might just get a slightly pleasant surprise in year over year comparisons.
Thursday, January 6, 2011
Will 2011 finally see a real uptick in sales?
The 2nd half of 2010 was, to put it mildly, something of a challenge in the real estate industry. Once the tax credit expired, sales took a pretty hard dip for the remainder of the year. Although there seems to have been a bit more activity towards the end of the year, 2011 is projected to be more of a "transitional" year as opposed to any kind of full-fledged recovery. Here's a brief look back and my own outlook for the new year.
2010 in review
The beginning of the year got off to a hurried start as first-time buyers were rushing to find something that fit their budgets before the tax credit expiration. Most real estate analysts and professionals recognized that this was "pulling forward" sales, but we all went along for the ride anyway. Few, if any, seemed to think that sales would fall off at the rate that actually occurred. Double digit percentage decreases in sales volume were encountered from July through December.
Perhaps lessening the pain was the unprecedented, and unexpected, drop in mortgage rates. For the better part of the summer and fall, rates continued a steady drop until 30-year rates were in the 4 - 4.25% range, levels not seen since the 1950's. Although they popped back up a bit in December, they were still mostly under 5%.
As we entered the Fall market, the foreclosure situation went from bad to just plain ugly. The media was all over the use of "robo-signers" and the potential for fraudulent foreclosures. The actual number of homeowners that were impacted by said fraud were found to be very few and far between. Nevertheless, banks were forced to put a hold on foreclosure processing until they could clean up their act.
Finally, the year would not be complete without a look at inventory and pricing. Inventory remains sky high relative to sales levels, sitting at 12.5 months through November. The one bright spot for the Cincinnati market was that prices seemed to find a foothold, with the average price increasing marginally month over month. (See November's charts)
2011 and forward
While the rest of the economy seems to be finding its footing again, most economists seem to suggest that housing will remain a drag on the broader economy until sometime in 2012. My personal prediction is that the Cincinnati area will see a modest uptick in both sales and pricing in the 2nd half of the year. Some of the factors in play include:
2010 in review
The beginning of the year got off to a hurried start as first-time buyers were rushing to find something that fit their budgets before the tax credit expiration. Most real estate analysts and professionals recognized that this was "pulling forward" sales, but we all went along for the ride anyway. Few, if any, seemed to think that sales would fall off at the rate that actually occurred. Double digit percentage decreases in sales volume were encountered from July through December.
Perhaps lessening the pain was the unprecedented, and unexpected, drop in mortgage rates. For the better part of the summer and fall, rates continued a steady drop until 30-year rates were in the 4 - 4.25% range, levels not seen since the 1950's. Although they popped back up a bit in December, they were still mostly under 5%.
As we entered the Fall market, the foreclosure situation went from bad to just plain ugly. The media was all over the use of "robo-signers" and the potential for fraudulent foreclosures. The actual number of homeowners that were impacted by said fraud were found to be very few and far between. Nevertheless, banks were forced to put a hold on foreclosure processing until they could clean up their act.
Finally, the year would not be complete without a look at inventory and pricing. Inventory remains sky high relative to sales levels, sitting at 12.5 months through November. The one bright spot for the Cincinnati market was that prices seemed to find a foothold, with the average price increasing marginally month over month. (See November's charts)
2011 and forward
While the rest of the economy seems to be finding its footing again, most economists seem to suggest that housing will remain a drag on the broader economy until sometime in 2012. My personal prediction is that the Cincinnati area will see a modest uptick in both sales and pricing in the 2nd half of the year. Some of the factors in play include:
- Jobs, jobs, jobs. Without an increase in jobs, housing will be stuck in neutral. Fortunately, all the indicators show the number of area jobs increasing on a slow, but steady, basis.
- Foreclosure pipeline. It is nearly a given that foreclosures will continue to occur at historically high rates through 2011, and continue to pressure prices and inventory. The positive is that they are expected to decline from 2010 levels and that they are mostly impacting low priced homes and areas of the country hit hardest (e.g., Florida, Arizona, Nevada, and California).
- The "new normal". Gone are the days (mostly) that everyone was looking for bigger and bigger homes. A certain downsizing mentality has taken hold where once a buyer who might have wanted that 4000 sq. ft. McMansion a few years ago, instead is looking at a more modest 2800 sq. ft. that is 75% of the price. The average home size began to tick down in 2008 and the trend is expected to continue.
- The Mortgage Interest Deduction. If Congress really begins to seriously tackle tax reform, expect the mortgage interest deduction to be a point of contention. When the Deficit Reduction Commission suggested lowering the threshold to $500,000 in December, it was "knives out" on many fronts. If the MID is lowered, expect higher end home sales to take a bit of a hit (and reinforcing the downsizing move noted above).
Wednesday, January 5, 2011
Energy standards in play for 2011
New and revised energy standards for 2011 could make this an interesting year for both existing home owners and those looking to buy a new home. Here's a quick look at some of the changes on tap:
- Revised Energy Star guidelines: Products and homes looking to label themselves as Energy Star certified will have to meet more robust criteria. New specifications for many products and appliances became effective January 1. New criteria for home construction will be phased in during the year and fully implemented by January 1, 2012.
- Incandescent bulbs on the way out: Rules passed in 2007 (The Energy Independence and Security Act) are already having an impact in the marketplace to phase out incandescent bulbs. Most rules don't take effect until next year, but IKEA is already removing them from their shelves and other retailers could follow suit. Many argue that we are needlessly losing a cheap alternative, but whale oil lamps were cheap a century and a half ago too. Flourescent and LED bulbs continue to get less expensive, come in more shapes and colors, and will allow you to keep more money in your pocket over time.
- Tax credits extended: As part of the tax compromise passed at the end of 2010, many home improvement credits were partially extended. Renewable energy credits (for items such as geothermal and solar power systems) remain in effect through 2016.
- Ohio building codes for energy efficiency: Debate is taking place on the implementation of improved base standards required for new construction. Some builders are resistant to increases in areas such as higher R-values for external walls making the argument that it will add to costs during a recession. The new standards are already in place in states like Pennsylvania and Michigan.
Saturday, January 1, 2011
The Great Disconnect
Call it a result of the Great Recession, but a look back at the last year left me pondering the current buyer - seller disconnect in housing. What I am referring to is how there is a huge gulf in the mindset of home buyers vs. sellers when it comes to negotiating what constitutes a fair deal.
First, let's take a look at sellers in the current market. Many purchased their current home when the market was booming a few years ago. The average move is once every 7 years. Using that as a guideline, that would suggest the current home now on the market was purchased in 2003 - 2004 when home prices were really starting to take off.
No one likes to take a loss on what is supposedly a large asset, but even suggesting they will see a loss of 5 - 10% STILL causes a stunned disbelief (surely not My house!). My question is how does this compare to your 401K performance in the same period? 5 - 10% is the average price decline for many Cincinnati area neighborhoods. Some areas have experienced steeper declines, but these are mostly in "starter home" subdivisions where builders were offering 125% loans and where foreclosures are an outsized portion of the inventory.
The reason that it feels like they are taking such a large loss is due to the leverage factor. That is, most people carry a mortgage that, once paid, may leave them with nothing to show in equity - or worse, owing money to payoff a loan. Many overlook that it is this same leverage factor that during good times allows them to build equity faster.
Buyers, on the other hand, have seen too many news stories about the foreclosure debacle and have a mistaken impression of how everything on the market must be available at all time bargain prices. Are there bargains to be had? Absolutely! Is the house that you have just fallen in love with available at 75% of market price? Uhmm, probably not.
It often takes buyers entering this market some time to realize that we still see homes that are in top condition and priced well sell very quickly and close to asking price - even getting multiple offers. If you come across a house that you think is great, chances are every other buyer in your price range probably thinks so too. If you want a bargain - look at the house down the street that needs some work and has been on the market for the better part of a year.
These buyer / seller conditions has led to lengthier negotiations, more failed offers, and a feeling of dissatisfaction on both sides that they aren't getting the deal they should (sounds like Congress, eh?). Looking forward into the new year, I anticipate conditions to remain the same for a bit longer. That said, I do see more buyers entering the market, sellers being more realistic about price, and overall economic news being more positive. One can only hope that bodes well for 2011.
First, let's take a look at sellers in the current market. Many purchased their current home when the market was booming a few years ago. The average move is once every 7 years. Using that as a guideline, that would suggest the current home now on the market was purchased in 2003 - 2004 when home prices were really starting to take off.
No one likes to take a loss on what is supposedly a large asset, but even suggesting they will see a loss of 5 - 10% STILL causes a stunned disbelief (surely not My house!). My question is how does this compare to your 401K performance in the same period? 5 - 10% is the average price decline for many Cincinnati area neighborhoods. Some areas have experienced steeper declines, but these are mostly in "starter home" subdivisions where builders were offering 125% loans and where foreclosures are an outsized portion of the inventory.
The reason that it feels like they are taking such a large loss is due to the leverage factor. That is, most people carry a mortgage that, once paid, may leave them with nothing to show in equity - or worse, owing money to payoff a loan. Many overlook that it is this same leverage factor that during good times allows them to build equity faster.
Buyers, on the other hand, have seen too many news stories about the foreclosure debacle and have a mistaken impression of how everything on the market must be available at all time bargain prices. Are there bargains to be had? Absolutely! Is the house that you have just fallen in love with available at 75% of market price? Uhmm, probably not.
It often takes buyers entering this market some time to realize that we still see homes that are in top condition and priced well sell very quickly and close to asking price - even getting multiple offers. If you come across a house that you think is great, chances are every other buyer in your price range probably thinks so too. If you want a bargain - look at the house down the street that needs some work and has been on the market for the better part of a year.
These buyer / seller conditions has led to lengthier negotiations, more failed offers, and a feeling of dissatisfaction on both sides that they aren't getting the deal they should (sounds like Congress, eh?). Looking forward into the new year, I anticipate conditions to remain the same for a bit longer. That said, I do see more buyers entering the market, sellers being more realistic about price, and overall economic news being more positive. One can only hope that bodes well for 2011.
Friday, November 5, 2010
Looking like a long winter for home sellers
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.
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.
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.
Subscribe to:
Posts (Atom)
Posts
