E-Renter News

So, just what is going on in the housing market? The National Association of Realtors (NAR) realized this week it’s been overstating existing home sales. Instead of 20.6 million existing home sales from 2007 to 2010, there were actually 17.7 million homes sold. More surprising is that, in explaining the revisions, an economist for the NAR said, “from a consumer’s perspective, only the local marketing information matters.”

Oh, really? This widely reported and closely watched data affects any number of economic indicators, along with interest rates, investments and plans made by businesses and individuals. Consumers are greatly affected by this data.

Apparently, the data reported by the NAR started differing from independent researchers about a year ago. The way the NAR collects and analyzes data was reassessed and the group met with government and private housing experts and mortgage companies, along with CoreLogic, a data firm that first raised questions about the NAR’s sales figures.

The result of this revelation is that all of the experts are realizing that the housing market has been worse off than previously thought. But, the number of houses available for sale was also revised downward, so while sales numbers dropped, inventory did as well—meaning supply and demand didn’t change.

The NAR blamed the discrepancy on a number of factors, from more builders using the MLS service, which inflated sales figures, to regional overlap where more than one MLS system lists the same property.

Revisions by year:

• 2007    down 11% to 5.04 million
• 2208    down 16% to 4.11 million
• 2009    down 16% to 4.34 million
• 2010    down 15% to 4.42 million

After revising November’s housing market index from 20 to 19, the National Association of Home Builders reported it reached 21 in December—the highest point since May 2010. Despite the November revision, the index still increased for three straight months. It hasn’t done that since the middle of 2009.

What does this mean? Considering economists were expecting a 20, the surprise increase is a good sign that the housing market is seeing some areas of recovery. Still, the index has been in negative territory (below 50), where more builders see conditions as poor, rather than good, since April of 2006—and it will likely take an extended recovery to see a positive confidence reading again.

All three components of the builders’ index increased. Traffic from potential buyers jumped three points, while sales expectations for the next six months and builders’ assessment of current sales conditions also grew.

Foreclosed properties continue to bring down many markets. Meanwhile, consumer worries about the job market and selling existing homes are keeping many potential homebuyers from starting the building process. However, the 477 builders surveyed indicate they’ve seen more interest and inquiries in December than in previous months.

The South saw a four-point gain, from 21 to 25, while the West increased by one point. The Midwest index was unchanged, while the Northeast fell one point.

In a suit filed with the Ohio Civil Rights Commission, a former tenant accused an Ohio landlord of discrimination, after she posted a “whites only” sign near her swimming pool.

According to the complaint, the tenant, Michael Gunn, had invited his daughter to visit over Memorial Day weekend. The teenage girl went for a swim, and the landlord, Jamie Hein, accused her of making the pool “cloudy” with hair chemicals.

A few days later, a sign reading “Public Swimming Pool, White Only” went up on the gate to the pool. The Ohio Civil Rights Commission found on September 29 that in posting the sign, the landlord violated the Ohio Civil Rights Act. She has asked them to reconsider.

The landlord says the sign, dated 1931 and originally from Alabama, is an antique decoration. She says she was given the sign as a gift. Further, while it seems to indicate the pool is public, she said in an interview that the pool is indeed private, and “everybody has to ask before getting in my pool.” The landlord is unapologetic over the possible harm the sign could cause, but said, “I’m not a bad person. I don’t have a problem with race at all.” She also said, “If I have to stick up for my white rights, I have to stick up for my white rights.”

The commission will meet on January 12 and come to a final decision. In the meantime, the sign has been stolen, and Gunn has moved out. In his complaint he stated he moved so as not to “expose my daughter to the sign and the humiliation of the message.”

According to Freddie Mac’s Chief Economist, Frank Nothaft, U.S. housing prices are likely to continue on their downward trend, and bottom out in 2012.

The Freddie Mac Housing Price Index is expected to drop 1% in 2012 and move higher by 2% in 2013. In markets where some appreciation has begun, they will continue to see gains in 2012, while markets with higher vacancy rates and more foreclosure and short sales will see additional downward trends through 2012.

The strong rental market is predicted to prop up housing activity next year. New construction and home sales in 2012 are expected to be better than 2011—especially rental property starts. The improving rental market could also lead to an increase in refinancing and origination of multi-family loans. Single-family loans are likely to decline. Many borrowers are already locked into low rates or are underwater and can’t refinance.

Nothaft also predicted that economic growth will improve to about 2.5% in 2012, based on strong data over the past few months. Unemployment will likely remain above 8%.

Zillow, the home value and sales information site, came on the scene when the real estate bubble was still inflated. Countless homeowners enjoyed the novelty of plugging in their address each day to see if their home had increased in value over the day before.

Now, in most markets, Zillow’s home valuations (Zestimates®) don’t look as rosy as they once did. And human nature generally dictates that when your home is valued high, you don’t ask questions. But when your home’s value is underestimated, some homeowners have more reason for concern.

Zillow’s algorithms have been known to cause trouble for prospective home sellers, buyers and real estate investors alike. Since Zillow’s valuations are based on publicly available data, like square footage, the number of bedrooms and bathrooms, and the selling price of other area homes, the best house in the neighborhood could be dinged, while the worst could be overvalued.

ZIllow does not take into consideration variables such as upgrades, improvements, quality of construction or the condition of the house. The company offers many disclaimers, including that their Zestimates are not appraisals. Still, when negotiating on the sale of a home, it can be tough to convince a potential buyer to ignore an online valuation—especially if the asking price is above it.

Here’s an example of how Zillow can get it wrong. A 7,500-plus-square-foot home on five waterfront acres is listed for sale at nearly $6 million. However, the Zilllow valuation is $3.35 million less. Zillow’s algorithm doesn’t know that since the property was last sold for $1.25 million in 2008, the original structure was demolished and a new home was built.

Zillow is the go-to site for many people who are in the first stages of researching homes. And if they see a list price much higher than the Zestimate, they may not look any further. Real estate agents who know a local market find this frustrating; but listing agents may always add comments on a Zestimate page to point out features that warrant a higher listing price.

Whether you're buying or selling investment property, Zillow can be a good place to gather basic information on what's for sale and for rent in any city or neighborhood. But using a Zestimate as anything more than a starting point is, well, pointless.

With its long-running rent stabilization law, New York City can be tough on landlords. Certainly the real estate prices there are sky-high, but there’s just no more NYC to be build on. And if it weren’t for rent stabilization laws, the city’s middle- and low-income citizens—who wait on tables, pick up trash, work in hotels and sell tickets to Broadway shows—would be priced out of the city.

But one landlord says his tenants can afford to pay market rent—and he’s taking his case to the U.S. Supreme Court. His five-story brownstone on the upper West Side of Manhattan houses six tenants—and three of them pay 59% below market value in rent. He says the rent stabilization law is a “racket.”

The landlord inherited the building from his parents in 1994; they had purchased it from his grandfather 20 years before the rent law went into effect. He says his family has “carried [this] burden for 40 years, and enough is enough.”

The three rent-stabilized tenants have been living there 30 years each. One owns a house on Long Island and pays $951 per month in rent.

The issue, says the landlord, James Harmon—who is a lawyer—is whether the U.S. Constitution allows the government to force landlords to subsidize strangers for the rest of their lives.

The case has been refused by a district court and the state Supreme Court. If the U.S. Supreme Court hears the case and ultimately ruled in the landlord’s favor, it could dismantle the subsidized rent law that governs 1 million people in New York City.

If you’re a landlord or property manager who does not currently charge rental application fees, you could be missing out on a steady source of revenue. Why? Because the monthly rent covers only the privilege of living on your property—not the time and energy you spend finding the right tenant.

While the amount typically charged varies according to the market, most application fees are in the $25 – $50 range. Many landlords use the fees only to cover tenant screening. Others charge both an application and a screening fee.

Why charge an application fee above the screening fee? Well, it makes sense that you’d want to cover your time and out-of-pocket expenses each time you vet a prospective tenant—the time you spend showing the property, calling references, ordering credit checks and criminal reports can really add up. If the tenant goes away on his or her own, or if you reject their application, you have sustained a loss.

Charging a fee also helps weed out the tenants that may not be able to pay your rent. Yes, times are tough right now, but if a lease applicant can’t afford $25 or $40, can they afford to rent your property?

Remember, you’re in business to make a profit. Every time you expend time or other resources, you should be getting paid for it. So consider having every lease applicant pay for the tenant background and credit check you’ll be running, as well as for your time.

What else do you have to sell?

September’s home price index show a fall of 0.6% from August, breaking a steady run of increases through the spring and summer. For the third quarter of 2011, prices were down 3.9% compared to the same period of 2010.

That’s a slight improvement from the second quarter, when the year-to-year drop was 5.8%. However, as banks return to their efforts in taking back foreclosed properties, the areas with larger concentrations of distressed homes will likely suffer big pricing drops in the coming months.

Atlanta (5.9%), San Francisco and Tampa, Fla. posted the biggest monthly price declines in the nation. And Atlanta, Las Vegas and Phoenix home prices hit their lowest points since the housing bubble burst four years ago.

Economists expect housing to stabilize and prices to increase, but warn that it will take time. “We’re working off the excess of a 15-year real estate binge in this country,” said one.

There were some positive indicators this week, such as in increase in consumer confidence, lower rates of homeowners falling behind on their mortgages, and an 11% increase in building permits last month.

In other housing marketing news, new home sales rose slightly in October, as continued unemployment and uncertainty over the economy caused many potential homebuyers to hold off, despite record-low mortgage rates.

New home sales increased by 1.3% from September to a seasonally adjusted annual rate of 307,000.

According to the National Association of Realtors, existing home sales rose 1.4% in October, to a seasonally adjusted rate of 4.97 million. That’s up from 4.9 million in September, and 13.5% above the 4.38 million-unit rate from October of 2010.

Investors purchased 18% of homes in October, compared to 19% in both September 2011 and October 2010.

If you’re a landlord, you may or may not be subject to a licensing procedure in your city. But more and more municipalities are developing new landlord licensing standards, strengthening existing laws or considering implementing landlord licensing. St. Charles, Illinois is the latest addition to the list of cities that will require landlords to obtain a license.

City officials say the program, which also requires that rental properties undergo exterior inspections, is intended to educate landlords and help them deal with problem tenants. The Mayor of St. Charles, Don DeWitte, said, “It will improve neighborhoods in general.”

The details have yet to be worked out, but in general, the program will require landlord licenses and exterior inspections. In addition, it will include provisions to make it easier for landlords to evict tenants involved in criminal activities. (It’s interesting that the property inspections are limited to exteriors only.)

Landlords will be charged from $45 to $1,200 per year for their license, depending on how many rental units are on the property. St. Charles officials are encouraging landlords to work with city staff to address any concerns while the details are being ironed out.

Landlords, do you think this type of licensing law offers more advantages to landlords, tenants or the city? Would you be opposed to an exterior inspection of your rental property?

While going green is common rallying cry in homes and businesses across the country, it’s sometimes difficult for well-meaning rental property owners to cut the energy use in their buildings. Everyone agrees that using less energy is a good thing; but among city, state and federal government entities, and clean energy proponents, there hasn’t yet been a plan put in place to start making buildings more energy efficient.

Landlords in some metropolitan areas are required to reduce and report energy use. If you’re not one of them yet, don’t worry – you probably will be. Curtailing carbon use is a requirement coming to nearly every area. Commercial landlords in New York City and Washington, DC must already report their energy use to city agencies, which are collecting the data to use to formulate new energy policies. In many areas, if you want to sell a building, you must disclose the property’s energy costs to interested buyers.

Putting less strain on the nation’s aging electricity grids is one of the goals of wide scale measurement of building energy use. Once the data is in, agencies can work on plans to help landlords replace old heating systems, switch exterior lighting to more efficient fluorescent bulbs and encourage them to help tenants reduce energy use. The only problem then will be finding the funds to fix old buildings and make them more efficient. Green energy proponents say that reducing energy use can positively impact return on investment, and that government funds should be made available for the good of the nation.