The Real Estate Report 8/22/2013

The Price of Oil

With all the attention focused recently on rising interest rates, we still have recognized the fact that rates remain near historic lows. On the other hand, as rates have risen and the stock market has climbed, oil prices have headed above $100 per barrel once again. Yet, there seems to be very little concern or news regarding this latest spike. In the past, the rising price of all set off alarms as analysts expected higher oil prices to lead to a slower economy because consumers will be spending more of their budgets on the cost of energy. Of course, a slower economy can lead to lower interest rates. What is really interesting is the fact that this summer higher oil prices have not lead to significantly higher gasoline costs. Why is that? While it makes sense that oil prices will directly affect the price of gas, one should remember that a variety of other factors will affect the price of gasoline.

These factors include the amount of taxes levied upon gasoline, the amount of local refinery capacity, the cost of shipping and also the availability of potential alternatives to gasoline. For example, U.S. oil and natural gas reserves are increasing dramatically because of new technologies such as shale oil production. Regardless of what the politicians will tell you, while this increased production may help make the U.S. energy independent, it will not necessarily affect the price of oil world-wide. However, because the oil is extracted locally, it has the potential to reduce the price of producing gasoline. This does not mean that gas prices will fall precipitously while oil prices rise. Eventually, the relationship will be reestablished. With regard to interest rates and real estate, the price of gasoline does affect trends in the real estate sector. As a matter of fact, a major real estate trend has been influenced by these prices. We will present more on this trend in an upcoming issue.

Americans overwhelmingly believe owning a home is a good financial decision and a majority of renters say homeownership is one of their highest priorities for the future, according to a survey by the National Association of Realtors®. The 2013 National Housing Pulse Survey also found that renters are thinking more about purchasing a home now than in past years, while the number of people who say they prefer to rent has declined. “Homeownership matters to Americans who consistently realize the many benefits it provides to communities, families and the nation’s economy,” said NAR President Gary Thomas, broker-owner of Evergreen Realty, in Villa Park, Calif. “Due to high housing affordability and today’s rates it makes sense for people to consider homeownership over renting. In fact, in many parts of the country it’s cheaper to own a home than to rent one. Therefore, it’s no surprise that renters recognize that owning a home offers tremendous long-term benefits and is an investment in their future.” The survey, which measures consumers’ attitudes and concerns about housing opportunities, found eight in 10 Americans believe buying a home is a good financial decision and more than two-thirds (68 percent) said now is a good time to buy a home. Since the last survey in 2011, more renters are now thinking about purchasing a home, up from 25 percent to 36 percent, while those who say they prefer to rent dropped from 31 percent to 25 percent. Half of renters say that eventually owning a home is one of their highest personal priorities, up from 42 percent to 51 percent. When asked for reasons why homeownership is important, respondents’ top reasons underscored basic American values and freedoms; they were building equity, wanting a stable and safe environment, and the freedom to choose where to live. While these reasons have remained virtually unchanged since 2011, they do vary slightly according to demographics. The top scoring reason for African-Americans and Hispanics was that homeownership provides stability and a safe environment; women also placed more emphasis on environmental factors than men. Non-college graduates placed stronger emphasis on public schools, owning a home before retirement, and living in a safe and stable environment. Source: NAR

It looks like flipping homes is coming back into style. At least that’s what RealtyTrac’s Midyear 2013 Home Flipping Report revealed. According to the report, 136,184 single-family home flips occurred in the first half of 2013, a 19% increase from a year ago and a 74% rise from the first half of 2011. A flip is where a home is purchased and subsequently sold again within six months. The report also states that real estate investors brought in an average gross profit of $18,391 on single-family home flips in the first half of this year. This totals a 9% gross return on the initial purchase price, up 246% from an average gross return of $5,321 in the first half of 2012 and an average loss of $13,206 in the first half of 2011. The real estate investors who flipped these homes during the first half of the year on average bought the homes at a discount of 5% below estimated market value, selling them at a premium of 1% above estimated market value of average. "While flipping continues to be profitable in most markets, particularly those where the home price recovery is still nascent and a recent rebound in foreclosure activity allows investors to find distressed inventory at a discount, home flipping is tapering off in markets where fewer of those distressed bargains are available," said Daren Blomquist, vice president at RealtyTrac. According to Blomquist, out of the 100 markets RealtyTrac analyzed for the report, 32 had declining flipping numbers. The allure of a quick profit from flipping can entice many first-time home buyers; however, the gross profit does not take into account the costs of repairs, upgrades, cleanup and the money spent while owning the property. In some areas home prices have increased so much that there is little or no profit available to flip it. Source: HousingWire

With 90 percent of buyers looking for homes online, listing photos are crucial and should not be blurred or distorted, taken at the wrong time of day, or overly focused on furniture or other items. When it comes to curb appeal, here are some suggestions for sellers:

·         Add plants at the front corners of the yard, along driveways or walkways, and in front of the house

·         Fertilize grass and shrubs

·         Replace worn gutters

·         Patch driveway cracks

·         Spruce up or replace the front door

·         Install exterior lighting

·         Ensure that entry hardware matches

To jazz up the entryway, sellers should remove clutter and personal items, remove dated carpeting, and ensure that the home smells nice. As for other improvements, experts say sellers should pay close attention to return on investment, spending most of their money in the kitchen and bathrooms but avoiding major overhauls given that buyers are likely to make changes when they move in. Source: Sarasota Herald-Tribune

 

Laura Glass