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 12/4/2013

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

 

 
 

The Real Estate Report March 20, 2013

Not Enough Homes For Sale?

Who would have thought that we could be entering the home selling season with a headline which says there are not enough homes for sale? After all, analysts had warned that the shadow inventory of homes held by banks would weigh down the markets for years to come. Where did these millions of homes go? Many were foreclosed upon. Others were sold by short sale rather than going through the foreclosure process as foreign and domestic investors bought millions of bargains. Also, many others were modified to help homeowners to remain in their homes as the economy has gotten stronger and provided more jobs for those who were unemployed. This stronger economy has meant that fewer home loans have moved into default in the past few years as well. On the other hand, there are still many homes waiting to be foreclosed upon.

How could we have a shortage of inventory at this juncture? Investor demand along with population growth and rising household formulation have all combined to remove excess inventory. Combine these factors with the fact that those who owe more than their homes are worth are reticent to sell. Even those who were foreclosed upon are starting to purchase again or need single family homes to rent. The question is not why is the inventory down, but will the lower inventory slow down the real estate market in the coming year? You can't have rising home sales with not enough homes for sale. We think that two factors will increase inventory in the coming year. Rising home prices will encourage more home owners to list their homes. And builders can create inventory by building more homes. Increased building activity is expected to help pump up the economy in the coming year. If real estate demand continues to rise, expect banks to accelerate the process to get rid of homes in their inventory. In other words, we are expecting the low inventory "problem" to be self-correcting during the year -- unless new demand outstrips this additional supply.

Fifty percent of Americans say they expect the housing market to improve in 2013, while 16 percent say they expect it to get worse, according to a Bloomberg National Poll of 1,003 adults. What’s more, the majority of the Americans surveyed said they have big hopes that the improvement in the housing market will also help give a boost to the overall economy. “Prices are very steadily, slowly, starting to creep back up,” Eric Matheny—an attorney from Fort Lauderdale, Fla., who recently purchased a new home—told Bloomberg. “The housing market is a major part of the economy, so it says something about the strength of the economy.” More Americans are expressing optimism about the trajectory of home prices too. Twenty-seven percent expect their home values to rise while 16 percent said they expect their home’s value to fall. In the previous survey, 20 percent predicted that their home’s value would rise while 20 percent had said they expected values to fall. Source: Bloomberg

Single family home tenants are 18 percent more likely than apartment tenants to stay in their current homes five years or longer, suggesting that demand for single family homes, the fastest growing rental category, will be more stable than multifamily demand, according to a new national opinion survey released by ORC International for Premier Property Management. Twenty-six percent of single family tenant plans to stay in place five years or more, compared to one out of five apartment dwellers (22 percent). Founded in 1938, ORC International is a leading global market research firm and since 2007 has conducted the CNN|ORC International poll. One factor contributing to single family stability could be high marks renters give the quality of single family property management. Some 80 percent of tenants in single family rentals said their property management was good or excellent compared to only 63 percent of apartment renters One out of four apartment dwellers (26%) rated their management as only adequate. “With the emergence of the single family rental option, American families have a new housing choice that brings them the aspects of associated with owning their own homes important to families such as living space, privacy, safe neighborhoods and the sense of community. Single family rentals can be found in virtually every community today and more and more families are choosing single family rentals either as a temporary stop on the road to becoming homeowners or as a permanent solution to their housing needs,” said Chris Clothier, director of sales & marketing and partner of Premier Property Management. Over half, 52 percent, of renters, including 60 percent of single family renters and 44 percent of apartment dwellers, said they anticipate becoming homeowners in the next five years. Families with three or more members (64 percent) and children under 13 (69 percent) were more likely to become homeowners than the 43 percent who don’t plan to become owners. Clothier said near term interest in becoming homeowners among single family tenants reflects the new roles single family rentals are fulfilling as a stepping stone to homeownership for first-time buyers and as a sanctuary for large numbers of families displaced by foreclosures but who plan to buy again when they can afford to do so. Source: ORC

The IRS no longer mails reminder letters to taxpayers who have to repay the First-Time Homebuyer Credit. To help taxpayers who must repay the credit, the IRS website has a user-friendly look-up tool. Here are four reminders about repaying the credit and using the tool:

·         Who needs to repay the credit? If you bought a home in 2008 and claimed the First-Time Homebuyer Credit, the credit is similar to a no-interest loan. You normally must repay the credit in 15 equal annual installments. You should have started to repay the credit with your 2010 tax return. You are usually not required to pay back the credit for a main home you bought after 2008. However, you may have to repay the entire credit if you sold the home or stopped using it as your main home within 36 months from the date of purchase. This rule also applies to homes bought in 2008.

·         How to use the tool. You can find the First-Time Homebuyer Credit Lookup tool at IRS.gov under the ‘Tools’ menu. You will need your Social Security number, date of birth and complete address to use the tool. If you claimed the credit on a joint return, each spouse should use the tool to get their share of the account information. That’s because the law treats each spouse as having claimed half of the credit for repayment purposes.

·         What the tool does. The tool provides important account information to help you report the repayment on your tax return. It shows the original amount of the credit, annual repayment amounts, total amount paid and the remaining balance. You can print your account page to share with your tax preparer and to keep for your records.

·         How to repay the credit. To repay the First-Time Homebuyer Credit, add the amount you have to repay to any other tax you owe on your federal tax return. This could result in additional tax owed or a reduced refund. You report the repayment on line 59b on Form 1040, U.S. Individual Income Tax Return. If you are repaying the credit because the home stopped being your main home, you must attach Form 5405, Repayment of the First-Time Homebuyer Credit, to your tax return. Source: IRS

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Take Advantage Of Your Purchasing Power...

Take Advantage of Your Purchasing Power

Last year is a record-breaker when it comes to housing affordability, according to the National Association of Realtors [NAR]. Interest rates and home prices dropped dramatically, offsetting lower median incomes, which are the three factors considered in determining the affordability index. But that's not expected to last; as interest rates creep up, and housing prices as well, we may not see an index this high for many years. Have you taken advantage of this perfect storm of factors to purchase a new property? Whether you are looking at buying a larger or smaller home, investing in real estate, or even purchasing a second or retirement home, it's a great time to make your move, before the market changes and your purchasing power begins to drop. Home Prices Today's housing prices are astonishingly low. According to real estate website Trulia, buying a home in 2012 was even cheaper than renting in the largest U.S. cities. Prices did make modest gains over the course of the year, however, and though they remain very favorable, experts predict they will continue to slowly rise as the market improves. By acting now you can take advantage of prices that are still extremely low, maximizing your purchasing power. Interest Rates Not only are housing prices at historic lows, but interest rates have been, too. Rates for 30-year fixed loans have been in the 3-4% over the last several months. This is significantly lower than the historic average. The average rate for 30-year fixed rate loans over the last four decades has been 8.9 percent. With rates this low, the smart buyer makes a move. The market can't sustain these numbers for long, and won't need to as it improves. Economists from the New York Federal Reserve have already stated that they don't expect mortgage rates to sink much lower than they have already. Affordability and Purchasing Power The affordability of housing during the first quarter of 2012 hit its highest level in the 20 years that the National Association of Home Builders and Wells Fargo have been tracking it in their joint Housing Opportunity Index (HOI). The combination of low rates and low housing prices has created an unprecedented opportunity for homebuyers to maximize their purchasing power. But the HOI did begin to drop over the course of 2012. Do you want to risk it lowering even more in 2013? Every partial percentage point that rates rise will significantly lower your purchasing power. If you'd like to see some surprising numbers, let's set up a no-obligation meeting so I can show you the difference in purchasing power — and monthly payments — between 3.5% and 4%. You may find the motivation to begin the homebuying process right away! Capitalize on the Current Market Buying a home just isn't going to get much cheaper. You know your purchasing power is at its peak; delaying for even a few months can reduce the amount of home you can afford and raise the price you'll pay. If you are ready to capitalize on the current market's perfect storm of low rates plus low home prices, please contact me to set up a meeting to look at your options, review costs, and ensure you're maximizing your purchasing power.   Jennifer Odom Mortgage Loan Consultant Contact Me My website