By Wendy Cole, Managing Editor, REALTOR® Magazine
I just returned from ten days in Cuba. It was a personal trip that offered a fascinating glimpse into one of the country’s great conundrums: how to balance people’s desire for greater economic freedom without compromising the country’s deeply-held socialist principles. My visit, as part of a group, was enabled by the “people-to-people” license program restarted last fall by the Obama Administration. (Such visits to the island-nation are designed to foster meaningful cultural exchange between U.S. citizens and Cubans. They were initiated during the Clinton years and suspended while Bush was in the White House.)
I was particularly intrigued to see how Cuba’s new property law that allows citizens and permanent residents to buy and sell real estate was playing out. Ushered in with much fanfare in November, this market-oriented reform is a major shift from a half-century of socialist, state-run housing policies.
What’s evident wherever you go in the country (and we traveled to five cities): The housing stock is aging and badly decaying. The 50-year trade embargo with the United States and the loss of the Soviet safety net in 1991 mean Cubans must make do with what they have or can make, notwithstanding the contributions from the few countries they maintain economic ties with. (Plywood and light bulbs are sorely needed, for example.) Still, the beauty of the neo-gothic, colonial architecture still comes through in many places, along with the peeling paint and crumbling walls.
Our personable and knowledgeable guide, Mirelys Gonzalez, is a typical Cuban home owner. She lives with her husband and five-year-old daughter in a two-bedroom flat, constructed on top of the Havana home she grew up in. The extreme housing shortage means that multi-generational living arrangements are quite common. It also means that divorcing couples are more apt to erect a wall within the home they have shared and continue to occupy the same property long after the marriage has ended. The reason for all this togetherness is that no one can be assured of finding a new affordable place to live. Continue reading »
NAR Chief Economist Lawrence Yun told Nightly Business Report anchor Suzanne Pratt yesterday that the association’s rebenchmarking of existing-home sales (EHS) data, which it released yesterday, only affects the number of home sales as tracked at the national level and has no impact on the number of sales tracked at the local level and no impact on the issue consumers care the most about: the value of their home.
Yun says the association’s method of tabulating sales nationally is based on the number of sales recorded by local MLSs and then run through a calculation that adjusts for the percentage of for-sale-by-owner (FSBO) transactions and other variables. Starting in about 2007, the number of FSBOs dropped significantly, as home owners that would have otherwise tried to sell their house on their own turned instead to real estate agents to help them.
Those additional sales were captured by the local MLSs but should not have been counted by NAR, because its tally had already factored in a certain percentage of FSBO transactions.
“What happened during the downturn was that the for-sale-by-owner market got crushed,” he said.
Yun said he expects both sales and prices to improve in 2012, and nothing in the rebenchmarking has any impact on either of those. “We are beginning to see an underlying trend where buyers are coming into the market and correspondingly inventory levels are falling, and inventory levels need to fall before prices can stablize,” he said.
The clip above excerpts about two minutes of the Yun interview with Pratt. The full interview, which runs about four minutes, is on the Nightly Business Report website.
The impact of today’s tough housing market will be felt in the years ahead as fewer children from middle-class households get on the ladder of economic success by going to college. That’s because for many middle-class households, the ability of their children to go to college, or go to a better college than they otherwise would, is directly linked to the wealth accrued in their home.
That’s the conclusion of a study just released by the Pew Charitable Trusts in which Cornell University researcher Michael Lovenheim looks at data from the 2001-2005 housing boom and finds a direct correlation between higher-education attainment and housing wealth for middle-class families.
“Higher education decisions are highly sensitive to fluctuations in family resources,” says the report, called Housing Wealth and Higher Education: Building a Foundation for Economic Mobility. “The model shows that low- and middle-income students whose families experienced increases in housing wealth just before reaching college age were more likely to attend college, more likely to attend higher-quality universities, and more likely to graduate.”
Unfortunately, there’s a negative flip side to that: “The recent housing bust and resulting decrease in wealth could negatively impact the post-secondary decisions of low- and middle-income families.”
Among the findings:
- For every $10,000 of home equity gains, the likelihood of enrolling in college increases by 6 percentage points among families with incomes below $70,000.
- The wealth generated by rising home values is estimated to increase college enrollment by 24 percent among low- and middle-income families.
- Increased housing wealth raises the likelihood of college graduation by 9 percent, lifting it to 32 percent.
When NAR releases its existing-home sales (EHS) numbers next week for the month of November, the figures will reflect what’s known as a rebenchmarking. This is an adjustment that researchers do periodically to help ensure the continued accuracy of their data sets. The federal government does it with its data sets, including its all-important calculation of the U.S. gross domestic product (GDP). Research entities do it with their data sets. And NAR has been doing it with its EHS numbers since it launched that data series in the late 1960s.
With this rebenchmarking, NAR is using a U.S. Census survey called the American Community Survey to calculate the number of annual home sales and create a new benchmark, or baseline, for tracking increases and decreases in existing-home sales. (It doesn’t just use MLS data because that data only captures home sales listed through the MLS, which is most but not all sales.) It then adjusts its baseline based on a number of assumptions, including the portion of sales that are for-sale-by-owner (FSBO) transactions.
Against this new benchmark it calculates monthly updates using MLS data. Thus, if sales go up 8 percent in the sample of MLS data, then NAR increases the sales against the American Community Survey benchmark by 8 percent.
This is the same process NAR used the last time it rebenchmarked its EHS data, about 10 years ago, although for that earlier rebenchmarking it didn’t use the American Community Survey; it used data from the decennial census long form. NAR used the long form because it provides detailed information from which NAR can base accurate home-sale estimates, and it would have used that form again this time but the U.S. Census Bureau stopped using the long form after the 2000 decennial census.
For consumers, the most important thing to know is the rebenchmarking has no impact on home price data. The changes only impact the number of sales. Nor is there any impact on local MLS home-sale figures. The only change is to the reporting of home sales at the national level.
In the video above, NAR Chief Economist Lawrence Yun talks with REALTOR® Magazine Editor in Chief Stacey Moncrieff about the why and the how of the rebenchmarking process. You can also learn more in a detailed Q&A he prepared.
Other resources on this topic:
What’s happening in commercial real estate is far from a recovery but all of the major sectors are nevertheless seeing improvement, particularly multifamily housing, which has been benefitting from tough times in the home ownership market. Rents are rising, vacancies are dropping, and more improvement is expected next year.
Industrial and office properties are seeing improvement, too, but both still have a ways to go before what’s happening can be called a robust recovery. Retail is struggling the most. That’s not surprising given the retrenching we’ve been seeing among consumers, although that’s changed a little so far this holiday season with better-than-expected retail sales.
In any case, there’s reason for optimism going into 2012. Despite what’s happening in Europe, the U.S. remians on a path to recovery, albeit at a slow pace. In fact, the U.S., despite its exposure to Europe’s problems, stands to benefit somewhat in the short term as global investors look to the U.S. for stability while the European market works our its debt issues. Of course, long-term, the European problem is a global problem, so the U.S. benefits most if the European Union finds a way to head off defaults among its struggling member countries.
To learn what we can expect next year in commercial real estate, we sat down with NAR Chief Economist Lawrence Yun during the 2011 REALTORS® Confernce & Expo a few weeks ago. Excerpts from the interview are in the video above.
We know you’re having a hard time with appraisals today. We hear from sales associates and brokers regularly that they’re seeing transactions collapse because the appraisal comes in well below the price agreed to by the buyer and the seller.
Having a value come in at something other than what was hoped for is one thing, but that’s not what practitioners say is the problem. The problem is that valuations are systemically coming in at questionable values because so many appraisers lack experience and famliarity with the market and they’re overly hurried to meet required turn-around times set by the lender or appraisal managememt company (AMC).
On top of that, many appraisers insist the practitioner can’t provide them information or even talk to them about the property.
Much of what’s happening with appraisals can be traced back to the controversial and all-too-familiar Home Valuation Code of Conduct (HVCC), which is no longer around but whose main intent was made part of the big Wall Street reform law that was enacted close to two years ago.
Although the history of this problem is familiar, how to deal with it remains a thorn in the side of the industry. What do you do when you have a problematic appraisal?
To provide some help with this question, we’re hosting a webinar in a few weeks with Anna Ruotolo of RPM Mortgage in Walnut Creek, Calif., who’s given this subject a lot of thought and has well-grounded advice on how to work with appraisers. She’s going to use the webinar to expand on ideas about meeting with appraisers when they arrive at the property, providing them information they might not know about, and documenting dscrepencies with the assessor’s valuation.
She’s also going to talk about questions you should ask appraisers before they get to work, like, “How far is your office from here?” “Do you have access to local MLS data?” “Are you familiar with the area?” “How frequently are you in the area?”
There’s also the matter of what to do if you genuinely believe the appraisal is off the mark. Who’s the best person to call?
The webinar lasts an hour and is free. It takes place Thursday, Jan. 12, at 3 p.m. Eastern Time. If you register but can’t make it, you can watch it when you have time. We’ll be sending you a link with the archived version after the live webinar concludes, so whenever you have time you can click on the link and watch it.
Here’s a link to learn more and register: Productive Engagement with Appraisers
NAR President Moe Veissi has made a forceful case before a key congressional committee to protect FHA from potentially destabilizing changes to the agency’s main insurance fund. Some lawmakers have been talking about curbing the agency as a step toward reducing the federal government’s role in home ownership and also to shore up its reserves.
The agency maintains two reserves for its housing insurance program. One requires reserves for 30 years against loan losses, and another is a smaller reserve above and beyond the main reserve. The smaller reserve has dropped below a statutory limit.
Testifying before the House Financial Services Committee, Veissi said the housing market is showing signs of recovery, including in some areas that were among the hardest hit in the downturn. Should Congress make changes to FHA now, he said, while it’s one of the main home mortgage vehicles for households, the recovery could very well be derailed, and, with it, the struggling broader economy.
“If you diminish America’s opportunity, in any capacity, especially today when we’re just beginning to remove ourselves from one of the most horrendous housing situations the country has ever seen, then you do that at the peril of destabilizing the recovery,” he said.