Weekly Real Estate Report

The New Factor

It is not our job in the economic commentary to predict the future of the economy. On the other hand, we make a point of outlining the factors that may influence the future of the economy. At this point in the year, we have added a very important new factor. We are heading into a Presidential campaign. At this point, though the nominations are not official, we pretty much know the candidates. And that means every action and/or word coming out of the Executive Branch and Congress for the next several months will be over-scrutinized for political motives -- even more than usual. For example, now that we are in the middle of the pause, will the Federal Reserve Board undertake further stimulus activity? The closer we get to the election, the more likely any action taken by the Fed will be questioned. Unless there is an emergency, typically the Fed "shuts it down" a few months before the election to avoid even the appearance of bias. You will never hear the Fed admitting that the presence of the election would affect any activity. However, the timing does make us wonder if the Fed is more likely to take action now while they are a "safe" distance away from the election -- especially since recent elections in Europe have served to highlight the fact that the debt crisis there still has the attention of the world.
Speaking of predictions, we did indicate that there were two potential benefits of the pause. These benefits were lower interest rates and lower oil prices. In the wake of the tepid jobs report, the reaction was as expected. Rates eased down a bit in the wake of the news. And oil prices corrected significantly. Why did oil prices move more quickly than rates? Because oil prices had run up significantly this year while rates had risen more moderately. Oil prices were being affected by potential supply disruptions as well as the economy. If you look at both sectors, prices are now back to where they were a few months ago. A word of warning. While lower rates and lower gas prices are both welcome news, a reversal in these trends is just a few strong economic reports away. If the pause continues we should enjoy these lower levels for a longer period of time, but as we indicated previously, there is no real way of knowing if the pause will be with us for long. We do surmise that with rates again at record lows, when rates do move, they are more likely to move up than down. We just don't know when.

More home buyers may jump off the sidelines this spring as they get more urgent about purchasing a home, fearing that home price and rate increases are on the horizon. Housing surveys in recent weeks have shown that more Americans are seeing now a great time to purchase a home. In the most recent survey, 73 percent of Americans say now is a good time to buy, according to the latest Fannie Mae Housing Survey conducted in March. That’s up from 70 percent in February who said it was a great time to buy. "Conditions are coming together to encourage people to want to buy homes," says Doug Duncan, Fannie Mae’s chief economist. "With an increasing share of consumers expecting higher rates and home prices over the next 12 months, some may feel that renting is becoming more costly and that home ownership is a more compelling housing choice." Indeed, more buyer urgency is evident in the market. Thirty-three percent of those surveyed by Fannie say they expect home prices soon to increase, which is the highest percentage in a year. What’s more, nearly 40 percent say they expect rates to rise in the next year too, which is also up from previous surveys. Coupled with that, 48 percent of Americans say they expect rents to continue to climb, and 44 percent say they expect their financial situation to improve in the next year. Source: MSN Real Estate

Large investor firms are taking advantage of the deep discounts found in some housing markets, and they’re finding that buying one or two homes is just not enough -- they want thousands. The investors are then renting the homes out to tenants, banking on returns from the rental income, which they say is better than other investments at the moment. Landlords usually are individuals or small investment firms that own a few homes. “Nobody has ever tried this on such a large scale, and critics worry these new investors could face big challenges managing large portfolios of dispersed rental houses,” notes a recent article at The New York Times. Investors are seeing big opportunities in the real estate market, with nearly 650,000 foreclosed homes owned by lenders and 710,000 in the foreclosure process, according to housing data from RealtyTrac. Meanwhile, rental demand is rising and so are rents. Economists say that investors buying the homes by bulk could help to stabilize the housing market. “If you have a lot of foreclosures in one community you will improve everybody’s home values if you take them off the market,” Diane Swonk, the chief economist at Mesirow Financial, told The New York Times. “If those homes are renovated and even rented, it is a lot better than having them stand empty.” Source: The New York Times
Home remodeling activity is expected to pick up later this year after “two years of bouncing around a bottom,” thanks to stronger pending home sales and continuing low interest rates, the Joint Center for Housing Studies of Harvard University said. An unusually mild winter in many parts of the country also contributed to the pick-up, said the center, which projects that annual spending on home improvements will see “healthy growth” in 2012, ending the year up 5.9 percent. “Hopefully, we’re finally moving beyond simple volatility in the home improvement spending numbers to a period of sustained growth,” Eric S. Belsky, managing director of Harvard’s Joint Center for Housing Studies, said in a statement. “The recent upturn we’ve seen in home sales should translate into more remodeling activity later this year.” Source: The Boston Globe

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Laura Glass

Real Estate lending Manager with Landmark Bank

Sherman, TX. 75092

903-892-1800 x 3166

laura.glass@landmarkbank.com