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Hot or Not? How To Tell

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | December 2nd, 2016

Is your market hot?

Every once in a while, local media proclaim that the local market is "on fire." But is it really?

If the report is based solely on the fact that there have been more sales in the current period than in the previous one, then it could be terribly misleading. There's more to a hot market than simply a pickup in transactions.

"Just like a medical diagnosis can be wrong if you are looking at just one vital sign, so can a proclamation that the market is hot -- or cold, for that matter," says Thomas Hoff of Pro Teck Valuation Services in Waltham, Massachusetts.

I asked Hoff about the key factors Pro Teck looks at to produce its monthly Home Value Forecast. He says the company watches nine different data points, detailed below, along with tracking trends and using consistent methodology.

The relative "hotness" of a local market is key information for its buyers and sellers. Luckily, most of the data that Pro Teck evaluates is readily available from the local multiple listing service, so your agent should be able to look at the same info and come up with a reasonable list price for your house (or how much to offer, if you are buying).

But if he or she simply uses comparables -- previous sales of similar homes in your area -- you might want to go elsewhere, or even try to do it yourself.

Here's a quick rundown of Pro Teck's nine key statistics:

-- Sales. The number of sales in a given month is important, but you want to compare it to the same month a year ago. Actually, Hoff uses a three-month rolling average, and compares it to the previous same three months. So, if you are trying to determine whether sales are up in December, you'd look at the average number of sales in September, October and November, and compare it to the average in the period a year ago.

-- Active listings. Here, you want to know how many houses are on the market compared to a year ago and the percentage change. "This is simple supply and demand," says Hoff. "The fewer number of listings make it a hotter market; the more listings, the slower the market."

-- Months of remaining inventory. This is the average rate of absorption, or houses actually sold. It is determined by dividing the number of houses on the market at any time during the previous month by the past year's monthly sales rate. According to Hoff, an answer of five to six months suggests a balanced market. If it's less, buyers should probably expect to pay more than list price; if it's more, you can probably bargain. Vice versa for sellers.

-- Selling price. Determine the average selling price, again using the three-month rolling average as compared to the same period a year ago. Use a rolling average so your number is not impacted by a house that sold for an unusually high or low price. "You want to get rid of spikes so outliers don't impact your figures," Hoff says.

-- Days on market. Again, using the rolling average, compare how long it takes to sell houses now vs. a year ago. If it takes longer, the market is slower.

-- Active price. If the average is rising, supply and demand fundamentals "are at work," Hoff reports. But if it's going down, there's more supply than demand.

-- Active days on the market. Similarly, if the average is going down, it's indicative of a hot market.

-- Sales price vs. list price. Here, you'll want to know the ratio between what houses were listed for and what they sold for. Of course, the hotter the market, the higher the ratio. Anything above 98 is considered pretty good. But if it is trending lower, it's not so hot.

-- Foreclosures. Finally, but still very important, you want to determine the number of foreclosure sales as a percentage of all sales. Five percent is healthy. But once this number rises above 10 percent, it starts to negatively impact the market.

Miami is a good example. Based on the number of sales alone, it looks like a hot market. But 12 percent of its sales are foreclosures, so prices are still depressed. "It's like an anchor dragging down prices," says Hoff.

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Teens, Tech and Automobiles

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | November 25th, 2016

Forget about millennials. Everything that can be written about that age cohort has been written. So let's move on to Gen Z. They are mostly teenagers today, but they will be homebuyers tomorrow. Or will they?

That's what the Better Homes and Gardens Real Estate franchise wanted to find out with a survey of a small sample of kids ages 13-17, of which there are 21 million or so. The results were heartening.

For example, 82 percent said home ownership is the most important factor in achieving the American Dream. Most adults feel that way, too. But millennials, not so much. And a whopping 97 percent of the Gen Zers polled said they fully expect to own a home sometime in the future.

But how much does home ownership really mean to them? I mean, what are they willing to give up? How far are they willing to stretch? Pretty far, it turns out.

Nearly two out of every five would willingly take their mom or dad to their high school prom if it allowed them to buy a home. And even more telling, a bit more than half said they would gladly give up social media altogether for one solid year if it meant being able to buy.

About a third of all consumers plan to give technology gifts this holiday season, according to the Consumer Technology Association. Spending on technology will increase by about 3 percent to $36.05 billion.

While not as popular as, say, drones or virtual reality, smart house devices such as thermostats and digital assistant devices such as Amazon's Echo will command a roughly 10 percent share of the tech market this year.

Looking for another reason to buy rather than rent? Most automobile insurers charge drivers with good records as much as 47 percent more for basic liability coverage if they are not homeowners, according to an analysis of premiums by the Consumer Federation of America (CFA).

Based on a sampling of quotes throughout the country, the CFA found that premiums averaged 7 percent higher, or about $112 annually, for a 30-year-old "safe" driver who rents rather than owns. Liberty Mutual was the biggest transgressor, hiking premiums $307 a year on average for state-mandated coverage.

The CFA tested rates for minimum liability coverage in 10 cities from seven of the country's largest companies. On average, they charged renters 6 percent more. But there were several instances of double-digit increases, including the aforementioned 47 percent in Louisville, Kentucky, by Farmers.

Geico was the only company tested that did not consider home ownership status, and Allstate actually charged renters less in Chicago.

"Insurance companies should judge you on how you drive, not who you are," said J. Robert Hunter, CFA's director of insurance and a former Texas insurance commissioner. "Insurance companies are penalizing good drivers by hundreds and sometimes thousands of dollars each year based on economic and social status, and the end result is that the poor pay more, much more."

Speaking of automobiles, real estate brokerage firm Redfin has developed a rating system that measures the number of jobs within a 30-minute, car-free commute from a given address.

Called the Opportunity Score -- with 100 representing the home with the most nearby jobs -- it aligns two major lifestyle choices influencing how people live today. One, many people don't want to rely on autos to get to work, and two, being close to jobs means it is less expensive to buy.

For what it's worth, Redfin also has developed a number of other scoring algorithms, including Walk Score, Bike Score and Transit Score, all of which give people a sense of what it's like to live in a particular neighborhood.

Much is said about the number of million-dollar homes. But they don't usually start out that costly, according to the Census Bureau. Only 1,762 houses started for sale in 2015 came with a price tag of $1 million or more.

Last year's count was about half that of 2014, when 3,347 million-dollar manses were started. And it was way, way lower than in 2005, when the number reached its peak at 5,647.

Still, even at that, the number of newly built million-dollar houses represents only 1 percent of the total number of housing starts and a lower percentage of all homes sold.

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Lenders Struggle With Affordability Issues, Too

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | November 18th, 2016

If you have the feeling that it's getting more difficult to afford the roof over your head, whether it's a home of your own or a rented apartment, you're right.

It's not just that house prices are rising quickly in many parts of the country. It's that some lenders who got burned in the previous decade's market crash are still gun-shy about extending credit. And even when lenders are ready and willing to jump back into the market, their federal regulators are telling them to rein in potentially risky loans.

The tight hold regulators have on lenders may or may not be comforting to a general public worried that another crash is possible -- or even probable. Either way, the lending business is fretting, loudly, about the affordability squeeze being placed on potential customers.

At the Mortgage Bankers Association's recent conference in Boston, both the chairman and the president of the group said that making housing more affordable -- for all types of buyers -- is a top priority.

MBA chair Rodrigo Lopez complained that although "the economy has regained its footing," homeownership remains "at its lowest levels in 50 years."

Lopez, who is an executive with a commercial mortgage lender, promised that affordable housing and access to credit will be among his first priorities during his year at the MBA helm.

The affordability squeeze extends to rentals as well. "Although we are constructing nearly 400,000 new rental units per year, only a small subset of these units will be affordable to lower-income households," Lopez said. "The combination of stagnant incomes and rising rents has resulted in an almost 40 percent increase in renter households who spend more than one-third of their incomes on housing. For some, rent approaches nearly half of their incomes -- an unacceptable statistic under any circumstance."

The squeeze is greatest on low-income, working-class families. But Lopez thinks the mortgage business could walk that tightrope between extending more credit and doing risky lending.

"We have an opportunity to improve access to credit, being mindful of the need to balance new regulations with innovation and responsible adjustments to the housing finance system," he told the meeting.

David Stevens, the MBA president and top staffer, pointed to "the millennial gap" as the perfect illustration of housing unaffordability.

"Homeownership rates among Americans between 18 and 35 are only 34 percent, or just over half the national rate," he pointed out. "But it's more than the fact that they're not buying. It's that they're not renting, either."

According to Pew Research, one in three 18- to 34-year-olds still lives with their parents. This marks the first time since 1880 that more people in that age cohort live with Mom and Dad than elsewhere.

Another telling statistic: According to the Institute for Research on Poverty at the University of Wisconsin-Madison, over the last 20 years, the percentage of Americans dedicating at least half their income to housing has risen from 42 percent to 52 percent. Over 1 million families now put more than 70 percent of their incomes toward rent and keeping the lights on.

"Whether the reason for the delay (in buying) is tight credit, student loan debt, the lack of affordable housing stock, average wages for young people, or just that millennials are taking their time before making big decisions like getting married or buying a home, it is causing an unusual and unsustainable rise in rental costs, particularly in urban areas," Stevens said.

"It's not all about the 'sharing economy.' Or that their parents' basement is a good place to hang a Bernie Sanders poster," he said.

Stevens said the MBA can be an effective advocate to negate the effects of the credit squeeze. But, he added, his members are being discouraged from lending to some first-time buyers because they worry a mistake might expose them to the wrath of regulators.

What's causing lender dread? Stevens said it's caused by "overly aggressive, and sometimes inappropriate, enforcement actions by some key government agencies." He notes that the regulatory framework is too often redundant -- "state regulations piled on top of federal regulations, piled on top of international rules, often conflicting with each other."

"No wonder (lenders) have no choice but (to take) the most conservative lending posture in order to meet the lowest common regulatory denominator," he said.

Steven called on MBA members, which include banks, mortgage companies and other financial institutions, to "create and promote affordable housing through incentives like the mortgage interest deduction, down payment savings and matching plans, as well as other means."

He also said his commercial members should encourage the financing and building of affordable rental units near offices and transit stops.

-- Freelance writer Mark Fogarty contributed to this report.

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