From Realtor Magazine Online, Daily Real Estate News June 27, 2008
Freddie Mac reports modest gains in fixed mortgage rates during the week ended June 26, with the 30-year rate rising to 6.45 percent from 6.42 percent a week ago and the 15-year rate climbing to 6.04 percent from 6.02 percent.
Uncertainty before the Federal Reserve's recent policy committee meeting sparked bigger increases in adjustable-rate mortgages, says Freddie Mac chief economist Frank Nothaft. The five-year ARM moved up to 5.99 percent from 5.89 percent, and the one-year ARM jumped to 5.27 percent from 5.19 percent.
Source: The Wall Street Journal (06/27/08)
Friday, June 27, 2008
Thursday, June 26, 2008
Inflation: The Fed & BOE Must Raise Rates
From The Economist, Jun 26th 2008
The Fed and the Bank of England are likely to have to raise rates to retain their credibility.
WHAT are central banks in rich countries to do? Inflation is on the march again on both sides of the Atlantic. That argues for raising interest rates. At the same time, because of the credit and housing crisis, America is close to a recession and other economies look set for a fall. That argues for sitting tight.
Faced with this dilemma, central bankers are divided. The European Central Bank (ECB) seems intent on raising rates. It is expected to do so in early July. The Federal Reserve is still spooked by recession. It kept interest rates unchanged this week, as did the Bank of England earlier in June. So who has got it right?
On the face of it there is much to be said for the Fed’s and the Bank’s approach. The inflationary shock is largely confined to the surging prices of oil and food. It is a relative-price effect rather than a rise in prices across the board. Core inflation, which strips out food and energy, remains tame in both Britain and America. Provided that commodity prices stabilise—something that seems overdue after the recent increases—the surge in headline inflation should be temporary.
The main danger is that the commodity-price shock feeds through to domestic-price pressures, turning a temporary surge into a persistent jump in inflation. But this risk will be tempered by the slowdown already afflicting the American economy and heading across the Atlantic.
The combination of rising inflation and slowing growth may bear a worrying resemblance to the stagflationary 1970s, but there has been a sea-change in advanced economies since then. Product markets are more competitive and labour markets more flexible. This makes a repeat of ruinous wage-price spirals much less likely.
Show that you mean it
Another difference from the 1970s is that the epicentre of the inflationary shock lies in the developing world. Although supply constraints have contributed to the rise in commodity prices, a crucial reason has been the relentless increase in demand for oil and resources from countries like China. Global monetary conditions are too lax, but the central banks that need to respond most urgently are in emerging economies.
Yet there are risks in sitting tight. The big worry is that both the Fed and the Bank may lose their hard-won authority as doughty fighters against inflation, with the result that people expect inflation to rise further. Rising inflation expectations are bad news. When people think that inflation will stay low, price-setters and wage-negotiators act accordingly, creating a virtuous circle. Once they expect higher inflation, firms will anticipate it by trying to pass cost increases on and wage negotiators will push for higher wage deals, creating the potential for a vicious circle even in today’s better-behaving economies.
The worry is that inflation expectations already seem to be rising. A survey of American consumers shows that their median expectation of inflation over the next five to ten years has reached its highest since 1995 (see article). In Britain the public’s year-ahead view has jumped to its highest since the central bank started the survey in 1999.
There is no cast-iron link leading from inflation expectations to a persistent rise in inflation. But the lesson of previous monetary mistakes is that it is less costly to prevent inflation from escaping than to recapture it. The ECB’s plan for a rate rise in July is designed to show that it means business. Unless financial markets or growth prospects take a further turn for the worse, the Fed and the Bank will need to do the same before long. Otherwise they will lose the credibility that is a central bank’s most valuable asset.
The Fed and the Bank of England are likely to have to raise rates to retain their credibility.
WHAT are central banks in rich countries to do? Inflation is on the march again on both sides of the Atlantic. That argues for raising interest rates. At the same time, because of the credit and housing crisis, America is close to a recession and other economies look set for a fall. That argues for sitting tight.
Faced with this dilemma, central bankers are divided. The European Central Bank (ECB) seems intent on raising rates. It is expected to do so in early July. The Federal Reserve is still spooked by recession. It kept interest rates unchanged this week, as did the Bank of England earlier in June. So who has got it right?
On the face of it there is much to be said for the Fed’s and the Bank’s approach. The inflationary shock is largely confined to the surging prices of oil and food. It is a relative-price effect rather than a rise in prices across the board. Core inflation, which strips out food and energy, remains tame in both Britain and America. Provided that commodity prices stabilise—something that seems overdue after the recent increases—the surge in headline inflation should be temporary.
The main danger is that the commodity-price shock feeds through to domestic-price pressures, turning a temporary surge into a persistent jump in inflation. But this risk will be tempered by the slowdown already afflicting the American economy and heading across the Atlantic.
The combination of rising inflation and slowing growth may bear a worrying resemblance to the stagflationary 1970s, but there has been a sea-change in advanced economies since then. Product markets are more competitive and labour markets more flexible. This makes a repeat of ruinous wage-price spirals much less likely.
Show that you mean it
Another difference from the 1970s is that the epicentre of the inflationary shock lies in the developing world. Although supply constraints have contributed to the rise in commodity prices, a crucial reason has been the relentless increase in demand for oil and resources from countries like China. Global monetary conditions are too lax, but the central banks that need to respond most urgently are in emerging economies.
Yet there are risks in sitting tight. The big worry is that both the Fed and the Bank may lose their hard-won authority as doughty fighters against inflation, with the result that people expect inflation to rise further. Rising inflation expectations are bad news. When people think that inflation will stay low, price-setters and wage-negotiators act accordingly, creating a virtuous circle. Once they expect higher inflation, firms will anticipate it by trying to pass cost increases on and wage negotiators will push for higher wage deals, creating the potential for a vicious circle even in today’s better-behaving economies.
The worry is that inflation expectations already seem to be rising. A survey of American consumers shows that their median expectation of inflation over the next five to ten years has reached its highest since 1995 (see article). In Britain the public’s year-ahead view has jumped to its highest since the central bank started the survey in 1999.
There is no cast-iron link leading from inflation expectations to a persistent rise in inflation. But the lesson of previous monetary mistakes is that it is less costly to prevent inflation from escaping than to recapture it. The ECB’s plan for a rate rise in July is designed to show that it means business. Unless financial markets or growth prospects take a further turn for the worse, the Fed and the Bank will need to do the same before long. Otherwise they will lose the credibility that is a central bank’s most valuable asset.
Fed Leaves Short-term Rate at 2 percent
From Realtor Magazine Online, Daily Real Estate News June 26, 2008
The Federal Reserve voted 9 to 1 for the status quo, leaving its key rate at 2 percent, with Richard Fisher, president of the Fed’s regional bank in Dallas dissenting. Fisher preferred an interest rate increase to fight inflation.
The Fed’s decision will keep short-term borrowing costs on consumer and business loans unchanged. Mortgages are more closely tied to long-term Treasury rates, but can be affected by short-term rates.
Some analysts believe the Fed will start raising rates at its next meeting in August because of concerns about inflation. Other economists argue that the weak economy and rising unemployment will keep the Fed on the sidelines until at least after the November elections.
Source: The Associated Press, Martin Crutsinger (06/25/2008)
The Federal Reserve voted 9 to 1 for the status quo, leaving its key rate at 2 percent, with Richard Fisher, president of the Fed’s regional bank in Dallas dissenting. Fisher preferred an interest rate increase to fight inflation.
The Fed’s decision will keep short-term borrowing costs on consumer and business loans unchanged. Mortgages are more closely tied to long-term Treasury rates, but can be affected by short-term rates.
Some analysts believe the Fed will start raising rates at its next meeting in August because of concerns about inflation. Other economists argue that the weak economy and rising unemployment will keep the Fed on the sidelines until at least after the November elections.
Source: The Associated Press, Martin Crutsinger (06/25/2008)
Existing-Home Sales Show Modest Gain
From Realtor Magazine Online, Daily Real Estate News June 26, 2008
Sales of existing-home sales increased in May with buyers responding to lower home prices, NAR says.
Existing-home sales – including single-family, townhomes, condominiums and co-ops – increased 2.0 percent to a seasonally adjusted annual rate of 4.99 million units in May from a level of 4.89 million in April, but are 15.9 percent below the 5.93 million-unit pace in May 2007.
NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said buyers are seeing value in the current housing market. “Home buyers are starting to get off the fence and into the market, drawn by drops in home prices in many areas and armed with greater access to affordable mortgages,” he said. “Today’s buyer plans to stay in a home for 10 years, which is a good strategy for building long-term wealth.”
The national median existing-home price for all housing types was $208,600 in May, down 6.3 percent from a year ago when the median was $222,700.
Lawrence Yun, NAR chief economist, said there’s still a lot of inventory in the market. “The large supply of homes on the market clearly favors buyers, and it should take several months to draw the inventory down,” he said. “Stabilization in home prices can only occur with buyers returning to the market, so we are encouraged by rising home sales, particularly in distressed markets. Foreclosures and short sales appear to be a larger part of the market, particularly in California, and are creating a drag on current home prices.”
Total housing inventory at the end of May fell 1.4 percent to 4.49 million existing homes available for sale, which represents a 10.8-month supply3 at the current sales pace, down from a 11.2-month supply in April.
Although conditions remain mixed around the country, unpublished snapshot data shows a number of areas are experiencing much higher sales activity than May 2007, including Sacramento, the San Fernando Valley and Monterey County in California; Sarasota, Fla.; and Battle Creek, Mich.
“Keep in mind that the volume of home sales is the primary driver of economic activity that is tied to housing,” Yun said. “It’d be premature to say the improvement marks a turnaround. The market is fragile, so a first-time home buyer tax credit and a permanent raise in loan limits would be important steps to get the housing engine humming.”
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 6.04 percent in May from 5.92 percent in April; the rate was 6.26 percent in May 2007.
Single-family home sales rose 1.6 percent to a seasonally adjusted annual rate of 4.41 million in May from 4.34 million in April, but are 14.5 percent below the 5.16 million-unit pace in May 2007.
The median existing single-family home price was $206,700 in May, which is 6.8 percent below a year ago.
Existing condominium and co-op sales increased 5.5 percent to a seasonally adjusted annual rate of 580,000 units in May from 550,000 in April, but are 24.6 percent lower than the 769,000-unit level a year ago. The median existing condo price4 was $223,400 in May, down 2.1 percent from May 2007.
Regionally, existing-home sales in the Midwest rose 5.5 percent in May to a pace of 1.16 million but are 16.5 percent lower than a year ago.
The median price in the Midwest was $165,300, which is 0.7 percent below May 2007. In the Northeast, existing-home sales rose 4.6 percent to an annual rate of 910,000 in May, but are 15.0 percent below May 2007.
The median price in the Northeast was $278,000, down 2.4 percent from a year ago. Existing-home sales in the West increased 2.0 percent to an annual pace of 1.02 million in May, but are 12.8 percent below a year ago. The median price in the West was $286,600, which is 16.0 percent lower than May 2007.
In the South, existing-home sales slipped 0.5 percent to an annual rate of 1.91 million in May, and are 17.0 percent below May 2007.
The median price in the South was $175,000, down 4.3 percent from May 2007.
Source: NAR
Sales of existing-home sales increased in May with buyers responding to lower home prices, NAR says.
Existing-home sales – including single-family, townhomes, condominiums and co-ops – increased 2.0 percent to a seasonally adjusted annual rate of 4.99 million units in May from a level of 4.89 million in April, but are 15.9 percent below the 5.93 million-unit pace in May 2007.
NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said buyers are seeing value in the current housing market. “Home buyers are starting to get off the fence and into the market, drawn by drops in home prices in many areas and armed with greater access to affordable mortgages,” he said. “Today’s buyer plans to stay in a home for 10 years, which is a good strategy for building long-term wealth.”
The national median existing-home price for all housing types was $208,600 in May, down 6.3 percent from a year ago when the median was $222,700.
Lawrence Yun, NAR chief economist, said there’s still a lot of inventory in the market. “The large supply of homes on the market clearly favors buyers, and it should take several months to draw the inventory down,” he said. “Stabilization in home prices can only occur with buyers returning to the market, so we are encouraged by rising home sales, particularly in distressed markets. Foreclosures and short sales appear to be a larger part of the market, particularly in California, and are creating a drag on current home prices.”
Total housing inventory at the end of May fell 1.4 percent to 4.49 million existing homes available for sale, which represents a 10.8-month supply3 at the current sales pace, down from a 11.2-month supply in April.
Although conditions remain mixed around the country, unpublished snapshot data shows a number of areas are experiencing much higher sales activity than May 2007, including Sacramento, the San Fernando Valley and Monterey County in California; Sarasota, Fla.; and Battle Creek, Mich.
“Keep in mind that the volume of home sales is the primary driver of economic activity that is tied to housing,” Yun said. “It’d be premature to say the improvement marks a turnaround. The market is fragile, so a first-time home buyer tax credit and a permanent raise in loan limits would be important steps to get the housing engine humming.”
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 6.04 percent in May from 5.92 percent in April; the rate was 6.26 percent in May 2007.
Single-family home sales rose 1.6 percent to a seasonally adjusted annual rate of 4.41 million in May from 4.34 million in April, but are 14.5 percent below the 5.16 million-unit pace in May 2007.
The median existing single-family home price was $206,700 in May, which is 6.8 percent below a year ago.
Existing condominium and co-op sales increased 5.5 percent to a seasonally adjusted annual rate of 580,000 units in May from 550,000 in April, but are 24.6 percent lower than the 769,000-unit level a year ago. The median existing condo price4 was $223,400 in May, down 2.1 percent from May 2007.
Regionally, existing-home sales in the Midwest rose 5.5 percent in May to a pace of 1.16 million but are 16.5 percent lower than a year ago.
The median price in the Midwest was $165,300, which is 0.7 percent below May 2007. In the Northeast, existing-home sales rose 4.6 percent to an annual rate of 910,000 in May, but are 15.0 percent below May 2007.
The median price in the Northeast was $278,000, down 2.4 percent from a year ago. Existing-home sales in the West increased 2.0 percent to an annual pace of 1.02 million in May, but are 12.8 percent below a year ago. The median price in the West was $286,600, which is 16.0 percent lower than May 2007.
In the South, existing-home sales slipped 0.5 percent to an annual rate of 1.91 million in May, and are 17.0 percent below May 2007.
The median price in the South was $175,000, down 4.3 percent from May 2007.
Source: NAR
Tuesday, June 24, 2008
Home-Value Web Sites Miss the Mark
From Realtor Magazine Online, Daily Real Estate News June 24, 2008
Online home-value sites offer some useful tools, but their estimates are often wrong.
"The percentage of error on these estimates is still very large," says Delores Conway, director of the Casden Forecast at the University of Southern California Lusk Center for Real Estate. If there are not many comparable sales in one area, for example, she says, "the estimates will have huge errors in them."
Zillow.com and Cyberhomes.com rely on computer-generated automated models to estimate values. The models help compensate for the fact that many neighborhoods don’t have enough sales to generate accurate values based on experience.
But these computer models don’t reflect home condition, improvements and may not even accurately convey property descriptions.
Marty Frame, general manager of Cyberhomes.com, says the data on the site is best used as a way to form an overall impression of a neighborhood.
"Our goal is to provide you all this information and let you cherry-pick the things that are most interesting to you," Frame says. "You're going to look at an estimate and say, "that makes sense' or 'that doesn't make any sense."'
Source: The Associated Press (06/23/2008)
Online home-value sites offer some useful tools, but their estimates are often wrong.
"The percentage of error on these estimates is still very large," says Delores Conway, director of the Casden Forecast at the University of Southern California Lusk Center for Real Estate. If there are not many comparable sales in one area, for example, she says, "the estimates will have huge errors in them."
Zillow.com and Cyberhomes.com rely on computer-generated automated models to estimate values. The models help compensate for the fact that many neighborhoods don’t have enough sales to generate accurate values based on experience.
But these computer models don’t reflect home condition, improvements and may not even accurately convey property descriptions.
Marty Frame, general manager of Cyberhomes.com, says the data on the site is best used as a way to form an overall impression of a neighborhood.
"Our goal is to provide you all this information and let you cherry-pick the things that are most interesting to you," Frame says. "You're going to look at an estimate and say, "that makes sense' or 'that doesn't make any sense."'
Source: The Associated Press (06/23/2008)
A Commonly Missed Tax Break
From Realtor Magazine Online, Daily Real Estate News June 24, 2008
Condominium or cooperative residents often miss the fact that upgrades to the common areas of communities can affect the amount of tax an owner pays when the home is sold.
If the property is a principal residence and the owner has lived in it for two of the previous five years before the sale, a big chunk of the profit is already exempt from federal tax — $250,000 for a single person and $500,000 for a married couple.
But the seller will owe taxes on any profit beyond that, and he will owe taxes on the whole amount if the property isn’t a primary residence.
A proportional share of the amounts spent by the condo or cooperative association on improvements to the property — not simple maintenance — can be added to the amount paid for the property, or in tax lingo, “the basis.” The basis is subtracted from the sales price to determine any taxable profit.
“It surprises me that many community association owners are not aware of this tax benefit. Particularly for older home owners who have watched real estate profit build up over many years and now have a profit of more than $500,000, every dollar of capital improvements they can document is valuable,” says Benny L. Kass, real estate attorney.
Source: The Washington Post, Benny L. Kass (06/21/2008)
Condominium or cooperative residents often miss the fact that upgrades to the common areas of communities can affect the amount of tax an owner pays when the home is sold.
If the property is a principal residence and the owner has lived in it for two of the previous five years before the sale, a big chunk of the profit is already exempt from federal tax — $250,000 for a single person and $500,000 for a married couple.
But the seller will owe taxes on any profit beyond that, and he will owe taxes on the whole amount if the property isn’t a primary residence.
A proportional share of the amounts spent by the condo or cooperative association on improvements to the property — not simple maintenance — can be added to the amount paid for the property, or in tax lingo, “the basis.” The basis is subtracted from the sales price to determine any taxable profit.
“It surprises me that many community association owners are not aware of this tax benefit. Particularly for older home owners who have watched real estate profit build up over many years and now have a profit of more than $500,000, every dollar of capital improvements they can document is valuable,” says Benny L. Kass, real estate attorney.
Source: The Washington Post, Benny L. Kass (06/21/2008)
Monday, June 23, 2008
Investors Swoop In as Land Prices Fall
From Realtor Magazine Online, Daily Real Estate News June 23, 2008
Investor demand for undeveloped land is increasing as prices decline in many areas.
The decline is fueled by developers and individuals who are unloading property they previously bought to build on.
Real Capital Analytics, a research firm, says the exodus of some developers has pushed prices down substantially. Real Capital says the price per buildable square foot on land earmarked for retail development averaged $44 so far this year, compared with $79 in 2007, while the average price for land for condominiums was $87, versus $151.
“I haven't seen this market in 20 years,'' says Jaime Raskulinecz, a real estate investor and property manager from Verona, N.J., who wants to buy land in the hard-hit market of Cape Coral, Fla. During a recent visit there, she found lots for sale on or near the water at about a third to half below their peak prices of two years ago.
Investors in raw land need cash to spend because financing is hard to get. They also must be able to pay the property taxes, keep liability insurance on the property and provide upkeep. The possibility that there might be contaminants hiding there is also a risk.
Source: The New York Times, Vivian Marino (06/22/2008)
Investor demand for undeveloped land is increasing as prices decline in many areas.
The decline is fueled by developers and individuals who are unloading property they previously bought to build on.
Real Capital Analytics, a research firm, says the exodus of some developers has pushed prices down substantially. Real Capital says the price per buildable square foot on land earmarked for retail development averaged $44 so far this year, compared with $79 in 2007, while the average price for land for condominiums was $87, versus $151.
“I haven't seen this market in 20 years,'' says Jaime Raskulinecz, a real estate investor and property manager from Verona, N.J., who wants to buy land in the hard-hit market of Cape Coral, Fla. During a recent visit there, she found lots for sale on or near the water at about a third to half below their peak prices of two years ago.
Investors in raw land need cash to spend because financing is hard to get. They also must be able to pay the property taxes, keep liability insurance on the property and provide upkeep. The possibility that there might be contaminants hiding there is also a risk.
Source: The New York Times, Vivian Marino (06/22/2008)
Thursday, June 19, 2008
Jumbo-Conforming Rate Spread Narrows
From Realtor Magazine Online, Daily Real Estate News June 19, 2008
Interest rates on certain types of jumbo loans are finally dropping out of the stratosphere.
Rates on jumbo-conforming loans, which were approved by Congress in February for use through the end of 2008, are currently 6.59 percent, according to HSH Associates in Pompton Plains, N.J., compared to an average of 6.46 percent for similar loans with smaller balances. Non-conforming jumbos are averaging 7.4 percent.
At J.P. Morgan Chase & Co., the volume of jumbo-conforming applications has doubled since prices began to fall in early May. For some California lenders, jumbo-conforming loans now account for as much as 25 percent of applications, says Pete Ogilvie, president of the California Association of Mortgage Brokers.
"Most of the activity is in purchases, which is nice because it opens up the market for entry-level homes," Ogilvie says.
Source: The Wall Street Journal, Ruth Simon (06/19/2008)
Interest rates on certain types of jumbo loans are finally dropping out of the stratosphere.
Rates on jumbo-conforming loans, which were approved by Congress in February for use through the end of 2008, are currently 6.59 percent, according to HSH Associates in Pompton Plains, N.J., compared to an average of 6.46 percent for similar loans with smaller balances. Non-conforming jumbos are averaging 7.4 percent.
At J.P. Morgan Chase & Co., the volume of jumbo-conforming applications has doubled since prices began to fall in early May. For some California lenders, jumbo-conforming loans now account for as much as 25 percent of applications, says Pete Ogilvie, president of the California Association of Mortgage Brokers.
"Most of the activity is in purchases, which is nice because it opens up the market for entry-level homes," Ogilvie says.
Source: The Wall Street Journal, Ruth Simon (06/19/2008)
Calif.: Sales Rise as Home Prices Bottom
From Realtor Magazine Online, Daily Real Estate News June 19, 2008
As foreclosures push down California housing prices, first-time home buyers surge into the market.
The California median home price fell 30 percent in May, the sharpest decline in 20 years, since DataQuick Information Systems began keeping records.
The drop in home prices has sparked a home-buying rally that's beginning to reverse more than two years of monthly year-over-year sales declines.
"Inland markets hit hardest by foreclosures and falling prices are now the most likely to post higher sales than last year," says Andrew LePage, a DataQuick analyst. "These communities have been attracting first-time buyers, first-time move-up buyers and investors."
Richard Cosner, president of Prudential California Realty, says buyers of homes whose prices have declined in the last 18 months from $400,000 to $200,000 must compete with multiple bidders.
"For the first-time homebuyers and for that bottom tier of homes, we've found what the bottom of the pricing is," Cosner says.
Source: The Associated Press, Alex Veiga (06/18/2008)
As foreclosures push down California housing prices, first-time home buyers surge into the market.
The California median home price fell 30 percent in May, the sharpest decline in 20 years, since DataQuick Information Systems began keeping records.
The drop in home prices has sparked a home-buying rally that's beginning to reverse more than two years of monthly year-over-year sales declines.
"Inland markets hit hardest by foreclosures and falling prices are now the most likely to post higher sales than last year," says Andrew LePage, a DataQuick analyst. "These communities have been attracting first-time buyers, first-time move-up buyers and investors."
Richard Cosner, president of Prudential California Realty, says buyers of homes whose prices have declined in the last 18 months from $400,000 to $200,000 must compete with multiple bidders.
"For the first-time homebuyers and for that bottom tier of homes, we've found what the bottom of the pricing is," Cosner says.
Source: The Associated Press, Alex Veiga (06/18/2008)
Monday, June 16, 2008
Real Estate Funds Much Better Than '07
From Realtor Magazine Online, Daily Real Estate News June 16, 2008
The stocks of companies that own and manage self-storage buildings, apartment complexes, shopping centers, and office buildings are on the rise after a miserable 2007.
The average real-estate fund is up 9 percent in 2008, compared with the average U.S. diversified stock fund, which are on average down 2 percent, according to Lipper Inc.
Real-estate funds are down 8 percent for the 12-month period because of last year’s real estate market malaise. But the three-year annualized return is 9 percent and the five-year annualized return is 16 percent.
"There has been quite an inflow of money into real-estate funds this year because people believe the market has already priced in many of the negatives about the economy and real estate," says Barry Vinocur, editor of Realty Stock Review.
Source: Tribune Media Service, Andrew Leckey (06/15/2008)
The stocks of companies that own and manage self-storage buildings, apartment complexes, shopping centers, and office buildings are on the rise after a miserable 2007.
The average real-estate fund is up 9 percent in 2008, compared with the average U.S. diversified stock fund, which are on average down 2 percent, according to Lipper Inc.
Real-estate funds are down 8 percent for the 12-month period because of last year’s real estate market malaise. But the three-year annualized return is 9 percent and the five-year annualized return is 16 percent.
"There has been quite an inflow of money into real-estate funds this year because people believe the market has already priced in many of the negatives about the economy and real estate," says Barry Vinocur, editor of Realty Stock Review.
Source: Tribune Media Service, Andrew Leckey (06/15/2008)
Greenspan Predicts Rise in Interest Rates
From Realtor Magazine Online, Daily Real Estate News June 16, 2008
The credit crisis is under control, but with inflation now the top concern, higher interest rates can be expected, said former Federal Reserve Chief Alan Greenspan said last week.
Greenspan said he thought the credit crisis had peaked in March. "I think the worst is over (for the U.S. economy) if the financial crisis is over," Greenspan said via video link to an event in Mexico.
But to keep inflation under control, Greenspan said the fed will have to tighten monetary policy and that will drive up interest rates.
Source: Reuters News (06/13/2008)
The credit crisis is under control, but with inflation now the top concern, higher interest rates can be expected, said former Federal Reserve Chief Alan Greenspan said last week.
Greenspan said he thought the credit crisis had peaked in March. "I think the worst is over (for the U.S. economy) if the financial crisis is over," Greenspan said via video link to an event in Mexico.
But to keep inflation under control, Greenspan said the fed will have to tighten monetary policy and that will drive up interest rates.
Source: Reuters News (06/13/2008)
FHA Waives 90-Day Waiting Period
From Realtor Magazine Online, Daily Real Estate News June 16, 2008
The Federal Housing Administration is lifting the mandatory 90-day waiting period it instituted in 2003 that delays the sale of REO properties.
The waiting period, which never applied to properties sold by Fannie Mae, Freddie Mac or state- and federally chartered financial institutions, was imposed to make flipping more difficult. But as the number of REO homes gas grown, it has had the effect of flooding neighborhoods with properties.
The change may help reduce the impact of foreclosures on some neighborhoods, but it won’t have as significant an impact as some might think, says Glen Daniels director of real estate-owned properties for Foreclosure.com. Many of the REO properties don’t meet FHA standards and will require rehabilitation before they can be sold to an FHA borrower, he points out.
Source: Reuters News; Inman News, Matt Carter (06/13/2008)
The Federal Housing Administration is lifting the mandatory 90-day waiting period it instituted in 2003 that delays the sale of REO properties.
The waiting period, which never applied to properties sold by Fannie Mae, Freddie Mac or state- and federally chartered financial institutions, was imposed to make flipping more difficult. But as the number of REO homes gas grown, it has had the effect of flooding neighborhoods with properties.
The change may help reduce the impact of foreclosures on some neighborhoods, but it won’t have as significant an impact as some might think, says Glen Daniels director of real estate-owned properties for Foreclosure.com. Many of the REO properties don’t meet FHA standards and will require rehabilitation before they can be sold to an FHA borrower, he points out.
Source: Reuters News; Inman News, Matt Carter (06/13/2008)
Thursday, June 12, 2008
Wall Street Journal Opinion - Housing Crisis Is Over
From Wall Street Journal, By CYRIL MOULLEBERTEAUX May 6, 2008; Page A23
The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.
How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.
Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.
Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.
The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.
Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.
Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.
The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.
In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.
The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high - but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.
Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.
Inventories will drop even faster to 400,000 - or seven months of supply - by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.
Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.
Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.
This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.
When the rate of house-price declines halves, there will be a wholesale shift in markets’ perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.
More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.
A milder house-price decline scenario could lead to increases in the market value of a lot of the
securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets’ perception of risk related to housing, the financial system, and the economy.
We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years.
Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.
- Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.
The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.
How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.
Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.
Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.
The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.
Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.
Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.
The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.
In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.
The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high - but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.
Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.
Inventories will drop even faster to 400,000 - or seven months of supply - by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.
Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.
Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.
This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.
When the rate of house-price declines halves, there will be a wholesale shift in markets’ perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.
More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.
A milder house-price decline scenario could lead to increases in the market value of a lot of the
securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets’ perception of risk related to housing, the financial system, and the economy.
We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years.
Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.
- Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.
Wednesday, June 11, 2008
Mortgage Applications Bounce Back
From Realtor Magazine Online, Daily Real Estate News June 11, 2008
After a couple of down weeks, mortgage application volume rose 10.9 percent last week to 557.1 from 502.3 the previous week on an adjusted basis, according to the weekly survey by the Mortgage Bankers Association.
On an unadjusted basis, mortgage volume increased 23 percent compared with the previous week, but was down 16.5 percent compared with the same week a year ago.
Refinances were up 8.4 percent and the purchase index rose 12.8 percent, despite rising mortgage rates. Current rates are:
* 30-year fixed-rate mortgages increased to 6.24 percent from 6.17 percent;
* 15-year fixed-rate mortgages increased to 5.78 percent from 5.7 percent;
* 1-year ARMs increased to 6.87 percent.
Source: Mortgage Bankers Association (0611/2008)
After a couple of down weeks, mortgage application volume rose 10.9 percent last week to 557.1 from 502.3 the previous week on an adjusted basis, according to the weekly survey by the Mortgage Bankers Association.
On an unadjusted basis, mortgage volume increased 23 percent compared with the previous week, but was down 16.5 percent compared with the same week a year ago.
Refinances were up 8.4 percent and the purchase index rose 12.8 percent, despite rising mortgage rates. Current rates are:
* 30-year fixed-rate mortgages increased to 6.24 percent from 6.17 percent;
* 15-year fixed-rate mortgages increased to 5.78 percent from 5.7 percent;
* 1-year ARMs increased to 6.87 percent.
Source: Mortgage Bankers Association (0611/2008)
FHA Loans Gaining Popularity
From Realtor Magazine Online, Daily Real Estate News June 11, 2008
As lenders toughen their standards, loans by backed the Federal Housing Administration are increasingly popular.
The number of FHA loans issued rose 126 percent in the first quarter of 2008, compared with the same period a year ago. Most of FHA's business now comes from refinancing.
The volume of FHA loans at Wells Fargo has increased 342 percent this year from the same time in 2007, says Greg Gwizdz, the company's national retail service manager. Helping increase business were live simulcasts for real estate professionals that the lender recently held in movie theaters nationwide touting the benefits of FHA loans.
Only borrowers who can make at least a 3 percent down payment or have at least 3 percent equity in their homes and who can document their income can qualify for FHA loans.
Guy Cecala, publisher of Inside Mortgage Finance, says FHA paperwork remains daunting and the rates aren’t always the lowest. “But if your choice is vanilla ice cream or no ice cream, vanilla starts looking good," he says.
Source: The Washington Post, Dina ElBoghdady (06/10/08)
As lenders toughen their standards, loans by backed the Federal Housing Administration are increasingly popular.
The number of FHA loans issued rose 126 percent in the first quarter of 2008, compared with the same period a year ago. Most of FHA's business now comes from refinancing.
The volume of FHA loans at Wells Fargo has increased 342 percent this year from the same time in 2007, says Greg Gwizdz, the company's national retail service manager. Helping increase business were live simulcasts for real estate professionals that the lender recently held in movie theaters nationwide touting the benefits of FHA loans.
Only borrowers who can make at least a 3 percent down payment or have at least 3 percent equity in their homes and who can document their income can qualify for FHA loans.
Guy Cecala, publisher of Inside Mortgage Finance, says FHA paperwork remains daunting and the rates aren’t always the lowest. “But if your choice is vanilla ice cream or no ice cream, vanilla starts looking good," he says.
Source: The Washington Post, Dina ElBoghdady (06/10/08)
Tuesday, June 10, 2008
Calif. Home Prices Rise in Coastal Areas
From Realtor Magazine Online, Daily Real Estate News June 10, 2008
Home prices in California are rising significantly in key areas, according to mortgage technology company FNC Inc.
FNC's new Residential Price Index, which measure home prices monthly, points out that 15 percent of ZIP codes in San Diego, 25 percent in Orange County, and 24 percent in L.A. County appreciated from January through April.
“We are seeing signs that certain ZIP codes, typically in coastal areas, are beginning to stabilize and even appreciate from their end-of-2007 lows," said Robert Dorsey, executive vice president for Data and Analytics at FNC.
Source: FNC Inc. (06/09/08)
Home prices in California are rising significantly in key areas, according to mortgage technology company FNC Inc.
FNC's new Residential Price Index, which measure home prices monthly, points out that 15 percent of ZIP codes in San Diego, 25 percent in Orange County, and 24 percent in L.A. County appreciated from January through April.
“We are seeing signs that certain ZIP codes, typically in coastal areas, are beginning to stabilize and even appreciate from their end-of-2007 lows," said Robert Dorsey, executive vice president for Data and Analytics at FNC.
Source: FNC Inc. (06/09/08)
Monday, June 9, 2008
Don't Skimp on Homeowners' Insurance
From Realtor Magazine Online, Daily Real Estate News June 9, 2008
Buyers who try to save money by cutting back on their homeowners' insurance coverage could regret it, a new study warns.
United Policyholders, a San Francisco consumer organization, analyzed the aftermath of last fall’s forest fire in California. The group's research found that 75 percent of fire victims didn’t carry enough insurance to cover their losses.
California Insurance Commissioner Steve Poizner says his department believes that the insurer has some responsibility for making it clear how much insurance a homeowner needs to buy in order to replace a home that is totally destroyed. So far that view hasn’t been supported by court decisions stemming from lawsuits by unhappy customers whose insurance came up short.
Insurance companies say it isn’t their fault that customers don’t buy enough insurance. "Insurance companies do provide information and options and analysis about rebuilding costs," says Sam Sorich, president of the Association of California Insurance Cos. "But ultimately the decision about how much insurance to buy is the homeowner's. That's the practical explanation and also the legal explanation."
Source: Los Angeles Times, Marc Lifsher (06/06/2008)
Buyers who try to save money by cutting back on their homeowners' insurance coverage could regret it, a new study warns.
United Policyholders, a San Francisco consumer organization, analyzed the aftermath of last fall’s forest fire in California. The group's research found that 75 percent of fire victims didn’t carry enough insurance to cover their losses.
California Insurance Commissioner Steve Poizner says his department believes that the insurer has some responsibility for making it clear how much insurance a homeowner needs to buy in order to replace a home that is totally destroyed. So far that view hasn’t been supported by court decisions stemming from lawsuits by unhappy customers whose insurance came up short.
Insurance companies say it isn’t their fault that customers don’t buy enough insurance. "Insurance companies do provide information and options and analysis about rebuilding costs," says Sam Sorich, president of the Association of California Insurance Cos. "But ultimately the decision about how much insurance to buy is the homeowner's. That's the practical explanation and also the legal explanation."
Source: Los Angeles Times, Marc Lifsher (06/06/2008)
No-Downpayment Loans Still Out There
From Realtor Magazine Online, Daily Real Estate News June 9, 2008
Despite banks’ reactions to the foreclosure crisis, it’s still possible for a potential homeowner to buy with no money down.
Some options come from Fannie Mae and Freddie Mac and are aimed at making homeownership possible for buyers with limited credit and savings, including teachers, firefighters, and members of the military. Some of the loan programs, which are available through cooperating lenders, even allow 105 percent financing to cover closing costs.
Freddie Mac says such loans have lower delinquency rates because borrowers are required to complete homeownership education.
Earlier this year, Fannie Mae experimented with a policy that demanded a minimum of 10 percent down in markets where home prices were declining.
In May, it modified the policy to allow buyers in declining markets to borrow up to 97 percent of the purchase price with a conventional mortgage and meet any other need with a second mortgage that that lenders are required to forgive after five years of successful payments.
Source: Washington Post, David S. Hilzenrath (06/09/2008)
Despite banks’ reactions to the foreclosure crisis, it’s still possible for a potential homeowner to buy with no money down.
Some options come from Fannie Mae and Freddie Mac and are aimed at making homeownership possible for buyers with limited credit and savings, including teachers, firefighters, and members of the military. Some of the loan programs, which are available through cooperating lenders, even allow 105 percent financing to cover closing costs.
Freddie Mac says such loans have lower delinquency rates because borrowers are required to complete homeownership education.
Earlier this year, Fannie Mae experimented with a policy that demanded a minimum of 10 percent down in markets where home prices were declining.
In May, it modified the policy to allow buyers in declining markets to borrow up to 97 percent of the purchase price with a conventional mortgage and meet any other need with a second mortgage that that lenders are required to forgive after five years of successful payments.
Source: Washington Post, David S. Hilzenrath (06/09/2008)
Pending Sales Up 6.3% in April
From Realtor Magazine Online, Daily Real Estate News June 9, 2008
A modest gain in the level of home sales is possible over the next couple months, and an improvement is forecast for the second half of this year as more buyers are able to access affordable mortgages, according to the latest forecast by the NATIONAL ASSOCIATION OF REALTORS®.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in April, rose 6.3 percent to 88.2 from a reading of 83.0 in March. It’s the highest index since last October, but remains 13.1 percent lower than April 2007, when it stood at 101.5.
Lawrence Yun, NAR chief economist, says pending sales contracts have picked up notably in areas undergoing significant price drops.
“Bargain hunters have entered the market en masse, especially in areas that have experienced double-digit price declines, but it’s unclear if they are investors or owner-occupants,” he says. “Sharp price reductions are leading to a quicker discovery of price equilibrium points. The West is already seeing year-over-year gains in pending contracts.”
The Pending Home Sales Index in the West rose 8.3 percent to 98.8 in April from March, and is up 4.0 percent from April 2007. In the Midwest, the index jumped 13.0 percent to 83.7 in April but remains 13.1 percent below a year ago.
The index in the South increased 4.6 percent to 88.8 but is 22.5 percent below April 2007. In the Northeast, the index declined 1.9 percent in April to 79.3 and is 12.2 percent below a year ago.
Here are some other market predictions from Yun and NAR:
Affordability getting better.
NAR’s housing affordability index has been trending up this year and is projected to rise 15 percentage points to 128.0 for all of 2008. “It appears that more buyers are realizing they can take advantage of a favorable combination of mortgage interest rates, home prices and family income,” says NAR President Richard F. Gaylord. “Overall affordability conditions are the best we’ve seen since the middle of the housing boom in 2004, but with far more choices and much less pressure than buyers experienced four years ago to make an investment in their future. Recent declines in mortgage rates on conforming jumbo loans and a return to sound but not overly stringent underwriting standards will permit more people to qualify for a loan.”
Mortgage rates to go up.
“Although mortgage interest rates will remain historically favorable, they will start to steadily inch up,” Yun said. The 30-year fixed-rate mortgage should rise gradually to 6.3 percent by the end of this year, and then hold at that level for most of 2009.
Demand for homes only rising.
Yun said the underlying fundamentals point to a pent-up demand. “Home sales are at about the same level as they were 10 years ago, yet the population has grown by 25 million people and we have over 10 million more jobs,” he said. “The housing market has been underperforming by historical standards, partly because buyers were hampered by mortgage availability issues, but that’s improved and an upturn is more likely. On the other hand, it’s unclear what role consumer confidence will play in the coming months.”
EHS to see healthy gains in ’09.
Existing-home sales should increase from an annual pace of 5.05 million in the second quarter to 5.83 million in the fourth quarter. For all of this year, existing-home sales are expected to total 5.40 million, and then rise 6.3 percent to 5.74 million in 2009. “Sales gains will be greatest in areas that underwent sharp price declines,” Yun said.
Prices to stabilize in second half of this year.
After unprecedented home price declines in the first half of the year, many markets can anticipate stabilizing price trends in the second half. The aggregate median existing-home price is likely to decline 8.4 percent in the first half of this year, and then begin to stabilize in the second half before rising 4.4 percent next year to $213,900. “Policymakers need to be attentive to the fact that many homeowners have seen a reduction in housing equity, or are in an ‘underwater’ situation. More needs to be done on the policy front to alleviate hardships and bring fence-sitters back into the marketplace,” Yun says.
New-home sales slow to recover.
New-home sales will probably fall 31.7 percent to 529,000 in 2008 before rising 12.5 percent to 595,000 next year. Housing starts, including multifamily units, are projected to drop 27.2 percent to 987,000 this year, and then slip 0.6 percent to 980,000 in 2009. “Rising construction costs will provide less room for price cuts on new homes,” Yun said. The median new-home price is forecast to decline 3.1 percent to $239,500 in 2008, and then rise 5.4 percent next year to $252,400.
A better economic picture.
Yun sees an improving economy. Growth in the U.S. gross domestic product (GDP) should be 1.7 percent in 2008 and 2.0 percent next year. The unemployment rate is estimated to average 5.3 percent this year and 5.6 percent in 2009.
Inflation growing.
Inflation, as measured by the Consumer Price Index, is expected to be 3.6 percent this year and 2.4 percent in 2009. Inflation-adjusted disposable personal income should grow 1.4 percent in 2008 and 2.5 percent next year.Existing-home sales for May will be released June 26; the next forecast and Pending Home Sales Index will be released July 8.
— NAR
A modest gain in the level of home sales is possible over the next couple months, and an improvement is forecast for the second half of this year as more buyers are able to access affordable mortgages, according to the latest forecast by the NATIONAL ASSOCIATION OF REALTORS®.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in April, rose 6.3 percent to 88.2 from a reading of 83.0 in March. It’s the highest index since last October, but remains 13.1 percent lower than April 2007, when it stood at 101.5.
Lawrence Yun, NAR chief economist, says pending sales contracts have picked up notably in areas undergoing significant price drops.
“Bargain hunters have entered the market en masse, especially in areas that have experienced double-digit price declines, but it’s unclear if they are investors or owner-occupants,” he says. “Sharp price reductions are leading to a quicker discovery of price equilibrium points. The West is already seeing year-over-year gains in pending contracts.”
The Pending Home Sales Index in the West rose 8.3 percent to 98.8 in April from March, and is up 4.0 percent from April 2007. In the Midwest, the index jumped 13.0 percent to 83.7 in April but remains 13.1 percent below a year ago.
The index in the South increased 4.6 percent to 88.8 but is 22.5 percent below April 2007. In the Northeast, the index declined 1.9 percent in April to 79.3 and is 12.2 percent below a year ago.
Here are some other market predictions from Yun and NAR:
Affordability getting better.
NAR’s housing affordability index has been trending up this year and is projected to rise 15 percentage points to 128.0 for all of 2008. “It appears that more buyers are realizing they can take advantage of a favorable combination of mortgage interest rates, home prices and family income,” says NAR President Richard F. Gaylord. “Overall affordability conditions are the best we’ve seen since the middle of the housing boom in 2004, but with far more choices and much less pressure than buyers experienced four years ago to make an investment in their future. Recent declines in mortgage rates on conforming jumbo loans and a return to sound but not overly stringent underwriting standards will permit more people to qualify for a loan.”
Mortgage rates to go up.
“Although mortgage interest rates will remain historically favorable, they will start to steadily inch up,” Yun said. The 30-year fixed-rate mortgage should rise gradually to 6.3 percent by the end of this year, and then hold at that level for most of 2009.
Demand for homes only rising.
Yun said the underlying fundamentals point to a pent-up demand. “Home sales are at about the same level as they were 10 years ago, yet the population has grown by 25 million people and we have over 10 million more jobs,” he said. “The housing market has been underperforming by historical standards, partly because buyers were hampered by mortgage availability issues, but that’s improved and an upturn is more likely. On the other hand, it’s unclear what role consumer confidence will play in the coming months.”
EHS to see healthy gains in ’09.
Existing-home sales should increase from an annual pace of 5.05 million in the second quarter to 5.83 million in the fourth quarter. For all of this year, existing-home sales are expected to total 5.40 million, and then rise 6.3 percent to 5.74 million in 2009. “Sales gains will be greatest in areas that underwent sharp price declines,” Yun said.
Prices to stabilize in second half of this year.
After unprecedented home price declines in the first half of the year, many markets can anticipate stabilizing price trends in the second half. The aggregate median existing-home price is likely to decline 8.4 percent in the first half of this year, and then begin to stabilize in the second half before rising 4.4 percent next year to $213,900. “Policymakers need to be attentive to the fact that many homeowners have seen a reduction in housing equity, or are in an ‘underwater’ situation. More needs to be done on the policy front to alleviate hardships and bring fence-sitters back into the marketplace,” Yun says.
New-home sales slow to recover.
New-home sales will probably fall 31.7 percent to 529,000 in 2008 before rising 12.5 percent to 595,000 next year. Housing starts, including multifamily units, are projected to drop 27.2 percent to 987,000 this year, and then slip 0.6 percent to 980,000 in 2009. “Rising construction costs will provide less room for price cuts on new homes,” Yun said. The median new-home price is forecast to decline 3.1 percent to $239,500 in 2008, and then rise 5.4 percent next year to $252,400.
A better economic picture.
Yun sees an improving economy. Growth in the U.S. gross domestic product (GDP) should be 1.7 percent in 2008 and 2.0 percent next year. The unemployment rate is estimated to average 5.3 percent this year and 5.6 percent in 2009.
Inflation growing.
Inflation, as measured by the Consumer Price Index, is expected to be 3.6 percent this year and 2.4 percent in 2009. Inflation-adjusted disposable personal income should grow 1.4 percent in 2008 and 2.5 percent next year.Existing-home sales for May will be released June 26; the next forecast and Pending Home Sales Index will be released July 8.
— NAR
Friday, June 6, 2008
30-Year Rates Continue to Climb
From Realtor Magazine Online, Daily Real Estate News June 6, 2008
Freddie Mac reports a slight gain in the 30-year fixed mortgage rate to 6.09 percent during the week ended June 5 from 6.08 percent the prior week, marking a nearly three-month high.
The increase can be attributed to concerns about inflation, with investors and analysts interpreting recent comments by Federal Reserve Chairman Ben Bernanke to mean an end to interest-rate cuts as the central bank moves to prevent out-of-control inflation.
Source: Baltimore Sun (06/06/08)
Freddie Mac reports a slight gain in the 30-year fixed mortgage rate to 6.09 percent during the week ended June 5 from 6.08 percent the prior week, marking a nearly three-month high.
The increase can be attributed to concerns about inflation, with investors and analysts interpreting recent comments by Federal Reserve Chairman Ben Bernanke to mean an end to interest-rate cuts as the central bank moves to prevent out-of-control inflation.
Source: Baltimore Sun (06/06/08)
Wednesday, June 4, 2008
California Voters Say No to Eminent Domain
From Realtor Magazine Online, Daily Real Estate News June 4, 2008
Voters in California approved Proposition 99, which bans governments from forcing most Californians to sell their homes for private development projects.
"I think for sure the enactment of 99 will drive the stake through the eminent domain fraud in California," said Tom Adams, board president of the California League of Conservation Voters, which backed the measure.
The passage of Prop 99 on Tuesday comes three years after a ruling by the U.S. Supreme Court in 2005, where the court found that a Connecticut redevelopment authority had the right to seize private property for hotels, shopping centers, and other private developments.
Source: The Associated Press, Samantha Young (06/04/2008)
Voters in California approved Proposition 99, which bans governments from forcing most Californians to sell their homes for private development projects.
"I think for sure the enactment of 99 will drive the stake through the eminent domain fraud in California," said Tom Adams, board president of the California League of Conservation Voters, which backed the measure.
The passage of Prop 99 on Tuesday comes three years after a ruling by the U.S. Supreme Court in 2005, where the court found that a Connecticut redevelopment authority had the right to seize private property for hotels, shopping centers, and other private developments.
Source: The Associated Press, Samantha Young (06/04/2008)
More Rate Cuts Unlikely This Year
From Realtor Magazine Online, Daily Real Estate News June 4, 2008
Federal Reserve Chairman Ben Bernanke says it’s unlike the Fed will cut interest rates any further this year. Bernanke, who spoke Tuesday via satellite to an international monetary conference in Spain, said inflation is the bigger concern at the moment.
The Fed's aggressive rate-cutting campaign has contributed to a lower value of the U.S. dollar. That, in turn, has contributed to increases in the price of imported goods and in consumer prices.
"Households continue to face significant headwinds, including falling house prices, a softer job market, tighter credit, and higher energy prices," Bernanke said.
Source: The Associated Press, Jeannine Aversa (06/03/2008)
Federal Reserve Chairman Ben Bernanke says it’s unlike the Fed will cut interest rates any further this year. Bernanke, who spoke Tuesday via satellite to an international monetary conference in Spain, said inflation is the bigger concern at the moment.
The Fed's aggressive rate-cutting campaign has contributed to a lower value of the U.S. dollar. That, in turn, has contributed to increases in the price of imported goods and in consumer prices.
"Households continue to face significant headwinds, including falling house prices, a softer job market, tighter credit, and higher energy prices," Bernanke said.
Source: The Associated Press, Jeannine Aversa (06/03/2008)
Monday, June 2, 2008
Southern California Homes Sales Jump 22% in April
By Elliot Spagat
ASSOCIATED PRESS
11:00 a.m. May 19, 2008
SAN DIEGO – Home sales surged 22 percent in Southern California during April as bargain-hunters bought lower-end homes in areas hardest hit by foreclosures, a research firm said Monday.
Sales of new and resale homes and condos reached 15,615 in April, up from 12,808 in March and the highest monthly total since August, according to DataQuick Information Systems.
The monthly increase of 22 percent in the six-county region is well above the average gain of only 1.2 percent from March to April since DataQuick began keeping statistics in 1988.
Homes under $500,000 accounted for two-thirds of the monthly gain, DataQuick said. Riverside County, which the firm calls the “epicenter” of foreclosures and price declines in Southern California, posted the region's only annual sales increase, its first in two years.
“Quite a few more buyers stepped off the sidelines last month to snap up homes at substantial discounts relative to the market's short-lived peak,” said DataQuick President Marshall Prentice.
Foreclosures drew buyers, according to DataQuick. Nearly 38 percent of homes resold in April were in foreclosure at some point during the previous 12 months, compared to 36 percent in March and only 5 percent in April 2007. In Riverside County, foreclosures accounted for 53 percent of resale homes sold.
April's median home price in Southern California was $385,000, down 24 percent from $505,000 in April 2007.
Despite the sales surge since March, April sales were down 19 percent from 19,269 in the same period last year, marking the weakest April tally since 1995, DataQuick said.
“We continue to look for evidence of a sales bounce in the mid-priced and higher-end markets along the coast,” Prentice said.
ASSOCIATED PRESS
11:00 a.m. May 19, 2008
SAN DIEGO – Home sales surged 22 percent in Southern California during April as bargain-hunters bought lower-end homes in areas hardest hit by foreclosures, a research firm said Monday.
Sales of new and resale homes and condos reached 15,615 in April, up from 12,808 in March and the highest monthly total since August, according to DataQuick Information Systems.
The monthly increase of 22 percent in the six-county region is well above the average gain of only 1.2 percent from March to April since DataQuick began keeping statistics in 1988.
Homes under $500,000 accounted for two-thirds of the monthly gain, DataQuick said. Riverside County, which the firm calls the “epicenter” of foreclosures and price declines in Southern California, posted the region's only annual sales increase, its first in two years.
“Quite a few more buyers stepped off the sidelines last month to snap up homes at substantial discounts relative to the market's short-lived peak,” said DataQuick President Marshall Prentice.
Foreclosures drew buyers, according to DataQuick. Nearly 38 percent of homes resold in April were in foreclosure at some point during the previous 12 months, compared to 36 percent in March and only 5 percent in April 2007. In Riverside County, foreclosures accounted for 53 percent of resale homes sold.
April's median home price in Southern California was $385,000, down 24 percent from $505,000 in April 2007.
Despite the sales surge since March, April sales were down 19 percent from 19,269 in the same period last year, marking the weakest April tally since 1995, DataQuick said.
“We continue to look for evidence of a sales bounce in the mid-priced and higher-end markets along the coast,” Prentice said.
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