Weekly Real Estate Report

The Fed Speaks -- Holiday Cheer?

Well after months and months of speculation, the Federal Reserve Board finally announced the start of their "tapering" program in which they will reduce the amount of their purchases of government and mortgage-back securities by ten billion dollars per month. Starting in January, the Fed will purchase $75 billion dollars monthly instead of $85 billion dollars. This program was instituted during the financial crisis both to keep long-term rates lower and provide some stability in a mortgage market which was devastated by the crisis. By lowering the amount of purchases, the Fed is officially proclaiming that America is well on the road to recovery.

This does not mean that the Fed is about to raise interest rates. What it means is that the Fed will be exerting less influence over long-term rates which are of utmost importance to consumers because fixed-rate home loans are influenced significantly by the direction of long-term interest rates. The Fed has been going out of its way to say this does not mean that they are ready to raise short-term rates. The Fed has emphasized its commitment to keep short-term interest rates "exceptionally low" until either the unemployment rate falls to around 6.5% or the inflation rate exceeds 2.5% a year.

Why is this good news for the Holiday? Well, the stock markets rallied decisively on the news. The economy is recovering and this is a good thing. Long-term rates rise when the economy is stronger. This is especially the case when rates are bouncing back from the lowest point in history. But rates are still very, very historically low. And this is good news for homeowners because a stronger economy will translate into more buyers and this will cause the positive cycle to continue. All in a low rate environment. So, we have something to celebrate.

 

The foreclosure crisis is showing signs that it's finally fading away. The number of new foreclosure filings -- which includes default notices, auctions and bank repossessions -- dropped 15% to a total of 113,454 properties in November, according to RealtyTrac, an online marketer of foreclosed properties. That was the biggest monthly decline since November 2010, and foreclosure filings are now at the lowest level since December 2006. From a year ago, filings are down 37%. "The depth and breadth of the decrease provides strong evidence that we are entering the ninth inning of this foreclosure crisis with the outcome all but guaranteed," Daren Blomquist, vice president at RealtyTrac, said in a statement. Along with general economic improvements that have made it possible for homeowners to stay on top of housing payments, people are also trying harder to hold onto their homes as housing prices continue to rise. "People have more to lose if they lose their home," said Jed Kolko, chief economist at Trulia. While filings are much lower than the average of 300,000 filings per month during the height of the foreclosure crisis, they haven't quite recovered to the level of around 86,000 that was seen in 2005 and 2006, before the housing bubble burst."While foreclosures will likely continue to stage a weak rally in certain markets next year as the last of the distress left over from the Great Recession is dealt with, it is highly unlikely that there will be a foreclosure comeback that poses any major threat to the solid housing recovery that has now taken hold," said Blomquist. Source: CNN/Money

For 75 percent of military families, owning a home is one of the most important things to accomplish upon returning from service, according to a Century 21 survey. Harris Interactive conducted the study of more than 400 responses of military members or spouses. “Home ownership is a top priority for many, but is especially significant to those returning from a tour of duty,” says Rick Davidson, president and CEO of Century 21 Real Estate. Eighty-eight percent of veterans said that owning a home makes them feel safer. Vets also say they have a strong desire for home ownership because they want to own their own residence (73 percent), establish a household (43 percent), and have financial security (36 percent). However, only 33 percent of military families say they look for a home within a year of returning from active duty. The biggest obstacles reported were the price of homes, the inability to come up with a down payment, and personal savings. For those who do a begin a home search, vets and their families report space—in terms of number of bedrooms and bathrooms—is more important than other specific features in finding the perfect home. Storage space, amount of square footage, outdoor space, and an updated kitchen were cited as the most important amenities. Source: Realtor® Magazine Daily News

Single-family new-home sales posted a sharp rise in October, up 25.4 percent from September, according to newly released Census Bureau data. That was a similar rate to last spring when the new-home market was taking off in recovery mode. Across the country, all regions posted double-digit gains in new-home sales in October. In the Midwest, they jumped 34 percent; 28.2 percent in the South; 19.2 percent in the Northeast; and 15.2 percent in the West. As sales gained, inventory levels fell to a 4.9-month supply. "The strong October results return us to the sales levels we saw earlier this year and negate the pause caused by the sudden jump in rates," says David Crowe, chief economist for the National Association of Home Builders. "We expect sales to continue to rise as pent-up demand is released and first-time home buyers creep back into the market." The average price for a new home was $321,700 in October, according to Census data. That puts it on par with the average price during the 2006-07 boom times. The average price for a new home was $321,700 in October, according to Census data. That puts it on par with the average price during the 2006-07 boom times. Source: National Association of Home Builders

Jennifer Odom

Merry Christmas!

Best wishes for peace, prosperity and happiness.
Have a very merry Christmas!

Jennifer Odom with Landmark Bank

Weekly Real Estate Report

What Does a Better Job Market Mean?

Last month we printed a quote from a Federal Reserve Study. This study indicated that the economy was poised to start producing more jobs. While many were skeptical regarding this prediction, the October and November jobs reports indicate that this speculation was right on point. The economy has produced just over 200,000 jobs per month during the past four months while the previous four month average hovered around 160,000 per month. Not only has the jobless rate dropped to 7.0%, but initial claims for unemployment benefits have moved below 300,000 for the first time since the recession started. Though in the past week, they bounced back significantly most likely due to the timing of the Thanksgiving Holiday.

There are some evidence that the pick-up is still lackluster when you consider how many have left the workforce and the quality of jobs created; however, there is no doubt when you put all the numbers together, the job creation machine is steadily improving. The next question is--what does that mean for the economy? The economy improves as the job market improves. It is that simple. People who are working spend more money. More importantly, they make long term decisions such as setting up households, purchasing cars, homes, furniture and undertaking home improvements. For example, it is no coincidence that car sales in November hit their highest level since 2007.

A better economy comes with costs. This week the Federal Reserve meets and considers whether to lessen their stimulus efforts. Already interest rates have been increasing for the past six months in anticipation of this move. Most speculate that the Fed will not move until early next year and if jobs creation continues to improve, this prediction may become a certainty. News that Congressional budget negotiators have reached a preliminary agreement has heightened concerns that the move may come sooner because of a reduction of the threat of another government shutdown. Keep in mind that the Fed does not control long-term rates and if the markets feel the Fed should let rates rise, they are likely to rise no matter what action the Fed takes. The bottom line? The good news we are seeing in the employment sector is likely to end the run of good news we have seen with regard to record low rates. That does not mean that rates are likely to be high enough to make owning homes and cars unaffordable. There are still a lot of bargains out there. We just don't know how long they will last.

 

A tax break for struggling homeowners ends Jan. 1 and that could mean big tax bills -- and financial hits for their neighbors. Say a family is behind on their mortgage and the bank cuts them a deal, maybe reducing the loan principal or forgiving their home loan balance after a "short sale" in which the seller owes more than the final price. Under traditional IRS rules, the amount of that debt forgiveness would be taxable income. That temporarily changed in 2007 when Congress passed the Mortgage Foreclosure Debt Forgiveness Act. That law is set to expire at year's end. A return of the tax could affect many of the nearly 10 million Americans who owe more on their loans than their homes are worth, according to the National Association of Realtors (NAR). In a short sale, if a property with a $400,000 home loan sells for $250,000, the forgiven debt of $150,000 will be taxed after Jan. 1. The hit could top $35,000. Consumer advocates consider the tax unfair: "The money being taxed was 'phantom income' that existed only on paper," said Elyse Cherry, CEO of Boston Community Capital, a non-profit, neighborhood stabilization group. It will also damage foreclosure-prevention efforts, said Cherry. Many at-risk homeowners could not participate in programs if a big tax bill accompanies the fix. "The program only works when we can save homeowners money," she said. Source: CNN/Money

Homeowners frequently see their heating bills rise as Fall begins and the weather cools. For this reason, homes with energy efficient and environmentally friendly features are often a priority to prospective buyers. According to the National Association of Realtors’ 2012 Profile of Home Buyers and Sellers, nearly nine out of 10 recent homebuyers said that heating and cooling costs were somewhat or very important when considering a home for purchase. “Realtors build communities and know that consumer demand for greener homes and features has grown considerably over the past several years. Going green has proven to be more than a trend; many people now seek out this way of living and want homes and communities that are more resource efficient and sensitive to the environment,” said NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, Calif. “As energy savings and green building features are becoming more important to buyers, sellers and businesses, it comes as no surprise that consumers are placing a higher value on properties with those features.” It’s easy to understand why home buyers tend to favor greener houses; often the higher a home’s energy efficiency, the more money is potentially saved in monthly heating and cooling costs. NAR data show that features which directly affect monthly energy costs are important to buyers; thirty-nine percent of survey respondents reported that a home’s heating and cooling costs were very important when considering a home for purchase, followed by energy-efficient appliances and lighting, each at 24 percent. Landscaping for energy conservation and environmentally friendly community features were less important but were still a factor in the minds of home buyers; nearly half of buyers found these features very or somewhat important. Source: NAR

Thousands of single-family homes are being built to rent rather than sell, reports the New York Times. More home builders and investors see it as an income-generating investment at a time when the pool of first-time home buyers is shrinking. The percentage of homes built specifically as rentals was 6.2 percent in 2012 — a record high, according to Census Bureau figures. For example, in the Atlanta area, a five-bedroom, three-bathroom new home that may have sold for less than $200,000 can fetch $1,300 a month in rent. “New homes still command a premium with renters,” the Times reports. For investors, a new home can offer “fewer repairs, lower maintenance, and it looks great to the tenants,” says Bruce McNeilage, the managing partner of Kinloch Partners, a Nashville-based real estate investment company that has been acquiring model homes in the Atlanta area to turn into rentals. “You can get maximum rents, and people are going to stay in them for a while because they’re brand-new.” However, some home owners say they’re concerned about investors turning their new subdivisions into neighborhoods of renters. They fear it will worsen property values. Some firms say they try to avoid buying up blocks of rentals in one subdivision. “We never do more than 20 or 25 percent of a subdivision — we like to spread it out as much as possible,” says James Breitenstein, CEO of San Francisco-based firm Landsmith, which has built about 1,000 homes for rent in Houston, Indianapolis, and Kansas City. “We don’t want them to become rental communities.” Source: New York Times

Jennifer Odom

The Real Estate Report 12/13/2013

Can House Prices Rise as Sales Slow?

Here is an interesting picture. The S&P/Case-Shiller House Price index showed prices in the 20 largest cities increased 13.3 percent annually in September, the highest year-over-year increase since February 2006. Yet, existing home sales have slowed a bit and pending home sales have been lower for several months, according to the National Association of Realtors. How can home prices be rising at a time in which home sales are slowing down? The answer is found in two important numbers. For one, the percentage of distressed sales is falling as the foreclosure inventory shrinks. LPS reports that the foreclosure inventory is down 30% over the past year. Since distressed homes sell at a significant discount over non-distressed sales, it makes sense that the average sale price is rising. During the height of the housing crisis, the flood of foreclosed homes exaggerated the drop in home prices and on the way out of the crisis, the rise in home prices is now exaggerated by the lower numbers of these sales.

Secondly, we still have a lack of inventory in many markets, especially at the lower end of the market. Housing sales are being held back because of this lack of inventory but at the same time we are not seeing slower housing sales cause downward pressure on prices. If there is more demand than supply, prices will be stable or rise regardless of the number of total sales. What does this mean for the future? If demand continues to rise, housing prices will continue rising or at least stabilize. The first factor -- distressed sales --- will become less of a factor in the future as we approach normalized levels of distressed sales.

The key is demand. If the economy continues to produce jobs at a decent rate, then we will have a greater demand for the real estate market. That is what makes November's employment report interesting. Heading into December we had a series of numbers which pointed to a stronger jobs market, including the lowest number of first time claims for unemployment benefits since before the recession started and a strong October employment report. This made the markets optimistic before the numbers were released. And the numbers did not disappoint as the economy once again created more than 200,000 jobs and the unemployment rate dropped to 7.0%.

It is official. FHA’s Office of Single Family Housing published Mortgagee Letter 2013-43 on Friday, December 6. This letter announced that on January 1, 2014, FHA will implement new Single Family loan limits for mortgages as detailed in the Housing and Economic Recovery Act of 2008 (HERA). As a result, the calculation of FHA’s maximum loan limits in high cost metropolitan areas of the country will be reduced and the current high “ceiling” of $729,750 will be reduced to $625,500. The revisions will be effective for all applications submitted after the end of December. The letter also announces the limits for areas between the base and high-cost limits which are also lower in many areas as well as the limits for reverse mortgages. Note that VA has not made their announcement regarding possible changes for next year as of December 6.  Source: FHA  Note: To be assured of obtaining the higher loan limits a prospective home buyer will need to ratify a contract and submit an application to a lender several days before the end of the year.  FHA has lower down payment requirements as compared to conventional mortgages. 

The Mortgage Bankers Association’s (MBA) Research Institute for Housing America (RIHA) released a new report entitled A Profile of Housing and Health among Older Americans authored by Professors Michael D. Eriksen of Texas Tech University, Gary V. Engelhardt of Syracuse University, and Nadia Greenhalgh-Stanley of Kent State University. “The study found older Americans who own their homes are more financially secure and generally experience fewer impediments to good health than their peers who rent,” said Professor Eriksen. “Owning a home provides the single largest asset in most Americans’ retirement portfolios, while renters have far more difficulty modifying their living space to adapt to any of the myriad physical ailments that tend to affect older people. Our report serves as a useful reference for all parties interested in the implications of housing on an aging society, a situation America now faces with large numbers of the Baby Boomer generation rapidly heading into retirement age.” This latest study provides a profile of the housing, functional status and health status of the near old (individuals aged 55 through 64) and older Americans (aged 65 and older) using the most recent data available from the Health and Retirement Study, a joint product spearheaded by the National Institute on Aging and the University of Michigan. “Housing demand over the next decade will be significantly impacted by the aging of the U.S. population. Real estate finance must also evolve to meet these changing needs, whether older Americans age in place and continue to own their homes, or whether they rent,” said Mike Fratantoni, executive director of RIHA, and vice president, Research and Policy Development for MBA. The study found that there were more than 47 million near old and older American households in 2010, of which 80 percent were homeowners. In addition, housing is still the dominant asset in the portfolios of older Americans. Median housing equity for older American homeowners was $125,000; the median housing-equity-to-income ratio was 2.4:1; and 50 percent of the typical older homeowner’s portfolio was composed of housing wealth. Source: NMP Daily

More home buyers are saying that living near family members is not an important consideration for them when home-shopping. They’d rather concentrate on property size, crime rates, school district, and length of commute when shopping for a new home rather than focusing on the distance to their in-laws, according to a new survey by Trulia and research firm Harris Interactive. The No. 1 driver in their home search? Home size, according to 70 percent of adults surveyed with children. The other top concerns for home-shopping that followed were crime rate, school district, and length of commute. On the other hand, 33 percent of adults with children and 29 percent of adults without children cited proximity to family members as important criteria when looking for a home to purchase. “Family members want intimacy at a distance,” says Deborah Carr, professor of sociology at Rutgers University. “They want love and support from their kin, but they also want to maintain their independence and autonomy.” That said, when times get tough, more Americans say they want to be near families. A survey during the recession by Relocation.com showed that Americans wanted to move near family or move-in with family to help curb costs. Multigenerational households have been rising. In fact, in 2008, 16 percent of Americans lived in a household with at least two adult generations — a record percentage, according to Pew Research Center research. Source: The

 

Jennifer Odom

The Real Estate Report 12/4/2013

The Muddled Oil Picture

We find it kind of interesting that the stock market continues to hit records at a time in which oil prices are moderating. Conventional wisdom tells us that the stock market rallies when the economy is getting stronger. A stronger economy causes higher demand for energy. That would cause oil and gas prices to rise. Yet, in August oil prices pushed to approximately $110 per barrel and by the middle of November, they had receded to below $95.00 per barrel. In the meantime, in the middle of November stock prices hit record levels again. Why the disconnect? Some of the drop in oil prices could be associated with the uncertainty which accompanied the government shutdown -- however the stock market did not seem to be affected by the shutdown and oil prices did not rebound when the shutdown was over. There are also seasonal factors. We got through the hurricane season without any major storms which could have damaged our ability to produce oil. Finally, the progress towards the Iranian nuclear agreement also weighed in on oil prices.

On the other hand, there were some additional important announcements that are affecting the overall picture. The International Energy Agency reported that the U.S. will surpass Saudi Arabia as the top oil producer in the world by 2015. The Administration also announced in November that our oil production is at a 24-year high and our imports are at a 17-year low. The factors for this include both new oil extraction technologies such as fracking and more energy efficient cars. Long-term projections in the IEA report were not as optimistic; however, for now the energy picture is getting better. Why is this important? As the economy grows, if oil prices also increase this causes a drag on economic growth. If in 2014 oil prices stay where they are, consumers will have more money to spend in other areas --from furniture to cars to houses. In other words, if it holds the oil price picture could be very good news. Meanwhile this week we will see another jobs report. This one is sure to be interesting as a follow-up to the surprisingly strong report from the previous month.

The U.S. homeownership rate climbed from the lowest level in 18 years, signaling that the real estate rebound is drawing in more buyers. The share of Americans who own their homes was 65.3 percent in the third quarter, up from 65 percent in the previous three months, the Census Bureau reported. The prior level was the lowest since the third quarter of 1995. Rising real estate values are removing negative equity, helping homeowners avoid foreclosure, while also luring would-be purchasers into the market before prices and rates go higher. The pool of eligible buyers is expanding as U.S. employment improves and families who lost properties during the recession repair their credit and seek another chance at owning. Americans whose properties were repossessed were once “homeowners by choice and now they are renters by chance,” Richard Smith, chief executive officer of Realogy Holdings Corp. (RLGY), owner of brokerage brands Coldwell Banker and Century 21, said in a telephone interview yesterday. “They will repair their credit and be back in the market as homebuyers. We don’t grow up in the country aspiring to be renters. We aspire to be owners.” Home prices jumped 12 percent in September from a year earlier, the 19th straight annual increase, Irvine, California-based CoreLogic Inc. reported as well. Source: Bloomberg

Solar panels are soaring in popularity, almost becoming a standard for new homes in several markets, Bloomberg reports. Six of the 10 largest U.S. homebuilders say they now include solar panels in new construction, and consumer demand for them is expected to soar 56 percent nationwide this year, according to the Solar Energy Industries Association. “In the next six months, homebuilders in California and the expensive-energy states will be going solar as a standard and just incorporating it into the cost of the house like any other feature,” Jim Petersen, CEO of solar contractor PetersenDean Inc., told Bloomberg. Installing solar panels during the home-construction phase is about 20 percent cheaper than doing so after the house is built. Solar panels can cost between $10,000 to $20,000, but they can drastically reduce electricity bills. In California, the biggest solar state, as many as one in five homes built this year will have solar panels, according to some industry estimates. Source: Reuters

Though U.S. developers added 39 million square feet of new office space nationwide over the last year, the gains were muted because another 22 million square feet of office space was removed from the market, CoStar Group reports. Where did it go? Developers have either demolished or converted the removed space into other uses, such as apartments or condos, according to an analysis of CoStar’s third-quarter Office Outlook and Forecast. But more developers are second-guessing demolishing these older offices and opting to convert these spaces into residences in order to help meet growing demand for urban residential space. The trend is most evident in markets like New York City, San Francisco, Chicago, Philadelphia, Baltimore, northern New Jersey, and Washington, D.C., CoStar notes. Developers are finding that residential condos can fetch investment sales prices of up to $5,000 per square foot, much higher than what the office buildings attracted. Source: The CoStar Group

Jennifer Odom

 

 
 

Interesting December Facts...

Jennifer Odom