This weeks Real Estate Report

Not So Fast...

All along the Federal Reserve Board has maintained their line of keeping rates low for a few more years. They recognize that the economy is looking brighter, but there are still many headwinds. For example, as we have seen in the last two weeks, the bad news from Europe may have died down but the endemic European debt problems are not behind us. When the stock markets pulled back a few weeks ago because it seemed the Fed was abandoning hope of further stimulus efforts, Chairman Bernanke reminded Congress of the dangers that lie ahead. What we are left with is a brighter economic picture, no further stimulus from the Fed but low rates as far as the eyes can see. Some may call that mixed signals, but the Fed has always had to perform a balancing act. Today's balancing act is much easier than the juggling act they had to perform a few years ago in the midst of the financial crisis. At that time, there were too many balls and too few hands.

The economic news that has been released for the past three weeks has been decent but not robust. We understand that the markets initially reacted most severely to the disappointing jobs report released less than two weeks ago. But before we lose our heads over this, we must remember that the monthly data can be quite volatile and are subject to future revisions. If one looks at the weekly first time unemployment claims, the monthly ADP payroll numbers and data concerning planned layoffs -- all released the same week as the employment report -- there was no indication that the job market is losing momentum. Some analysts are "blaming" the good weather this winter which resulted in more hires in January and February and subtracted from the March numbers. Regardless of the explanation, while 120,000 jobs added for the month was certainly lower than the previous three months, just the fact that we consider over 100,000 more jobs "disappointing" can be considered progress in itself. If 120,000 jobs becomes the new norm, that would be something to worry about. But a one-month stat should not be overblown.

Capital Economics expects the housing crisis to end this year. One of the reasons: loosening credit. The analytics firm notes the average credit score required to attain a home loan is 700. While this is higher than scores required prior to the crisis, it is constant with requirements one year ago. Additionally, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with the past three quarters. However, other market indicators point not just to a stabilization of home loan lending standards, but also a loosening of credit availability. Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings. Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in credit conditions for home loans.” In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV. Source: DSNNews

While bank-owned homes are plentiful in many markets, they aren’t always easy for a buyer to get. Foreclosures sell at bargain prices — sometimes at 35 percent discounts when compared to non-foreclosures. These ultra-low prices are attracting investors and all-cash offers, which makes it difficult for other buyers' bids to win out. So how can buyers beat the competition to get a foreclosure?

·         Get the first look. Fannie Mae and Freddie Mac’s First-Look Program offers first-time home buyers and others who need financing and are looking for a primary residence the first opportunity to see bank-owned homes before investors. Buyers have a 15-day window to submit offers before investors have the opportunity to start bidding.

·         Submit a competitive offer. Homes priced at heavy discounts can be in high demand and attract multiple bids. Lowball offers won’t likely get far. Some housing experts suggest starting with your best offer. "My advice is to offer the most you feel you would ever pay for the property," said one recent buyer of a foreclosure.

·         Make a large deposit. If a buyer wants to get the banks attention, they could offer a larger than typical good-faith deposit. But if the buyer has to back out of the deal for some reason, he or she may be at risk of losing the deposit.

Even if you buyers really want the property, don’t cave in to unreasonable demands, like waiving a home inspection. Otherwise, it may be a decision you'll quickly regret if the home is later found to be ripe with problems. Source: Sun Sentinel

Rising demand and a tightening supply is force both commercial and residential rents upward, and signs point to an increase in prices continuing over the next few years. For one, office construction starts have been at their lowest level in more than 50 years, and on record. The lower starts means that there will be fewer spaces for businesses to rent, which will likely give landlords the upper hand in pushing rents even higher. Residential renters can also expect an increase. Nationwide, rents in December 2011 increased 2.5 percent compared to December 2010, the Consumer Price Index shows. Rising rents have led to rents to reach their highest levels in 2011 since 2007, Reis Inc. reports. “The supply side is so constrained because nobody has been building for years” due to the economy and the struggle developers face in getting loans, Mark Stapp, professor of real estate practice at Arizona State University, told MSNBC.com. While rents have risen, the cost of home ownership has dropped. In fact, in 74 percent of major U.S. cities, renting may be more expensive than owning a home, a Trulia.com study has found. Source: MSNBC.com

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