The Real Estate Report 6/28/2013

 

Why Are Home Prices Rising--Part One

Statistics released this spring show that both new and existing home prices have risen significantly over the past twelve months. For example, the census bureau has indicated that the median price of a new home sold in April was $271,600, which was 8.3 percent higher than the previous month and 13.1 percent higher than one year ago. This is interesting news not only because it affects those in the market to purchase a home, but the economy in general. Wealth is created through rising home prices and this wealth has the potential to increase consumer confidence and thus consumer spending. Two questions arise from here--why are home prices rising and will they continue to do so? They are very interesting questions because just a few years back many were predicting that home prices would not recover for decades. In our opinion, it is also no coincidence that rates are rising at a time when home prices are rising and the real estate market gets stronger.

There are four reasons that home prices are increasing. For one, home prices dove down too low during the slump. In many areas the price of homes was below the replacement cost of purchasing a home. With so many foreclosures on the market, there was too much downward pressure on home prices. In addition, the cost of owning came in significantly below the cost of renting --especially when record low rates were factored into the equation. Investors across the nation recognized these economics and came in to purchase excess inventory to lessen the foreclosure issue and the equation quickly reversed. This caused the second reason for higher home prices--a tightening of inventory caused the price of homes being "bid up" in many cases. Across the nation, we have seen evidence of multiple bids on properties up for sale--especially at the lower or middle end of the market. This has created the opposite situation with regard to why home prices dove due to bank sales. In essence, reasons one and two have created a bounce in the market. The last two reasons? The economy and demographics. We will discuss these in part two of this series, as well as the future outlook for home prices.

 

"Location, location, location near public transportation" may be the new real-estate mantra according to a new study released by the American Public Transportation Association (APTA) and the National Association of Realtors (NAR). Data in the study reveals that during the last recession, residential property values performed 42 percent better on average if they were located near public transportation with high-frequency service. "When homes are located near public transportation, they are among the most valuable and desirable in the area," said APTA President and CEO Michael Melaniphy. "This study shows that consumers are choosing neighborhoods with high-frequency public transportation because it provides access to up to five times as many jobs per square mile as compared to other areas in a given region. Other attractive amenities in these neighborhoods include lower transportation costs, walkable areas and robust transportation choices." "Higher home values reflect greater market demand for areas near public transportation," said NAR Chief Economist Lawrence Yun. "Transportation plays an important role in real estate and housing decisions, and the data suggests that residential real-estate near public transit will remain attractive to buyers going forward. A sound transportation system not only benefits individual property owners, but also creates the foundation for a community's long-term economic wellbeing." The study, The New Real-Estate Mantra: Location near Public Transportation, investigates how well residential properties located in a half-mile proximity to high-frequency public transportation or in the "public transit shed" have performed in holding their value during the recession compared to other properties in a given region. While residential property values declined substantially between 2006 to 2011, properties close to public transit showed significantly stronger resiliency. The following are a few examples from the study: In Boston, residential property in the rapid transit area outperformed other properties in the region by an incredible 129 percent. Source: APTA and NAR

Data through March 2013, released by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices showed that all three composites posted double-digit annual increases. The 10-City and 20-City Composites increased by 10.3 percent and 10.9 percent in the year to March with the national composite rising by 10.2 percent in the last four quarters. All 20 cities posted positive year-over-year growth. In the first quarter of 2013, the national composite rose by 1.2 percent. On a monthly basis, the 10- and 20-City Composites both posted increases of 1.4 percent. “Home prices continued to climb,” said David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices. Home prices in all 20 cities posted annual gains for the third month in a row. Twelve of the 20 saw prices rise at double-digit annual growth. The National Index and the 10- and 20-City Composites posted their highest annual returns since 2006. Other housing market data reported in recent weeks confirm these strong trends: housing starts and permits, sales of new home and existing homes continue to trend higher. The number of cities that showed monthly gains increased to 15. Source: NMP Daily

Forty percent of Americans say now is a good time to sell a home -- up from 30 percent last month and 16 percent just one year ago, according to a new survey by Fannie Mae. Rising home prices are helping to boost sellers’ confidence. "Sentiment toward selling a home appears to be catching up with the strengthening housing market," says Doug Duncan, chief economist at Fannie Mae. “This jump may foreshadow a gradual return to more normal levels of housing supply from their lows of recent months. In turn, increased housing supply could serve to temper increasing consumer home price expectations.” With confidence increasing, more sellers are listing their homes and inventory levels are rising in many markets. Inventory levels are up nationally 4 percent in April over the prior month, but in some markets inventories have soared even higher. For example, California municipalities Stockton and Sacramento have seen inventories rise more than 75 percent in April from the prior month, according to realtor.com® data. As the number of homes for sale increases, "homes are starting to sit a little bit longer," says Joanie Cubias of Lyon Real Estate in Sacramento. Still, in markets where a large number of home owners remain underwater on their mortgage, inventory levels remain low. "We will closely watch the potential impact of rising mortgage rates on consumer housing sentiment in the coming months," Duncan says. Source: USA Today

 

Jennifer Odom

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The Real Estate Report June 12, 2013

 
Rising Rates -- Good News?

Several articles debating the effect of higher interest rates upon the economy have appeared in major periodicals in the past few weeks. The majority of them come to the conclusion that the recent rise in rates represents good news. Not because the higher rates will help the economy. But because of the fact that rates have risen because the economy is doing better. Or at least the threat of a double dip recession has faded from memory. One must remember that it was the threat of things going sour again which caused rates to dive down into uncharted waters. We accept this conclusion; however from this debate arise two additional questions. First, are Americans better off because rates have risen? Our answer is yes -- with a caveat. Americans who own a home and/or stocks are better off because these assets have gone up in value due to the better economy.

For Americans without a home, rising rates might make the recent bargains on real estate a distant memory. Which brings up the second question. Will rates continue to rise? At today's rates, home ownership is still a bargain and stocks are a much better place to invest as compared to yields on interest rate bearing instruments such as bank accounts. If rates continue to rise, this equation could change. We would have to predict the future to answer the question -- and we don't have that power. Friday's employment report showed 175,000 jobs created with a slight increase in the unemployment rate. This gives us not much of a clue as to the direction of rates because the report was "middle of the road." However, we will say that perspectives have changed significantly over the past three years. Three years ago, 175,000 jobs created would have been considered good news.
 

As consumer confidence, the economy, and job market all make gains, more Americans are feeling like they have money to spend on second residences and summer homes. Low rates are still a big draw as well. Vacation home sales increased 10 percent nationwide in 2012, according to the National Association of REALTORS®. Real estate professionals are also reporting sales have been strong this spring in many vacation home hot spots. "A lot of buyers who were sitting on the sidelines decided last year was probably a good time to take advantage of buying a vacation home," says Paul Bishop, NAR’s vice president of research. "They were feeling pretty good about their own financial situation, given the growth in the market and in the economy." In vacation home hot spots like the Hamptons, home prices are “roaring back” and rentals are fully booked for the season, CNBC reports. "We've seen bidding wars in the four to five million dollar range as well as in the overall market," Laura Nigro, a real estate broker in Bridgehampton, N.Y., told CNBC. "It's so much better than when the 2008, 2009 economy shrank and people were very much afraid to invest in anything.” Mostly fueling the demand for vacation homes in the Hamptons has been buyers from China, Nigro says. After super storm Sandy struck the coast last year, more buyers are evaluating the FEMA flood requirements more closely and coastal erosion zones before buying, real estate professionals report. But the storms of the past aren’t appearing to dampen their willingness to buy. Source: CNBC

In a housing market characterized by a short supply of properties and by bidding wars, some buyers are hoping to get a competitive edge by writing sellers short notes about why they fell in love with a home and want to become its new owners. Michael Citron, an agent in Florida's Broward and Palm Beach counties, says, "Money talks, but a letter gives a human element to an offer. Sellers want to sell to a buyer who they're comfortable with and can relate to." Although finding the right buyer can make people feel better about selling their home, experts say these letters will do little to help a buyer's case if the offer is significantly lower than competing bids. Moreover, lenders care little about such letters and only want the highest price and earliest closing possible. Source: South Florida Sun-Sentinel

Americans who are between the ages of 18 and 34 — known as Generation Y — could be a “game changer” in the U.S. real estate market, according to Urban Land Institute. As such, ULI researchers are taking careful note of this generation’s preferences when it comes to homes. A new ULI survey of about 1,200 Millennials shows that 59 percent of those surveyed prefer a home in a neighborhood that has a variety of housing types. For example, 62 percent said they prefer mixed-use developments with shops, restaurants, and offices, and 52 percent say they like pedestrian-friendly neighborhoods. The survey also showed that 55 percent of Millennials said they want their home to be in close proximity to public transportation. ULI researchers also note that this generation is more likely than older generations to live in apartments and in downtown areas. Patrick Phillips, ULI’s chief executive, says he believes the Millennials represent a big change from other generations, in that this group will continue to prefer more compact, urban homes, even later in life. He says that will likely lead to more mixed-use development. “Over time, we’ll see a return to a more compact, metropolitan development pattern,” Phillips said. “We’ll see less sprawl at the edges ... the market preferring solutions that are closer in.” Source: The Wall Street Journal

 

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