Homeownership at its lowest rate since 1995

From Bloomberg news comes the story of home ownership at its lowest rate in 18 years:

The share of Americans who own their homes was 65 percent in the first quarter, down from 65.4 percent a year earlier and the lowest level since the third quarter of 1995, the Census Bureau reported today. The vacancy rate for rented homes dropped to 8.6 percent from 8.8 percent a year earlier, while vacancies for owner-occupied houses fell to 2.1 percent from 2.2 percent.

This reduction corresponds with increasing investment by landlords:

“Credit conditions are still tight and investors are taking advantage, in the interim, of favorable yields,” Paul Diggle, property economist for Capital Economics in London, said in a telephone interview. “They’re making hay while the sun shines.”
Diggle said the homeownership rate will continue to fall throughout the year. It peaked at 69.2 percent in June 2004, spurred by easy credit.

Americans raiding 401(k) accounts

CBS-3 in Philadelphia reports on a new study that shows increasing numbers of Americans drawing on their 401(k) accounts in order to pay routine bills and expenses.

While there is no direct real estate aspect to this story, I link to it because there is a definite real estate implication for the immediate future.  Increasing raiding of retirement accounts (despite penalties and tax consequences) implies severe lack of liquidity on the part of the individuals doing the raiding.  Unless lending standards are relaxed to reflect pre-2008 requirements, this lack of liquidity will tend to dampen the market for residential real estate.

There are many factors that determine trends for real estate sales and values, but consumer liquidity will definitely affect such trends going forward.

Chinese buyers purchasing increasing share of U.S. residential real estate

Foreign buyers now purchase an ever larger share of U.S. residential real estate, with Chinese buyers accounting for a growing portion of that share:

According to the National Association of Realtors, non-American buyers accounted for $82 billion in home sales last year. More than $7 billion of that is by the Chinese, who are now the second largest foreign home purchasers after Canadians. They're buying high-end, multimillion-dollar homes from California to New York and paying cash.

Mortgage interest deduction at risk in budget negotiations.

Nothing has been decided yet, but the New York Times reports that the mortgage interest deduction may be subject to negotiation in the upcoming budget talks in Washington. 

Any limitation on the mortgage interest deduction would place further downward pressure on the real estate market, resulting in increased difficulty selling underwater homes and further losses for lending institutions.
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Update - the idea of limiting or eliminating the mortgage interest deduction appears to be a bargaining chip or ploy to help the administration get what it really wants - higher income tax rates. 

NAR reports that housing sales overcounted since 2007.

A disturbing item from CNBC and the NAR indicates that housing sales have been overcounted for the past four years:

Data on sales of previously owned U.S. homes from 2007 through October this year will be revised down next week because of double counting, indicating a much weaker housing market than previously thought.

The National Association of Realtors said a benchmarking exercise had revealed that some properties were listed more than once, and in some instances, new home sales were also captured.

This information has implications for our understanding of inflation data over the past few years. It would appear that the collapse of the housing bubble was more severe than we originally believed, despite massive federal government spending to prop up the market.

Mortgage applications decline for fourth week in a row in July.

Nasdaq.com reports that mortgage applications declined last week for the fourth straight week despite lower interest rates:

The Mortgage Bankers Association's seasonally adjusted index of mortgage application activity fell 5.1 percent in the week ended July 8, nearly identical to the 5.2 percent drop recorded the week before.

Refinancing, which makes up more than 65 percent of mortgage activity, slipped 6.2 percent. The MBA's measure of new home purchase applications edged down 2.6 percent.

This decline is not necessarily uniform throughout the entire country.

Real estate market decline to continue in 2011

Real estate sales are expected to continue to decline in 2011 throughout the United States:

Home prices are dropping in the nation's largest cities and are expected to keep falling next year, as fewer people purchase homes and millions of foreclosures come on to the market.

H/T AP

The AP article attributes part of the downward pressure to foreclosures:

Millions of foreclosures are forcing home prices down. Many people are holding off on making purchases because they fear the market hasn't bottomed out, analysts say.

Foreclosures likely will remain high for the next two years, said Mark Zandi, chief economist at Moody's Analytics.

Despite the downward trend, mortgage rates are on the rise:

And more people might be less inclined to buy now that mortgage rates are rising again. In the last month, rates on fixed mortgages have surged more than a half-point to near 5 percent.

Record low mortgage rates and sales; National Association of Realtors data.

Mortgage rates are at an all time low, but there are few borrowers even at these low rates. This report supports prior data from the National Association of Realtors that reveals a record drop in sales contracts in May.

These conditions will prevail until prices are allowed to fall (or another (even larger) massive round of inflationary stimulus spending takes place, destabilizing our currency much worse than we have already seen).

Previous - glut of available real estate for sale.

June real estate listings and collapsing real estate sales

Real estate listings in Central Pennsylvania are at an all-time high.

I do not subscribe to MLS.com, but Realtor Ann Wright has provided to me figures for the end of June from that multi-list service. According MLS.com, as of June 30, 2010 (the numbers change slightly from day-to-day), there were 5,489 listings in Central Pennsylvania. (This includes, York, Cumberland, Dauphin, Lebanon, Perry, Lancaster and parts of Adams and Juniata counties). This number is higher than at any point since such statistics were compiled.

Of those 5,489 listings, MLS.com reports that only 1,001 are currently the subject of a pending sales agreement.

This large volume of listings places great downward pressure on prices. This information is consistent with recent reports of collapsing sales nationwide and in the northeast region.

Thanks to Ann Wright at Re/Max for her assistance. Anyone with related information or personal experiences are invited to e-mail me.

Ann Wright

Tax credit bubble pops; May housing sales collapse

AP today reports record weakness in the housing market:

Sales of new homes collapsed in May, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer receive government tax credits.

The tax credit caused a temporary bubble in housing prices, during which buyers paid too much for real estate. Recent buyers must now ask themselves if the tax savings outweighed the amount of their overpayment in price.

The price drops were broken down by region. AP reported a 33% drop in the Northeast from April's levels.

Click here for my thoughts on the real estate tax credit in October 2009.

February real estate sales decline; National Association of Realtors; increasing inventory of unsold homes.

The National Association of Realtors has published the latest real estate sales data:

Sales of existing homes fell for a third straight month in February, pushing sales down to the lowest level since last July. There is concern the fragile housing rebound is faltering, making it harder for the overall economy to recover.

The slowdown itself is creating more downward pressure on prices:

Last month, the inventory of unsold homes jumped by 312,000 to 3.59 million, an unusually large increase that pushed the supply of unsold homes to 8.6 months.

Lawrence Yun, chief economist for the Realtors, called that increase "discomforting" and said if it climbs above 10 months supply it could put significant downward pressure on prices.

Previous - 2009 predictions for housing prices.
Competing factors affecting real estate prices.

Record low for home sales in January

From the AP last week:

Sales of new homes plunged to a record low in January, underscoring the formidable challenges facing the housing industry as it tries to recover from the worst slump in decades.

The data was not specific to any states, but the Northeast posted the worst numbers of all regions.

This information is made worse when considered with recent news that 25% of all homes are valued below the mortgage balance.

Avoiding minefields in the purchase of investment real estate.

I previously wrote about hidden landmines in the purchase of investment properties. Unwary buyers often walk into the middle of legal disputes with existing tenants. These landmines can be avoided by obtaining a few simple representations when closing on an investment property.

Many buyers obtain a copy of the leases at settlement, at which time the seller writes the word "assigned" on a corner of the leases. This practice is insufficient.

A buyer must obtain a complete Assignment of Leases at settlement. This assignment must specify the following:

• The identity and unit number of each tenant.


• The monthly rent for each tenant.


• The expiration date for each lease, including a statement as to whether each lease is month-to-month.


• A representation that there are no disputes between the seller and any of the tenants.


• The amount of each tenant's security deposit (which amount should be specifically credited to the buyer).

The parties should include language that the document "survives closing," so the buyer can enforce it later against the seller. This document will be a starting point to discover and avoid future legal disputes with the tenants. If any of this information is inconsistent with the written leases, the buyer can ask questions before settlement is complete.

• If the seller is crediting the buyer a smaller security deposit than is specified in the lease, the buyer might learn at that time that the seller has already used some of the deposit to repair damage caused by the tenant or offset unpaid rent, none of which the seller has previously reported to the buyer.


• If the name of the tenant on the Assignment is different from the name on the lease, the buyer might discover that the original tenant has moved out, leaving a new tenant with only an oral lease.


• If the rental amount listed on the Assignment is different from the amount specified on the lease, the buyer might discover unwritten oral arrangements between the seller and tenants (or at least that the seller has raised the rent since the lease was signed).


• Before signing the Assignment, the seller often "remembers" that one of the tenants hasn't yet paid this month's rent (yet he will expect to be reimbursed for a pro-rated portion of this month's rent since the buyer will undoubtedly collect it soon).

As I wrote, this document is only a starting point. It helps identify issues that the parties can then resolve prior to completion of settlement. There are additional documents for the tenants to sign, particularly in the case of commercial real estate purchases and particularly in cases where the Assignment of Leases has raised red flags.

Seller's Property Disclosure Statement; Pennsylvania's real estate disclosure requirements; seller's refusal to provide disclosure; 68 Pa.C.S.A. 7303;

From April 2005 comes this blogpost about an attorney-seller that refused to provide the required disclosure form until after a buyer presented a written offer:

The following caveat appears in a listing for an Easton (PA) property: "Sellers Disclosure will be disclosed when offers are presented. None online. Investor has not lived in property."

The language quoted above conflicts with 68 Pa.C.S.A. 7303, which requires delivery of the disclosure form to the buyer "prior to the signing of an agreement." The Realtor in that case "had an appointment to show this property on Saturday and requested the disclosure. I was told that the seller would not release the disclosure until he had an offer in hand: "'He is an attorney and he knows the law.'"

The blog post concludes as follows - "We passed on that showing."

While the statute does not say "prior to presentation of an offer," any offer would become a binding agreement upon acceptance by the seller. Following the seller's instructions in the above case could very well create a binding agreement before the buyer ever saw the disclosure form.

The point I am trying to make by quoting this blog post is not merely to point out the disclosure law requiring provision of the disclosure form prior to execution of an agreement, but to point out the proper response by a buyer to a situation like the one presented above. The Realtor's response was correct. She passed on the showing.

Don't bother with sellers that appear to be cutting corners in the disclosure process. Sellers that act secretive are acting that way for a reason. Rather than confront the seller with the statute and try to force a disclosure out of him prior to making an offer, move on to another property.

In many of the cases that come to me regarding real estate fraud and nondisclosure of defects, the sellers had acted suspicously like the seller above. But in the cases that have ended up in court, the buyers had forced the issue rather than walk away prior to making an offer. Don't chase sellers whose behavior indicates that they have something to hide.

Seller's Property Disclosure Statement; Repairs and past conditions

If you are selling real estate, you should be certain to be thorough in completing the Seller's Property Disclosure Statement.

Many sellers believe that if they have fixed a problem, they are safe in answering "no" to certain questions. An example occurs in question 6 (a), where the seller is asked whether he is "aware of any past or present water leakage. . . ." Many sellers answer "no" because they replaced the roof in response to prior leaks and the problem no longer exists. It is a mistake to answer the question this way. This question (as well as others) asks about "past" conditions as well as "present" conditions. Just because you have fixed the problem does not mean you need not disclose the conditions about which the question is asked.

The buyer will eventually find out about past conditions and problems (usually after he moves in to the house and talks with the neighbors). If those problems reappear (or if new problems arise) the buyer will use any inaccuracy in the seller's completion of the form to justify a lawsuit against the seller. Any inaccuracy in the form will play very badly against the seller in court.

Seller's Property Disclosure Statement

A real estate seller is required under Pennsylvania law to disclose to any potential buyer known material defects in the property.

most real estate defects will not be this obvious












The Pennsylvania Association of Realtors (PAR) provides a disclosure form that goes beyond the requirements of Pennsylvania law for disclosure of defects. The basic disclosure requirements are found in the Real Estate Commission's form here at the Pennsylvania Department of State website.

If you are a buyer, you are better off using the PAR form, especially in light of the increased risk of fraud in today's real estate environment.