Mar. 23: Home operating system primer; Agents seeing mixed signals in listings

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. See more

A bit of a setback

 

Existing Home Sales -7.1% in Feb.  After increasing to the highest annual rate in six months, existing-home sales tumbled in February amidst unshakably low supply levels and steadfast price growth in several sections of the country, according to the National Association of Realtors®. Led by the Northeast and Midwest, all four major regions experienced sales declines in February.  Lawrence Yun, NAR chief economist, says existing sales disappointed in February and failed to keep pace with what had been a strong start to the year. “Sales took a considerable step back in most of the country last month, and especially in the Northeast and Midwest,” he said. “The lull in contract signings in January from the large East Coast blizzard, along with the slump in the stock market, may have played a role in February’s lack of closings. However, the main issue continues to be a supply and affordability problem. Finding the right property at an affordable price is burdening many potential buyers.”

 

Bad weather in the Northeast and the Midwest may have played a part. Sales are up 2.2% on a year-over-year basis. Lack of inventory and affordability remain the biggest issues. The median home price increased 4.4% to $210,800, and total inventory is about 4.4 month’s worth. All cash transactions were 25% of sales and investor purchases ticked up to 19%. The share of first time homebuyers slipped to 30% as affordability problems and worries about the economy kept many younger buyers on the sidelines.

 

Given the tight inventory, why aren’t homebuilders aggressively adding supply? Finding affordable land plots and skilled labor appear to be the problem. It is amazing that 10 years after the housing bust, we are still 25% below the long-term average in housing starts. I adjusted housing starts by population, and the graph below gives you an ideal of how much we have underbuilt. We just barely reached the low of the 81-82 recession, which was the nastiest since the Great Depression. What is going on? My guess is that the government is the problem, via zoning laws in some localities, and general Washingtonian regulatory funk tying up the credit markets. Correcting whatever problem is holding back housing is the difference between a tepid, meh economy of 2% growth, and a recovery where we see 3% growth and wage inflation. It would be nice if someone running for office noticed this and said something. Unfortunately, they only acceptable answer these days is that the financial sector isn’t regulated and needs to be sat on more.

 

How are the builders out there feeling?

 

Recently we learned that the NAHB Homebuilder Sentiment Index was unchanged at 58 in March. This is a 9 month low. A shortage of lots and labor continue to be the biggest headaches facing the sector. The builders have been able to drive the top line by raising prices, not by pushing volume. You can see below how the index has tracked versus housing starts. The divergence is as big as it has ever been.

 

Low… low… low…

 

Zillow’s January report reiterates the broken record we have been hearing for months, low inventory is limiting the buying market nationwide. January statistics show supply of homes for sale in the U.S. is 8.6 percent below its level a year ago. Markets in the West tend to favor sellers, while buyers have more negotiating power in the East. National home values rose 4.2 percent to $184,000, and rents rose 2.9 percent to $1,381.

 

The “for sale inventory” in Metro areas, including Houston, Washington, D.C., Atlanta and Pittsburgh where inventory improved last year, the number of homes for sale in each market is significantly below recent peaks in inventory reached when the market bottomed in 2011 and into 2012 according to the data.

 

The lack of homes thereof should signify the need for new construction, and it in fact does. However, optimal land and lot space is limited in the majority of states, particularly within a reasonable distance from main thoroughfares. As we have pointed out recently, available lots, known as “C and D” properties, are less desirable for starter homes. Understandably, builders are hesitant to break ground on these riskier properties. Also, costs of building supplies are continuing to increase and land, well, it isn’t cheap.

 

Housing starts reached a three-month low in January, according to BloombergBusiness. That would indicate that newly built homes will not be a significant benefit for buyers in coming months. And a restricted supply of homes for sale will mean increased competition for those homes that are available, potentially leading to bidding wars that can price out entry-level or first-time buyers.

 

The locations of buying and selling strengths are dispersed throughout different markets. According to Zillow’s latest Buyer/Seller analysis, markets that benefit sellers are mostly grouped in the West, where buyers are more likely to face bidding wars. Buyers will find themselves with more bargaining power in the East, in markets like Philadelphia and Baltimore.

 

Although it seems as if we are currently living in a sellers-market with home prices increasing exponentially, the presumed value and actual appraised value are still disproportionate albeit slowly coming more in line with each other. Sellers definitely have selling power currently but they in turn need to live somewhere as well right?

 

As far as potential buyers go, with the inventory so depleted and lender guidelines still extremely conservative and tight, it is more important than ever for your buyers to prequalify for a loan. Proof in hand of ability to purchase could be a golden ticket as the friction of bidding wars continue to heat up.

 

Art is the word:

 

Do you remember when a new home irritant was whether or not your dryers “pig tail” was the correct one? As smart homes become more common and more home items become Internet-accessible, naturally people start adding to their technology. Great advances in technology cater to convenience, allowing us to save money and time and lead more comfortable lives. But what happens when your technology is not compatible with your smart homes? Unfortunately, operating systems are not built to be interchangeable.

If you’re completely an Apple person, then sticking with HomeKit makes sense. Control items ranging from the lights to plugs to security devices through the Siri interface. But the list of compatible partners is short, even with the approved network bridge devices available. Bridges are additional devices that allow two different networks to talk to one another, but their scope is limited. The SmartThings system appears to be compatible with the most devices and the most partners. Thermostats, light dimmers, light bulbs, security cameras, and wireless speakers are just some of the items that can take orders from SmartThings, and they’re made by partners ranging from LG to Honeywell to Kwikset to Yale.

 

Lowe’s Home Improvement store has its own technology for connecting your smart devices, and of course sells those devices in its stores. One of the great things about “Iris” is that there are start-up kits you can purchase to get your home online quickly and easily. Choose from a home security kit or one that focuses on home comfort. Iris offers both a free plan and a paid plan that is much more connected with the app to control the system available from iTunes or Google Play. More devices are becoming compatible with the original connected thermostat, Nest. Through its “Work with Nest” program, Nest Labs has partnered with Whirlpool, some startup lighting manufacturers, and Jawbone fitness trackers. LG is apparently on board, as well as Xfinity Home and Motorola. Multiple software systems are available to control your connected items. As Internet compatible homes become the norm, as you’re checking your dryer connection, be sure to build a home network that allows all your devices to work together as well.

 

 

Charley, a new retiree-greeter at Wall-Mart, just couldn’t seem to get to work on time. Every day he was 5, 10, 15 minutes late. But he was a good worker, really tidy, clean-shaven, sharp minded and a real credit to the company and obviously demonstrating their “Older Person Friendly” policies.

One day the boss called him into the office for a talk.

“Charlie, I have to tell you, I like your work ethic, you do a bang up job, but your being late so often is quite bothersome.”

“Yes, I know boss, and I am working on it.”

”Well good, you are a team player. That’s what I like to hear. It’s odd though, you coming in late.

I know you’re retired from the Armed Forces. What did they say if you came in late there?”

”They said, “Good morning Admiral, can I get your coffee, sir?”’

 

 

Rob

 

(Copyright 2016 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman. To subscribe please visit www.knowledgeforrealestateagents.com.)