David Parrish Realtor

While celebrating this Independence Day, it seems appropriate to reflect on what it means; yet, I always find it difficult to write about special events and holidays. It seems that all that needs to be said has been said… that any feeble attempt to contribute more somehow tends to minimize rather than magnify. Yet here I am writing on that day so close to our hearts regardless of race, religion, color, ethnic origins, and yes even politics… the celebration of the birth of a nation… and perhaps more importantly the birth a dream.

James Truslow Adams coined the term “American Dream” in his 1931 book The Epic of America. His American Dream is “that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

For decades that dream has often been epitomized by the dream of homeownership; however, for the past six-to-seven years that form of the American Dream has been brought into serious question. The basis for that re-examination of homeownership was its ability to contribute to increasing equity or wealth for the working class citizen… the common man.

At this juncture, it seems that the equity crisis in homeownership is correcting as the market turns, which is of course welcomed news. However, the contribution of homeownership to realization of the American Dream extends far beyond wealth building.

Homeownership is at the core of the American culture… an expression of our innate desire for freedom. The ideals of our American independence extend beyond the freedom from tyrannical rule or taxation without representation and into our daily pursuit of happiness, which includes such seemingly mundane choices as the color of our houses … inside and out, whether or not we can have a pet and what that non-human companion may be, to put a nail in the wall so that we can display that reminder of the past or to hang that motivating symbol that inspires us toward our chosen future.

It was that connection to the idea of having our own plot of land where we control our destiny that drove those who came before us through the fears of the unknown wilderness toward new horizons… a place to raise our families, to build a tradition and a history that we could pass along to those who follow… a place to build communities, a place to call home.

Can you imagine an America made up of a nation of renters? Would it be the same America?

So as we reflect on this holiday and celebrate the sacrifices of those who came before us to create our ideal of liberty and freedom for all, I am mindful that having a place to call home is among those unnamed treasures that has been won and preserved through the sacrifice of many.

Happy Fourth of July! May all in your home join in the pursuit of happiness… the American Dream.

May the market be with you.

Market Update… Interview with Ebony Hall of ABC 33/40 TV – Talk of Alabama Interview June 19, 2013

Did you miss it…

I started out to write this column about Adding and Maintaining Value; but, while doing so I took a glance at the current interest rates. Wow quite a bump in rates last week!

While the fact that rates will begin a real move up has been predicted by many for quite some time now, the repeated forecasts have become to be treated like “the little boy who cried wolf.” Thus most have been lulled into a feeling that big jumps in rates were off somewhere in the future and that there would be plenty of warning.

Last week’s movement in rates could be a hiccup… But I don’t think so. I think it’s the beginning of a move toward rate normalization, which begs the question… Did you miss it?

While it is easy to become focused on the sales price of homes, for most this is only a portion of the deciding factor when buying a home. If paying cash, you don’t have to contend with what it cost to finance a home… but that is not the way folks normally buy their homes. Most finance their homes and therefore what they can afford is largely influenced by the cost to finance. Ninety days ago the rates for a 30-year mortgage were running around the 3.25% mark today they are over 4% and headed higher… that has a dramatic impact on monthly payments for many or perhaps more importantly how much home they can afford.

Don’t get me wrong… Rates are still unbelievably low. When my father, a WWII Vet, bought his first home in 1953, his VA Loan rate for a 30-year mortgage was 4.25%!

Now is still a good time to buy… But 90 days ago was even better! And I believe that 90 days from now, we’ll be saying the same thing… Still great rates but your payments will be higher, driven by increased interest rates and rising home prices.

It’s really a kind of Good News, Bad News Story… as the economy improves interest rates and prices rise. If you were waiting on the bottom you missed it! But that doesn’t mean you can’t still find a great home at a great price… Just that it will now take longer to find it and you will pay more than you would have if you had acted earlier… The Good News is you’ll pay less now than you will later! Don’t miss it again!

May the market be with you.

Do you remember when… just a few short years ago (three to be exact) the government paid you $8000 to buy a home if you hadn’t owned one in three years? How times have changed!

Today’s headlines: Pending Home Sales Increased to the highest level since April 2010.

No government incentives today! But the market has improved enough to drive sales up to the sales level we were experiencing in those crazy days of the market valley when you got paid to buy a home and all the first –time home buyers were rushing to buy whatever was available to get their $8,000. The good news is that today’s growth is organic growth… truly market driven rather than by those very temporary incentives.

During those same days, all the “experts” were telling you: Don’t buy Real Estate… Real Estate is not coming back… The days of real estate profits are over! Those same experts are now advising to Buy Real Estate! For the past six years the headlines have been filled with attention getting (though not always accurate) headlines.

Here’s another recent headline: Wall Street Is Scooping Up Tons Of Single Family Homes In America or Rally in real estate capital markets and strong housing growth predicted… Business Journal…

There are literal dozens more that I could site. Of course today they are mostly trending in a very different and positive direction. My advice… Avoid the hyperbole of the attention getting headlines…

Look at the facts:

So what does the future look like? Here are what those in the know are saying…

This limited space isn’t sufficient to give you all the facts about the long-term and future performance of real estate… But that’s only about the money side of real estate… Real estate is so much more… it’s home, family, stability, legacy.

Now is a unique opportunity for those who have held back due to fear of the market future for real estate. Real Estate is back! While the absolute lowest prices are history for most markets, prices are still at bargain levels; and interest rates, while no longer at their bottom, are still close to their historic bottoms.

Ignore the headlines… look at the facts…

May the market be with you.

Here we are a full three months and a few days into 2013 and experiencing a Sellers’ Market … some seven years after the commencement of the fall of the Housing Market. For those who watch the numbers, there is no doubt that there has been a dramatic shift in a number of measures. Among those are: Interest Rates, Housing Affordability, Inventory Levels, Changes in Lending Practices/Requirements, Foreclosure Rates, Shadow Inventory and finally the Direction of Housing Prices.

The problem with all of these numbers is understanding what they mean to the reality of both Buyers and Sellers. So rather than going into the high weeds of explaining in detail each of these components again (I have previously done detailed explanation of all these factors in this column), I want to focus on what these collective trends indicate as the near term future (the next 18-24 months) for the real estate market in the Metro Birmingham (Jefferson, Shelby, St Clair County) Market.

Now bear with me, as I go through the description of the near-term future in a rather rat-a-tat-tat, bullet point fashion.

• What is the key factor driving the market change? Demand vs. Supply!
• What’s causing the change in Demand? Life events, foreclosure victims returning to the market place, greater Housing Affordability vs. Higher Rents, improving economic conditions.
• What’s causing the reduction in Supply / Inventory? Reduced number of foreclosures, Investors snapping up inventory to add to their rental portfolios, reduced number of Sellers capable / willing to take the big hit in perceived market value or bringing money to the table when selling their homes.
• What is the result of the change in the Demand vs. Supply Ratio? Multiple Offers resulting in calls for Highest-And-Best Offers have become commonplace, prices have begun a gradual increase. Anticipated appreciation level (Price Increases) for 2013 is in the 4% neighborhood.
• Won’t the imbalance in Supply & Demand cause Sellers to be able to do better than they have? For the best properties that are well priced within the correct price range, sales will occur faster … However, it will take time for the losses of the past seven years to be made up. Appraisal rules enacted several years ago create a governor on how fast prices can rise, since most sales remain financed sales. While the market has turned toward a Sellers Market, that does not mean that Buyers will respond to properties priced higher than the market, especially if the sale must be financed. Note: By definition a Sellers Market is defined by the ratio of Homes For Sale versus the Demand for Housing. Once the number of homes for sale in a given market is less than a six months inventory (based on the previous six month’s demand/sales) the market is defined as a Sellers Market. A good rule of thumb is the Golden Rule… “The man / woman with the gold makes the rules…” Even in a Sellers Market that rule cannot be forgotten.

So what’s going to happen?

My prediction is this: The gap in inventory will largely be filled by New Home Construction… We have seen a big move in housing starts over the course of the last 12 months… That trend will continue and even pick up pace… unless we are confronted with some new economic disaster.

Sellers of existing homes will still need to come to terms with a loss of perceived value for some time to come… My prediction remains somewhere in the 2016 – 2020 time period. The decision to Sell will remain one based on a real need: Job Transfer, Job Loss, Marriage, Divorce, Death, Births, etc or a Strong Desire for change. The individual time frame for each Seller is different… Further out for those whose homes are heavily mortgaged… Much sooner for those with more equity. The market will be a little friendlier for those who have something the market wants… All the while new home construction will be raising the bar in terms of what Buyers want.

Buyers… The bottom of the Market has passed… so quit waiting for lower prices. Look instead at Home Affordability… that is the cost of home ownership… It’s at an all time low! Interest rates aren’t going lower… mortgage terms aren’t getting better. The real deals are getting harder and harder to find… The steals for those that are looking for something close to move-in ready are for all intents and purposes gone!

Whether you’re buying or selling… be sure to enlist the help of someone knowledgeable about the home market who will help guide you through the process and understand your best options.

May the market be with you.

It’s a well-accepted fact… Markets are governed by the law of supply and demand.

For the past five years the level of inventory for sale versus the demand for housing in the Birmingham housing market has definitely favored Buyers… it has been a Buyers’ Market. With the rising demand for housing, which has been on the rise for the past 17 months (since October 2011), and a shrinking inventory of homes for sale we are now experiencing a swing of the market that gives Sellers more control than they have seen in years.

Now let me be clear… As I have said many times here, there are literally hundreds of markets in the Metro Birmingham Market (Jefferson, Shelby & St Clair Counties)… and each market has its own set of dynamics. That said, while the general trend currently favors Sellers there are some exceptions. Those exceptions are will generally be in communities still heavily laden with foreclosures (most communities have seen a substantial drop in foreclosure activity) and those communities experiencing an exodus resulting from homeowners desiring to leave due to their feelings and assessments about the neighborhoods they live in.

This move to a Sellers’ Market is of course most noticeable for move-in ready homes in desired neighborhoods.

While this may sound like bad news for Buyers… Remember there have been huge price adjustments made since the height of the market in 2006. Home affordability is currently at is most favorable level and is likely to stay near that peak for the balance of 2013. Homes are still bargain priced… but don’t expect huge discounts on livable homes… or for that matter even livable foreclosures! Don’t be surprised if you are informed that there are multiple offers and you will are asked to give your highest and best offer in what amounts to a bidding war. It is not unheard of for homes to sell a bit above list price in today’s market!

Sellers likewise need to be aware that the move to a Sellers market while good news for sellers, does not mean that they can name their price or sell at a profit. The drop in market values form the 2006 peak is real and while prices are inching up, sellers are still 4-6 years away from the market values of 2006.

This gap in inventory and demand will further motivate builders to re-enter the market. We saw a substantial increase in Builder Activity in 2012, which shows no signs of slowing in 2013. As new home inventories increase this will of course add pressure on Sellers to offer up-to-date move-in ready alternatives to Buyers.

All-in-all this is really good news for everybody… the return to a stable housing market is a most desirable state of affairs.

May the market be with you.

On January 1 both the Senate and House passed H.R. 8, legislation to avert the “fiscal cliff.” I bet you thought you had heard the last on the “Fiscal Cliff”… You may have even thought you knew what the debate was all about. Maybe not… Below is a summary of real estate related provisions in the bill.

Real Estate Tax Extenders

• Mortgage Cancellation Relief is extended for one year to January 1, 2014
• Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012
• Leasehold Improvements: 15 year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.
• Energy Efficiency Tax Credit: The 10% tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.

Permanent Repeal of Pease Limitations for 99% of Taxpayers

Under the agreement so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high-income filers.  These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000.  These thresholds have been increased and are indexed for inflation and will rise over time.  Under the formula, the amount of adjusted gross income above the threshold is multiplied by 3%.  That amount is then used to reduce the total value of the filer’s itemized deductions.  The total amount of reduction cannot exceed 80% of the filer’s itemized deductions.

These limits were first enacted in 1990 (named for the Ohio Congressman Don Pease who came up with the idea) and continued throughout the Clinton years.  They were gradually phased out as a result of the 2001 tax cuts and were completely eliminated in 2010-2012.  Had we gone over the fiscal cliff, Pease limitations would have been reinstituted on all filers starting at $174,450 of adjusted gross income.

Capital Gains

Capital Gains rate stays at 15% for those the top rate of $400,000 individual and $450,000 joint return.  After that, any gains above those amounts will be taxed at 20%.  The 250/500k exclusion for sale of principle residence remains in place.

Estate Tax

The first $5 million dollars in individual estates and $10 million for family estates are now exempted from the estate tax.  After that the rate will be 40 percent, up from 35 percent.  The exemption amounts are indexed for inflation.

May the market be with you.

Source: NAR Issue Brief

As we continue to watch the market, we have a building body of evidence that the housing market is continuing to improve with extremely positive signs that the worst is over. Those markets hardest hit, such as California, Nevada and Florida showing the strongest signs of improvement… Even those trailing markets, which Alabama is a part, are also showing positive gains when comparing sale prices year-over-year. Only the North East continues to experience that dangerous average decreases in sales prices.

Remember “averages” can be misleading, as they don’t describe all markets within an area. Even so, there is no denying this improving market.

I have previously reported here that the Birmingham market has seen a 20% reduction in available inventory and a 9% increase in demand, which has resulted in an increase in the 2.5 – 4% increase in year-over-year prices.

Using the FHFA (Federal Housing Finance Agency) data for the state of Alabama, we see an increase of just over 4% from the second quarter of 2011 to the second quarter of 2012 (the most recently published data). Meaning a house purchased during the second quarter of 2011 at a price of $100,000 had a value of $104,052 in the second quarter of 2012.

This would be a strong indicator that the bottom has passed…as prices are on the rise. So a word to the wise buyer… prices are unlikely to go lower… watch the interest rates closely… the are currently at historic lows just above 3.25% for those with good credit on a 30 year mortgage. A rise to 4% for the same loan would be the same thing as an increase of about 15% in purchase price.

An important note for Sellers… While this turnaround in certainly good news, you should be aware we are still a long way from 2006 prices. A home purchased at $100,000 in the second quarter of 2006 had a value of $94,111 in the second quarter of 2012. The chart below shows home values over time beginning with a purchase price of $100,000 in the second quarter of 2006 ending the second quarter of 2012 (Source FHFA Home Price Index 2^nd Quarter 2012 Data).

So when do we return to 2006 pricing levels? Barclay’s forecast 2021, while Fiserv forecast 2023. Coincidentally, these are very much in line with my forecast made 4 years ago that we would not see 2006 pricing before 2020.

May the Market be with you.