Real Estate Trends

4March

New Home Sales Reach 2008 Highs

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render of rising arrowGood news surrounding the housing market was released this week.  It looks like the effects from abnormally cold weather hasn’t kept the housing market down as formerly suspected.  January sales of new single-family homes was reported at a seasonally adjusted annual rate of 468,000 units.  This number showed a huge jump in sales, surging to a 5 ½-year high since July 2008.

Previously reported, December home sales were down 7 percent from the month prior.  This number was revised upwards from 414,000 to 427,000 sighting just above a 3 percent increase.  This revision equates to only a 4 percent drop in new home sales in December showing that the housing market might not have been hit as hard by the cold temperatures as mentioned last week.

The 9.6 percent jump in new home sales in January exceeded what economists had forecast; 400,000 units.  The Northeast, which has been bearing the brunt of the cold weather, actually recorded a 73.7 percent increase, hitting a seven month high.  The South reported a five-year high sighting a 10.4 percent rise in sales.  Sales in the Midwest dropped 17.2 percent and the West recorded an 11 percent increase.

New home sales numbers reported from the Commerce Department are based on signed contracts with the house being in any stage of construction.  Existing home sales data is provided by the National Association of Realtors (NAR) and they report once the sales contract has closed.  Given this difference, new home sales usually lead existing home sales by a month or two as it can take 30-60 days for a closing on a house to occur.  Pending home sales, which are also reported on from time-to-time in this blog, overcome the lagging effect of existing home sales and center around existing home sales where the contract has been signed but not currently closed.

Housing prices still continue to ramp up.  The Case-Shiller composite index reported a 0.8 percent increase in prices in December from the prior month, which was higher than economists predicted.  Year-over-year, the index reported a 13.4 percent rise.  Higher costs of labor and construction materials have been attributed to the increase in home prices.

As we move closer to the spring season it will be interesting what the trend in new home sales along with existing and pending home sales will be.

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15January

Five Top 2013 Innovations That Impact Real Estate

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272F60BAE2F5E0A349E4742A1EB8One great hallmark of 2013 was rapid technological transformation. New apps and gadgets emerged in quick succession in a virtual leap frog of releases by major players.  The field of real estate is the primary beneficiary of several key advances. Here are five top 2013 innovations that impact real estate. These exciting advances flew onto our radar screens in 2013.

  1. Civilian Drones.  The aerial listing tour has become a reality. Visual capture of surrounding neighborhoods, parks and terrain from the sky, arrests the attention of shoppers, and multiplies the marketing appeal of virtual tours.  Drones facilitate indoor tours also; generating a virtual viewing experience that exceeds the scope of an in-person property tour.   Virtual retailers such as (Amazon) are working to perfect drones for package delivery.  Even restaurants are considering aerial squads of delivery drones.
  2. Wearable Tech Tools.– The Dick Tracy style wrist watch phone arrived.  Primarily a remote control for your cell phone,   some models have a healthy bundle of apps and capabilities.  Samsung CEO, J.K. Shin predicts their model will become “a new fashion icon around the world.”
  3. The 3-D Printer – What does the 3-D printer have to offer real estate? It could just change the housing industry forever.  Professor Behrokh Khoshnevis of the University of Southern California, has unveiled a 3-D printer which can reportedly “build a house in 24 hours”.  It’s a giant robot whose computer –directed nozzle ejects concrete in a custom pattern, creating walls. Tradesmen then install windows, doors and other necessities.
    1. The innovation has major implications for emergency housing replacement associated with natural disasters. It has implications for affordable housing across the globe and is also being studied by NASA for extraterrestrial possibilities.
    2. The innovative KeyMe App (a 3-D printer based innovation) allows users to print out new keys in less than 30 seconds (according to their website).  Customers are advised to take photos of each of their keys. When one is lost, replace it by forwarding the image to KeyMe and a replacement is printed and delivered.   Duplicate keys are routinely printed in KeyMe kiosks. They can even be customized with various logos and images for promotional or sentimental value.   
    3. A local news broadcast recently reported that a 3-D printer has successfully printed human tissue and skin. Research teams led by Dr. Thomas Boland of the University of Texas at El Paso, expect to custom- produce organs suitable for transplant sometime in the distant future.  That has nothing to do with real estate but was just too cool to pass up.
  4. Virtual Money—Manhattan real estate broker, Bond New York, reportedly accepts Bitcoin for real estate transactions. The firm is thought to be the first in the industry to green-light the virtual currency.  
  5. The Internet of Things—The possibility of our home systems and appliances communicating with our devices is now on the horizon. Google agreed to pay $3.2 billion cash for Nest Labs, a programmable home thermostat company.

Analysts envision the possibility that in the near future; upon departing your residence you might receive a text message from your refrigerator announcing that you are low on butter and milk required by the recipe you printed from the internet last evening.  It might further advise of the nearest grocer currently stocking those items at the best price.  Future listing descriptions might detail which listings contain interactive appliances and  systems and which protocols they are compatible with. There are many other innovations that impact real estate in a profound way. Which ones grabbed your attention during the year?

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Photo Courtesy of :  Contour Crafting and MSN Innovation

 

 

 

 

10January

Home Prices Reach for the Stars

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Temperatures across the U.S. are plunging and have left many cities frozen in ice and snow.  One thing not plunging is home prices.  The housing market has continued to experience rising prices along with rising mortgage rates leading to a decline in purchasing power.  Rising home prices and rates deal a double blow to affordability.

According to the S&P Case-Shiller Home Price Index, which follows 20 large cities in the U.S., home prices rose 13.61 percent year-over-year and increased .18 percent from the month of October to November.  Las Vegas had the largest year-over-year gain of 27.05 percent while New York and Cleveland tied for the smallest gain of 4.9 percent.

HomePriceReachUpCoreLogic’s most recent home price report for November 2013, reported home prices (including distressed sales) rose 11.8 percent year-over year.   November’s increase in home prices is the 21st straight month of year-over-year growth.  CoreLogic reports home prices gained 0.3 percent (excluding distressed sales) in November versus October.  CoreLogic economist Mark Fleming said in the release, “The housing market paused as expected in November for the holiday season with very low month-over-month appreciation.”

 According to CoreLogic data, 2013 was the best year for rising home prices in the past 8 years.  It is projected that  2013 year-end results will  show an overall  jump of 11.5 percent.  “It’s too early to tell if the marginal dip in the annual pace of house price inflation in November marks the start of the slowdown in price gains that we are expecting.  But we are confident that annual price gains will not remain in double-digit territory for much longer,” Capital Economics’ Paul Diggle commented.

This is positive news for potential home buyers  still waiting to get into the game.  Mortgage rates dipped to around 4.5 percent last week and many economists doubt this will hinder home sales in the short term (as noted in several  recent blogs).  Rates are still historically low.  Due to the recent pull back in mortgage rates, refinances ticked up 5 percent last week.  Overall refi activity is down 69 percent from a year ago when rates were more than a percentage point lower.

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31December

Home Mortgage Applications Hit 13-year Low

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Applications DownAs 2013 winds to a close, economic conditions have made large strides since the beginning of the year.  2013 Definitely had its fair share of headwinds surrounding the economy, job market and housing market.   Stock markets experienced strong gains the past few days, reaching new highs.  Home prices have increased and foreclosure rates are on the decline.  One thing holding the housing market back however is home mortgage applications.

According to the Mortgage Bankers Association (MBA), U.S. home mortgage applications fell for the  second consecutive week,  hitting a 13-year low, dropping 6.3 percent from the week prior,  December 20th.  Rising mortgage rates might be scaring away some potential home buyers.  The 30-year fixed mortgage rate averaged 4.64 percent last week.  Rates have steadily increased in response to the Federal Reserve’s decision to begin tapering asset purchases by $10 billion a month.

“Following the Federal Reserve’s taper announcement, mortgage application volume dropped again last week, with rates increasing and refinance application volume falling to its lowest level since November 2008.  Purchase application volume was weak too, continuing to run more than ten percent below last year’s pace. Notably, government purchase application volume is almost 25 percent below where it was at this time last year, with the larger drop compared to conventional purchase likely due to the increase in FHA premiums over the course of the year,” said Mike Fratantoni, MBA’s Vice President of Research and Economics.

As rates continue to tick up, the number of refinances will drop accordingly.  Refinances as a percentage of total mortgage activity, dropped to 65 percent from 66 percent in the week prior .  The MBA’s seasonally adjusted index of refinancing applications dropped 7.7 percent.

Reported November new home sales numbers offered more attractive data than application numbers.  Signed purchase contracts for new  homes dropped slightly but this was after October’s data was revised up 25 percent.  Squaring “the near highest level of new home sales in years with a multiyear low in mortgage applications to buy a home continues to tell me that investors are beginning to get their feet wet in the new home space with the goal of renting these homes out,” analyst Peter Boockvar of the Lindsey Group said. “The secular shift to renting should continue.”  When Boockvar broke down the numbers by region in the U.S. he noted, “The South is surging; the rest of the nation is not.  If you back out the South October surge, the numbers are in line with the tepid demand since July, when [mortgage] rates surged.”

With 2014 right around the corner, it will be interesting to see what the new year holds for the housing market.

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3December

Home Prices Soar Due To Investors

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Real estate marketThe housing market looks to have picked up some traction recently with new data report numbers released this past week showing growth in permits and home prices, which helps boosts the U.S. outlook. But Robert Shiller, Case Shiller Index co-founder and Yale University professor of economics, cautions this recent pickup might not be fundamentally sustainable and notes “we can’t trust the momentum in the housing market anymore.”  Is the housing market in a solid recovery state or does it appear to be a bubble lacking fundamental support?

Permits for construction on future homes hit a new 5-1/2 year high in October.  Building permits increased 6.2 percent to a seasonally adjusted annual rate of 1.03 million units, the highest rate since June 2008.  Multi-family permits surged 15.3 percent while single-family home permits increased .8 percent after dropping 1.9 percent in September.  The lack of supply has still not caught up with the strong demand of housing.  This has contributed partially to the rise in home prices and should continue to aid in increasing numbers for construction, rent and prices.

The price of single-family homes recorded big gains in the month of September.  The Case Shiller composite index reported solid increases in several regions across the U.S.  The index jumped 13.3 percent in September from a year ago.  This is the strongest gain recorded since February 2006.  Home prices were up 0.7 percent in August from the prior month; the tenth monthly increase in a row.  But this continued increase in home prices may not be maintainable.  Investors, specifically institutional investors, have helped push home prices to new highs and these investors are starting to pull back on their acquisitions.  These all-cash investors pushed home prices up more than 13 percent over the last 12 months which has priced out regular homebuyers.

Of all home sales in October, 6.8 percent were institutional investors according to RealtyTrac.  This was a significant drop from the month before which boasted 12.1 percent of all sales.  Anika Khan, senior economist at Wells Fargo Securities, told “Street Signs,” “In a lot of those hard-hit markets, we continue to see the greatest price increases. … A lot of this increase is exaggerated.  However, the underlying fundamentals are still very positive, especially in those markets that have strong household formations, strong population growth and strong job prospects. … We are seeing a recovery in the housing market.”  As investors exit their investments and slow their acquisitions, home prices will drop back to levels centered on supply and demand of non-investor homebuyers.  This could result in a pricing “bubble” pop.

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14November

Homeownership Rate Tries To Rebound

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The U.S. homeownership rate increased from its lowest level since the third quarter of 1995, indicating that the housing market is starting to attract more buyers.  This reading climbed from 65 percent in the second quarter of this year to 65.3 percent in the third quarter of this year.  Homebuyers are still trying to get into the market before interest rates and prices jump any higher.  The 30-year fixed rate was 4.27 percent during the last week of October.

homeownership rateOne reason homeownership has remained so slow can be linked to the large percentage of young Americans still living at home with mom and dad or those who are renting and living with roommates.  This group of young people has experienced some of the sharpest drops in homeownership since the financial crash in 2008.  Jed Kolko of Trulia, an online real estate company commented, “The share of millennials living with their parents rose from 31.4 percent in 2012 Q3 to 31.6 percent in 2013 Q3, based on the raw Census data. During the recession, many people doubled up with roommates or lived with relatives, including young adults who stayed in their parents’ homes. Even now, years after the recession technically ended, young adults remain much more likely to live with their parents than before the recession.”

Unemployment for young adults is still very high, even though it fell to 74.6 percent in October according to the Bureau of Labor Statistics.  The lack of employed young adults makes it very challenging for this group to obtain credit to purchase a home, thereby further damaging the homeownership rate.  Kolko reported there is an estimated 2.4 “missing households” of people who should either be in rentals or be homeowners but are not.  The prime age group for housing demand includes ages 25-34 year-olds.  With employment rates for this group still below the levels seen before the recession, the housing market has reason to worry about its recovery.

The recent jobs report release Friday appeared to be positive but it did not take into account the 932,000 Americans that dropped out of the labor force in October.  This takes the labor force participation rate of 62.8 percent to its lowest since 1978 (the third highest monthly rise in people dropping out of the labor force in U.S. history).  As young adults continue to face challenges obtaining employment, homeownership will continue to struggle because they will opt to live at home until economic conditions improve.

For information on effective ways to manage institutional and individual portfolios nationwide, or to shop for real estate visit First Preston HT. Like us on Facebook. Follow us on Twitter.

12November

Bridging the Down Payment Cash Gap — (Part 2 in a 2 Part Series)

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Improving-Real-Estate-Markets

Improving Real Estate Markets

While most Americans see homeownership as a good financial choice, many are sidelined by 20% down payment requirements.  Recent surveys indicate that 31% of Boomers and 31% of Gen Y respondents consider 20% down payments a major obstacle.

According to a recent CNBC report, the housing industry activity has seen better days. Investor demand has catapulted prices up 12% year-over-year to “unsustainable levels” in some markets according to Fitch Ratings. Prior month mortgage applications fell 7%, refi apps swooned 8%, and home purchase applications tanked by 5% according to latest reports. Perhaps these trends and others have inspired the lending industry to showcase alternatives to the 20% down payment rule.

A large down payment, low debt ratio and a top credit score can typically qualify buyers for lowest interest rates and best mortgage terms. For well qualified buyers who don’t have a 20% down payment, banks are now showcasing conventional loans with 5% down payment options; while private and governmental sources fund and spotlight over 1500 home buyer assistance programs.

This is the second segment of a two-part series. We’ll spotlight seven down payment resources to help bridge the down payment cash gap.  First Time Homebuyers

Down Payment Assistance –Have you ever wished that there was a one-stop resource combining all of the available forms of down payment assistance in one place? Down Payment Resource (DPR) is a national databank of various forms of down payment assistance available throughout the country, including local, county, state, and federal programs in all 50 states. Programs include those reserved for teachers, veterans, healthcare workers, etc., as well as a multitude of private programs.

Multiple Listing Services across the country opt-in to the service, connecting local members who then provide access to their homebuyer clients. DPR Vice President of Business Development Beverly Faull states, “This is the only nationwide resource which aggregates more than 1,500 programs from over 1,000 providers into an integrated, online program finder.”

Major Banks & Credit Unions — Credit Unions, are jumping into the mix, offering attractive terms for qualified borrowers.

According to CNN news, several major banks such as Wells Fargo, TD Bank and Bank of America,  have begun offering loans with down payments as low as 5%. Some will even allow gifted funds to cover 2% of the sales price, leaving the buyer with a 3% down payment opportunity. Even million dollar property purchasers seek out lower down payment alternatives.  Market dynamics have shifted and it’s worth taking a second look at traditional lender offerings.

HomePath Mortgage—Available only on real estate owned by Fannie Mae, a HomePath mortgage is a conventional mortgage requiring 5 percent down with no private mortgage insurance.

 Shared Equity Financing Arrangements (SEFA)—First-time home buyers are again turning to the traditional parent-backed loan, but with a twist. Loans are now formalized with a profit-sharing clause for parents.  A legal agreement spells out the particulars such as who pays taxes insurance, maintenance, etc. and the length of the agreement. Profits are divided when the property is sold.

Veterans Administration (VA)—VA Loans, great for qualifying veterans, feature low or no down payments. It is possible to bypass private mortgage insurance.

U.S. Department of Agriculture (USDA Loans)—Rural property USDA loans may cover 100% of the price of the property. Mortgage insurance is required, however at lower rates than many other funding types. Buyers are often surprised to find that non-farm properties may qualify.

Good Neighbor Next Door Loans (HUD.gov)—Qualifying applicants can receive a 50% discount on home prices. There is a 3-year residency requirement. The program is designed for law enforcement, pre-k through 12th grade teachers, emergency medical techs and firefighters.

While 20% down payments  dominated the lending scene for the last few years,  conventional lenders now signal a willingness to be more flexible on down payment options for well qualified buyers.

For information on effective ways to manage institutional and individual real estate portfolios nationwide, or to shop for real estate visit First Preston HT. Like us on Facebook. Follow us on Twitter.

31October

Construction Spending and Home Prices Take Off

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construction spendingHomebuilder sentiment was recently reported to be weakening, but U.S. spending on construction isn’t being held back by this news.   During the month of August, construction spending almost hit a 4-1/2 year high due to increases from both the private and public arenas, according to the Commerce Department.  The increase was .6 percent when compared to the month of July.  July’s figures were revised to a number more than double the original estimate.  These positive numbers show that there’s hope for growth in the third quarter this year.

Some may think this data seems a little dated, as we are nearing the end of October.  The government shutdown delayed the original release of this data, scheduled for October 1st.  The private sector of construction spending increased by 1.2 percent to a five-year high leading the market to believe higher interest rates have not lowered builder confidence, nor has it slowed activity as previously assumed.

With lots of money being spent on building new homes (increasing supply) theory would imply prices would start to cool, but this has not been the case.  Home prices have jumped more than 12 percent from a year ago making the affordability of buying a home more difficult.  Household income growth, up only 3 percent year-over-year, has not kept up with the rise in home prices.  Lawrence Yun, chief economist for the National Association of REALTORS® wrote in the September Sales report, “Affordability has fallen to a five-year low, as home price increases easily outpaced income growth.  Expected rising mortgage interest rates will further lower affordability in upcoming months.”

For home buyers this could be a challenging environment.  First time buyers tend to purchase lower-priced homes.  If income growth is not keeping pace with home prices, they could get priced out of the market and be forced to put off their home purchase for the time being. The glimmer of hope in this situation is that fixed mortgage rates have dropped to a four month low (30-year fixed rate is 4.13 percent this week).  This helps take a little pressure off the increasing home prices in regards to home affordability.  In the long term if incomes don’t keep pace with home prices, construction spending may start to decline due to a lack of demand.

For information on effective ways to manage institutional and individual portfolios nationwide, or to shop for real estate visit First Preston HT. Like us on Facebook. Follow us on Twitter.

21October

Government Re-opens But Builder Confidence Drops

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After days of meetings, discussions and negotiating, the government finally came to a short-term resolution to allow the government shut-down to conclude and ensure default would not ensue.  But this “my way or the highway” mentality on both sides of the political isle has damaged Washington’s credibility and confidence ratings among Americans.  The lack of leadership in Washington and the “kicking the can down the road” ideology has affected several parts of the economy; both macro and micro in scope.

Reports released this Wednesday from the National Association of Home Builders (NAHB) showed a weakening in home builder confidence.  In the market for new single family homes, the NAHB/Wells Fargo Housing Market Index (HMI) reflected a two point drop from an already downward revised report in September.  NAHB Chief Economist David Crowe noted, “A spike in mortgage interest rates along with the paralysis in Washington that led to the government shutdown and uncertainty regarding the nation’s debt limit have caused builders and consumers to take pause.  However, interest rates remain near historic lows and we don’t expect the level of rates to have a major impact on sales and starts going forward. Once this government impasse is resolved, we expect builder and consumer optimism will bounce back.”

Builder ConfidenceThe NAHB describes the HMI as a an index that “gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.”  The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.”  Current sales, sales expectations and traffic of prospective buyers all experienced a two point drop showing confidence is waning.

It appears that home builders aren’t the only ones lacking confidence.  Consumers are showing signs of caution in the midst of Washington’s uncertainty.  Last week during the partial shut-down, mortgage applications for government mortgage products dropped to a six-year low according the Mortgage Bankers Association (MBA).  Mortgage applications to purchase a home declined by 5%.  “The government shutdown had a notable impact on the mortgage market last week. Purchase applications for government programs dropped by more than 7 percent over the week to their lowest level since December 2007, and the government share of purchase applications dropped to its lowest level in almost three years. FHA lenders with delegated authority have been able to continue, but those that rely on the regional homeownership centers have not. Additionally, HUD staff at headquarters are generally furloughed and not able to answer questions,” said Mike Fratantoni, MBA’s vice president of research and economics.

It will no doubt take time to re-instill confidence that the American people had in their government’s elected officials.  The negative impact of these past few weeks might haunt the economy and consumers for some time.

For information on effective ways to manage institutional and individual portfolios nationwide, or to shop for real estate visit First Preston HT. Like us on Facebook. Follow us on Twitter.

Sources:  http://www.nahb.org

http://www.mbaa.org/NewsandMedia/PressCenter/85948.htm

17October

Boomerang Buyers | The Next Big Wave?

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ID-10076536Are “boomerang buyers” the missing link needed to accelerate the housing recovery? How many are eligible to purchase sooner as a result of recent changes to FHA guidelines and are they even interested in owning a home again? Could this impact the profitability model of reo-to-rental investors?

If interest rates remain low, the stage may be set to see a new wave of homebuyers take center stage. It is estimated that new FHA guidelines made it possible for 2.5 million former homeowners to re-enter the market two years earlier than expected. Often referred to as boomerang buyers the 2.5 million new prospective shoppers are former home owners who experienced foreclosure, short sale, or deed-in-lieu agreements between September 2010 and August 2012.

The August 15th,  FHA Mortgagee Letter 2013-26, entitled, “Back to Work—Extenuating Circumstances,”  made it possible to shorten the required waiting period for former  FHA borrowers from 3 years to as little as 12 months, given certain circumstances.

On October 4th, Fannie Mae issued a major “Desktop Underwriter” upgrade announcement which will take effect November 16th. The change may allow short sale (“preforeclosure sale”) participants to re-enter the market after just two years instead of seven. Many borrowers who underwent preforeclosure sales discovered afterward that credit bureaus recorded both a preforeclosure and a foreclosure sale; imposing a seven-year penalty (standard for foreclosures) instead of appropriately applying a 2 year wait. This correction alone may create an additional wave of eligible buyers sooner than expected. During the housing crisis, 4.8 million home-owners forfeited homes due to foreclosure and 2.2 million opted for short sales, as reported by RealtyTrac and cited by CNN Money.

Many of the 7 million former owners who underwent foreclosure, short sale or deeds-in-lieu early in the housing crisis, have already rebuilt their credit and their finances and are eligible to re-enter the market even under the former guidelines.

The question is will boomerang buyers re-enter the market or remain renters?  So far this year one in ten homebuyers is a boomerang buyer. And that was prior to FHA and Fannie Mae announcements.   According to research firm John Burns Real Estate Consulting, the pace has doubled since last year. According to the 2013 National Association of Realtors (NAR) National Housing Pulse Survey 51% of renters say that “eventually owning a home is one of their highest personal priorities.” Eighty percent of Americans believe that buying is a sound decision.

Boise, Idaho Broker Mike Edgar coaches boomerang buyers back to eligibility. He consulted with more than a dozen such buyers in 2012 and expects  twofold growth this year.

The news from FHA and Fannie Mae could be the spark that millions of former owners hoped for and the lift the housing recovery needs.

For information on effective ways to manage institutional and individual portfolios nationwide, or to shop for real estate visit First Preston HT. Like us on Facebook. Follow us on Twitter .