Tag Archives: housing market

Terrible real estate photos or providing helpful (and ugly) information about the home?

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I’ve highlighted some cases of bad photos of a home for sale (like here) but here is a Tumblr with a collection of bad photos: terriblerealestateagentphotos.com.

Some of these photos are clearly poorly done. Whether taken from a bad angle or including bad staging of furniture (does photoshopped furniture count?) or way too much clutter or weird clutter, this can detract from showing the home at its best. The photos also suggest plenty of people are unwilling to change their home much to appeal to potential buyers. The seller and their real estate agent should want to put the best image forward so the new buyer can imagine themselves in that space.

However, there are other photos here that don’t seem to be as egregious. The March 4, 2014 picture of a green pool. It is not inviting but wouldn’t it be better the potential buyer know that the home has a pool? While the pool should be clean, the other option is to list the home with an in-ground pool and then never show a picture. Or the February 27, 2014 picture of an unfinished hallway. Again, isn’t it better for the buyer to see the space at all rather than have it hidden? I find myself frustrated when I can’t find a picture of one of the home’s features (this seems to happen a lot with basements). Without a picture, what are they hiding? If the person isn’t going to do much to make the home look more presentable, I would still rather see that and have more information.

I’d love to see some data on how hiding some of a home’s worse spots from online photos might help boost in-home visits or eventual home sales.

Super rich investing billions in office blocks, hotels

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The global super rich are spending money beyond the dreams of average people on certain kinds of real estate:

The world’s super rich are turning from luxury mansions to hotels and office blocks, as they hunt for bigger property deals to preserve their growing fortunes which hit a combined $20 trillion in 2013, data showed on Wednesday.

The move into commercial property comes as wealth levels rebound after the financial crisis and home values in London and Monaco soar, prompting the rich to look for riskier investments that offer higher returns than gold or bonds.

Wealthy individuals spent $11.2 billion on hotels, offices, warehouses and shops globally in 2013, up from $7 billion in 2012 and three times the amount spent in 2008 after the crash, data compiled for Reuters by research group Real Capital Analytics (RCA) showed.

Such high net worth investors, most of whom come from Asia or the Middle East and made their fortunes in manufacturing among other sectors, often already own homes in cities such as London and Hong Kong, said Jeremy Waters, head of international investment at UK-based property consultants Knight Frank.

This is quite a flow of money. It is too bad the article doesn’t talk about the ROI on these office and hotel properties; what kind of investment can be expected in today’s economy?

I wonder if this means there just aren’t many luxury homes left in the world for the super rich. If so, this could mean builders will look for even bigger and more luxurious homes in the near future.

Americans had biggest new houses ever in 2013

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The National Association of Home Builders suggests Census data for 2013 shows Americans had the biggest new homes ever at over 2,600 square feet:

Preliminary data provided to NAHB by the Census Bureau on the characteristics of homes started in 2013 show the trend toward larger homes continued unabated last year, as did the share of new homes with 4+ bedrooms, 3+ full baths, 2-stories, or 3-car garages.  The average size of new homes started in 2013 was 2,679 square feet, about 150 square feet larger than in 2012 and the fourth consecutive annual increase since bottoming out at 2,362 square feet in 2009.

This is amazing. Housing, particularly bigger homes and McMansions, was fingered as a key reason the economy crashed in the late 2000s as too many residents and banks conspired to produce untenable mortgages. The housing market has struggled since. Yet, several years later, Americans now have even bigger than ever new houses. Why?

To get an answer, just take a look at WHO is buying new homes?  The typical new home buyer in recent years has been someone with strong credit scores and high levels of income.  To the first point, the graph below shows how the average credit rating of all US consumers has remained rather flat over the last few years (blue line), while the average credit rating of mortgage borrowers (red line) took a dramatic jump after 2007.  By 2013, the gap between the two measures was 58 points, compared to 33 points in the early 2000s.

To the second point, the graph below shows the rising trend in new home buyers’ income in recent years.  In 2005, the median income of new home buyers was $91,768.  By 2011, it had increased by more than 17% to $107,607.  It is not too surprising, therefore, to see home size and features continuing to trend upward, given that those buying new homes are precisely the kind of buyers who generally purchase large, feature-loaded homes.

In other words, the bifurcated housing market continues. Those with resources, more income and higher credit scores, can take advantage of these new homes builders are constructing because there is more profit to be made. In the meantime, the construction of smaller homes, those that might be more affordable or reasonable given the moral outrage over big homes in the 2000s, continues to lag behind. If the housing market is going, it is going on the strength of more expensive homes.

We need another piece of data to make this post from the NAHB complete: how do the housing starts in 2013 compare to those for each year since the early 2000s?

In first half of 2013, roughly 20% of Chicago area home purchases by institutional investors

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A good portion of the homebuying activity in the Chicago region during the first half of 2013 was driven by institutional investors:

Chicago home prices climbed 11 percent in November from a year earlier, the biggest jump in almost a quarter century, according to S&P/Case-Shiller data. While gains are slowing across the country, the Windy City was one of nine areas in the group’s 20-city index to show a year-over-year increase in housing values…

Institutional investors, led by companies such as Blackstone’s Invitation Homes and American Homes 4 Rent (AMH), have bought as many as 200,000 U.S. properties in the last two years, taking advantage of real estate prices that fell as much as a third from the 2006 peak, and rising demand for rentals among Americans who lost their houses in the foreclosure crisis. Their reach has stretched from the hard-hit regions of California to small Ohio towns to the sprawling suburbs of Atlanta…

In Chicago, investors accounted for about 20 percent of purchases in the first half of last year, according to Geoff Smith, executive director of the Institute for Housing Studies at DePaul University in Chicago.

Like the portfolios of other investors, Invitation Homes’ Chicago-area holdings are mostly filled with properties in suburbs such as Barrington and Oak Park. The smattering of houses they own in the city itself is evidence that the rebound is starting to broaden. Even in some neighborhoods where prices fell more than the rest of Chicago during the foreclosure crisis, values are climbing.

The average homeowner may not pay much attention to this because at least their home values are increasing again. The Chicago area housing market has been sluggish and local media has made much of the uptick in home prices. Additionally, these investors are filling a void in the market.

But, this could lead to more questions in the long run.

1. What will these institutional investors do with these properties years down the road?

2. What happens when the Chicago market is no longer profitable for these institutional investors?

3. Does this mean that the average homebuyer has a better chance to buy a home or does this simply concentrate buying power in the hands of the already wealthy? In other words, this may not provide more affordable housing.

4. Since communities, particularly suburbs, tend to think homeowners are better community members than renters, is it a problem when so many homes are purchased with the intention of having more renters?

Interesting stat: 42.1% of December homes purchased with cash

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As the American housing market tries to regain its mojo, a lot of cash exchanged hands in the purchase of homes in December 2013:

In December, 42.1 percent of all residential property sales in the U.S. were paid for in cash, according to RealtyTrac, a housing data firm. Several circumstances drove this eye-catching figure, including higher mortgage rates and tougher lending standards.

Then there are the institutional investors, those newish guys on the block who have been bringing cash to the table to buy literally hundreds of thousands of single-family homes that they will turn into rentals.

Since the average American doesn’t have the cash to make this sort of transaction, it seems like this many cash purchases would skew the market. It would be interesting to then see: (1) where cash purchases are more common and (2) the kinds of real estate properties are most commonly purchased in cash. If I had to guess the answers to these two, I would think coastal cities and plenty of high-rise condos.

Tight American rental market

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Even though the housing market may be showing some good signs, the rental market is still tight:

Reis’ fourth-quarter data showed that apartment vacancies around the country continue to tighten. They’re at 4.1 percent. For renters, it’s only getting tougher and tougher…

New Haven, Conn., moved into the No. 1 spot with the lowest vacancy rate, 2.2 percent. It was followed by San Diego, San Jose, New York City and Buffalo, all of which had vacancy rates of 2.7 percent or tighter.

Elsewhere around the country, the middle of the pack still had tight markets: Chicago (ranked 30th) and Baltimore (33rd) were among those that had 3.7 percent vacancies; Los Angeles (18th) had 3.1 percent; Dallas and Orlando (58th and 60th, respectively) had 4.9 percent vacancies.

Shouldn’t this lead to the construction of more units?

Though we’re at a 4 percent vacancy rate — incredibly low, by historical standards — construction is just at its historical average.

But we’re just now seeing an increasing ramp-up of construction activity. In the third quarter, we saw about 42,000 units completed, the most that we’ve seen on a quarterly basis since 2003.

Rental demand may be high – and some are predicting long terms upticks in renting due to this economic crisis which will scare people away from owning – but it sounds like the economy is still not strong enough to support a lot of new construction. What will it take to start providing significantly more rental units?

Update on increasing number of teardowns in Los Angeles

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The number of teardowns isn’t close to the peak of 2006 but there is increasing teardown activity in Los Angeles and this is drawing concern:

The rebounding housing market has sparked the demolitions. In November, the median price for a home in Southern California was $385,000, up nearly 20% compared with the same month a year earlier, according to research firm DataQuick. Builders such as Leonard are constructing houses “on spec,” confident that they’ll find buyers…

In the city of Los Angeles last year, builders received approval to raze 1,227 houses and duplexes from January through mid-December, according to Department of Building and Safety records. That’s 29% higher than in all of 2012, though still well off the pace of more than 3,000 in 2006, during the housing bubble…

Carlton and his neighbors want the city to take action. They are pushing Los Angeles to tighten the so-called anti-mansionization ordinance passed in 2008. Critics say it has failed to stop the construction of outsized homes that rob views, block sunlight and alter the character of established neighborhoods.

In October, the Los Angeles City Council imposed additional size limits on new houses in the Beverly Grove neighborhood. But the changes don’t mandate a particular style…

Tear-downs have long stirred controversy, especially in beach communities — once-funky towns that have seen property values skyrocket over the years amid an influx of wealthy residents, chic boutiques and cafes. Many who grew up in the area have moved out, unable to afford a house with an ocean breeze. Many who did own homes couldn’t resist cashing in.

I don’t think there is an easy answer to this, particularly in Los Angeles. Because the housing market is currently tight, teardown opportunities are attractive to builders. Additionally, there is enough money floating around for people to want to purchase expensive new homes. This, of course, alters existing neighborhoods in a way that tends to irritate neighbors who think the new homes are all about the individual owner and not about fitting in with the neighborhood. I wonder how many residents who oppose teardowns would prefer no new construction at all, perhaps going for historic preservation rather than tighter mansionization guidelines.

I’m not sure why this strikes me right now but it does seem a bit odd that California, the home of American dreams (weather, Hollywood, sprawl leading to single-family homes and lots of driving), seems to be home to so many bitter housing and land disputes. Perhaps the stakes are higher – people’s dreams are on the line – so the fights get more intense. Or places like Los Angeles and San Francisco are simply too desirable and there isn’t enough housing to go around. Or all of this helps lay bare the American tendency to want to be the last one in to enjoy the neighborhood before slamming the gate behind them to preserve the features forever.

Increasing home sizes on Chicago’s north shore due to little lower end construction?

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A North Shore real estate agent finds that new homes of 2013 in North Shore suburbs are bigger than the new homes of 2003:

She continued to say that buyers still basically want everything to be large:  the master bedroom, the garage, mud room, laundry, kitchen, and outdoor spaces.  I decided to do a little checking on newly-built homes in Winnetka, Wilmette, Kenilworth, Glencoe, and Northfield.

I compared all new homes built in 2003 versus those built in 2013.  Those built ten years ago averaged 4,753 sq. ft and those built last year averaged 5,784.  That is an 18% increase in overall home size.  McMansions rule.

I went a little further and checked living room sizes.  They seem to be shrinking every time I walk into a new home and surely those numbers would be down.  Nope.  The average living room was 187 sq. ft in 2003 and 236 sq. ft in 2013.  That’s an increase of 21% – so much for the long heralded extinction of  living room space.

As for the overall  square footage of North Shore houses, the 5,784 is just an average.  The largest built home had 11,000 square feet and the smallest was 2,300.  So there is still plenty of variety if you are looking for new construction in Winnetka and other North Shore villages.

My guess is that while there is still some range of housing in these suburbs (though 2,300 square feet is not far below the average new home size of around 2,500 square feet), there was less range in 2003 versus 2013. In other words, the lower ends of the housing market haven’t recovered while large homes are still being built. Does this mean McMansions rule? Maybe – if there are enough of them in a concentrated area to be noticeable. But, McMansions can’t be attained by as many people today and they are less in number overall.

Attempting to decrease the average age of American real estate agents

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Efforts are underway to attract younger Americans to become real estate agents:

The National Association of Realtors says the median age of its members has inched up to 57, its highest level in 15 years. Agents 40 and younger were just 11 percent of its membership in 2013, down from 20 percent in 2003.

With this in mind, Warren Buffett’s real estate franchise unit, Berkshire Hathaway HomeServices, recently formed a task force called the REthink Council to explore the topic. Ten agents who are 35 and younger from its offices around the country will gather this month to brainstorm and come up with ways to make the profession more attractive to a younger demographic.

One member of the task force briefly explains what he thinks is happening:

At the time, though, it seemed pretty obvious to me why there weren’t more people my age who were doing this: It takes a lot to get started in real estate (before income starts to flow). There’s a lot of fear and apprehension — what if I don’t make it, what if it takes a while to make money, how am I going to pay my bills?

It was obvious to me then and it’s obvious to me now that there’s a major lack of businesspeople jumping in to real estate. We’re going to have one generation getting out and the next generation is not filling the hole that’s going to be there.

All of this could be very interesting given the projected trends that younger Americans still generally want their own spaces as adults but are more frequently living alone and often want to live in denser areas that offer more cultural and entertainment amenities. If a majority of real estate agents are older, can they still connect with younger buyers who want different things?

Also, this younger agent makes a real estate job sound quite entrepreneurial: you have to take risks, trust your selling abilities, and work hard to drum up business. I’m just speculating but I wonder if this is indicative of declining interest in individual entrepreneurialism. It is one thing to want to go into business with a firm but another to strike out more on one’s own as an agent.

Finally, what are the figures for how much a new real estate agent could expect to make within 1, 5, 10 years? With the glut of articles these days about the income different jobs can expect, how many new real estate agents succeed? Here is some recent info:

Only 2% of Realtors, a trademarked term used by the National Association of Realtors to which the majority of real-estate agents belong, earn more than $250,000 a year. The median annual income nationwide was $43,500 in 2012, up from $34,900 in 2011. The average commission rate for 2013 is projected to be 5.2% of total sale price, according to Real Trends, a Castle Pines, Colo.-based research firm…

Most hopeful agents need to save up before they begin. Studying for the broker’s license exam, which covers both national and state laws and regulation, can take weeks, says Bopa Touch, administrator at the Rockwell Institute, a real-estate training school in Bellevue, Wash. In 2013, the company almost doubled the number of students taking its three-week, $489 broker’s license course, compared with 2012, says Ms. Touch. Between registration fees and desk fees—an amount paid to the brokerage firm to cover operating expenses—most new agents spend $2,000 or more to get started, which doesn’t include months of living expenses necessary before commission checks start coming in. “They don’t realize how much money they need to start,” Ms. Touch says.

The median is not very lucrative…

Is the US housing stock too old?

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A recent article discusses an aging American housing stock:

According to a recent survey from research firm RealtyTrac, 71 percent of U.S. single-family homes were built before 1990. In some states, particularly in the Northeast, pre-1990 houses make up 80 percent of recent sales.

Experts say the new-home drought is mainly due to a hangover from the real estate bust. Homebuilding, which practically came to a halt five years ago, has been slow to restart as big developers have remained skittish. New-home construction this year is still 40 percent below normal long-term levels, says Jed Kolko, chief economist at real estate website Trulia.com.

Furthermore, builders have focused on multifamily homes, and individual buyers have not had access to all the new single-family houses coming to market.

“Wall Street-backed money has scooped up newer homes to use as rental properties,” said Daren Blomquist, vice president of RealtyTrac. “That’s pushed the already-low new-home inventory down to record levels.”

The article seems to suggest the housing stock is too old but then doesn’t provide much evidence that this is the case. Based on the figures presented here, it sounds like 29% of American homes have been built since 1990. Is this too high or too low? Here are a few ways we could approach this argument:

1. There is a certain percentage of the housing stock that should be from the last two decades in a healthy economy or housing market and the US has not met this.

2. Perhaps demand for newer homes has increased. It could be that more homebuyers want homes that require little work or homes with certain features. Thus, this is less about having a set amount of newer homes and rather about responding to what customers want. Theoretically, if more people wanted older homes, then fewer new homes would need to be built.

3. Citing these figures is more of an introduction for then talking about how homebuyers should approach purchasing an older home (As the rest of the article does).

4. The percent of new housing stock will differ quite a bit by metropolitan area and region. While the Sunbelt has been growing faster, Midwestern and Northeastern regions have been growing more slowly.

All together, the quick claim here that the American housing stock is too old needs some more explaining.