Friday, October 31, 2014
Wednesday, October 29, 2014
The Real Estate Report 10/29/2014
Happy Holidays
It must be the
holiday season with so many gifts coming in. What else could explain good
economic news combined with lower interest rates and lower oil prices? Even though
the stock market is retreating, keep in mind that the Dow was below 12,000
approximately three years ago. Three years ago the unemployment rate averaged
just over 8.0% and it is now just below 6.0%. Initial jobless claims were in
the vicinity of 400,000 per week and now they are consistently below 300,000.
We mentioned last
week that it is surprising that rates and oil prices would fall in the face of
relatively good economic news. As surprising as it is--we are going to advise
you not to look a proverbial gift horse in the mouth. We are going to advise
you to enjoy the lower rates and lower gasoline prices for as long as they
last. That might be a few days, a few weeks or a few months. Or the markets
might reverse themselves by the time you read this commentary.
We do believe this
week's meeting of the Federal Reserve Board's Federal Open Market Committee
will be very interesting. The Fed is going to be reading signs of economic
recovery with no inflationary pressures. They are also going to be feeling the
worldwide turmoil going on and speculating whether events overseas will affect
our recovery. Some are saying that they might extend their bond purchases to
keep rates low. We don't think that an announcement of such will be in the
cards, but the phrase "considerable time" when referring to future
interest rate increases may stay as part of their vernacular. Of course, our
speculation is just that -- speculation.
The nation's youngest adults will spend more than $2 trillion in
the next several years on rent and mortgage loans, according to a recent report
by The Demand Institute. The number of new millennial households formed from
the beginning of 2014 through the end of 2018 is expected to reach 8.3 million.
They are likely to spend $1.6 trillion on home purchases and $600 billion on
rent during that time period, or "more on a per-person basis than any
other generation," the report said. The total is expected to equal one in
every four dollars spent on housing over that period. "The Millennials and
Their Homes: Still Seeking the American Dream," is based on 18 months of
research including interviews with 10,000 U.S. consumers, of whom more than
1,000 were millennials, and an analysis of housing market data from 2,200 U.S.
cities and towns. It found that contrary to popular belief, most millennials--born
between the early 1980s and the early 2000s--nurture the traditional aspiration
of purchasing a home and living in the suburbs. "As more of these young
adults increasingly venture out on their own, most will rent," according
to the report. However, so far nearly all already have cars and the vast
majority plan to buy a home in the future, the report finds. This generation
faces "unique financial challenges of homeownership today resulting from
graduating into a weak job market with growing student loan debt," agrees
Jeremy Burbank, a vice president at The Demand Institute and Nielsen, which is
likely why many young adults see alternative housing finance options, such as
"single-family rentals and rent/own hybrid contracts such as lease-to-own"
as their path to homeownership. Source: Source Media
Despite the jump in
the latest median single-family home price — $220,600, up from around $160,000
just a few years ago, according to the National Association of Realtors® — the
large price gains are not denting affordability. Even with home prices
climbing, home ownership remains affordable because low interest rates have
helped to offset the price gains, writes Lawrence Yun, NAR’s chief economist,
at NAR’s Economists’ Outlook blog. Also, incomes have risen slightly as the
unemployment rate has fallen, which also has helped to improve the
affordability picture. A home buyer buying a median-priced home at the current
interest rate and having a 20 percent down payment would make a monthly payment
of about $867. That is 15.9 percent of monthly gross family income, compared to
an average of 21.3 percent over the past 30 years, Yun notes. Source:
National Association of Realtors®
There is a fair
amount of payment shock headed toward select groups of homeowners with mortgages.
The reckoning has already started for people who took out home equity lines of
credit a decade ago, when homes were appreciating handsomely. What started as
interest-only draw down periods are now ending, and borrowers must start paying
off the loan's principal and its interest. Five years after the modifications
were made, the interest rates gradually reset, by increases of 1.0% annually to
the level that average primary interest rates were at the time of the
modification. Eventually, rates of some borrowers who were among HAMP's
earliest participants will be pushed to just over the 5.0% mark, which is
higher than the current average interest rates on 30-year, fixed-rate loans.
The Office of the Special Inspector General for the Troubled Asset Relief Program,
a federal watchdog agency, has estimated that about 33,000 borrowers will see
their first resets this year. While the median monthly payment increase will be
$200 at the end of the process, some borrowers will see their payments jump by
more than $1,700 monthly, according to the agency. Source:
The Orlando Sentinel
Wednesday, October 15, 2014
The Real Estate Report 10/15/2014
If it is all about jobs, then...
For years we have
gone through a tepid recovery from a very deep recession. And all along we have
indicated that we don't recover from such an event if Americans are not
working. Year after year we waited and waited. Well, the wait is over. The
recovery in jobs is more than underway, it has arrived. The average of 220,000
jobs added each month thus far this year -- and the unemployment rate dropping
below 6.0% -- is just what the doctor ordered in this regard. This is not to
say that we are all the way back. Many of the jobs created have been lower
paying jobs, which has held back the pace of personal income growth. In
addition, the low labor participation rate tells us that if jobs keep getting
created, we will have to absorb many returning to the labor market.
On the other hand,
the progress we have made will cause a ripple effect throughout the economy. We
are on pace to add almost 3 million jobs this year and this will increase
consumer spending which will create more jobs. And some of this spending will make
the real estate market stronger -- whether it is the purchase of new homes or
major renovation projects for existing homes. Already we are seeing the
strength in car sales and home improvement projects. But the one area we have
not seen strength in this year is within the real estate sector.
More recently, we
have seen renewed confidence by builders as new home sales have been ramping
up. The bottom line is that we can't have a recovery without the creation of
jobs and it is the creation of jobs that will bring us a complete real estate
recovery. Yes, we still have a long way to go, but if we keep creating jobs at
this rate, the road will become a lot shorter. From there, the only question
won't be if interest rates will rise -- but when will they rise and how fast.
Right now we have the best of both worlds: more hiring and very attractive
interest rates.
Now that the worst of the
foreclosure crisis is in the rearview mirror, former home owners who lost their
homes to a short sale or foreclosure are re-entering the housing market.
They've spent the last few years rebuilding their credit — and they're ready to
buy again. "We're about three years past the peak of the
foreclosures, and that's about the time when most people would qualify for
another loan," says Daren Blomquist, spokesman for RealtyTrac. "The
market really needs boomerang buyers to maintain the current recovery."
Some boomerang buyers heading back to the housing market may find they have to
make down payments of at least 20 percent to qualify for a loan, but others are
finding opportunities to put down as little as 3.5 percent or 5
percent. The wait times for qualifying for a loan can vary depending on
the former home owners' circumstances. Typically, the wait times following a short
sale or foreclosure are as follows:
·
Seven-year wait for home owners with a previous foreclosure before
they can qualify for a new loan through mortgage giants Fannie Mae and Freddie
Mac. If the foreclosure was included in a bankruptcy, the borrower has to wait
only four years.
·
Two-year wait for home owners who underwent a short sale before
they're eligible for another Freddie Mac and Fannie Mae loan.
·
Three-year wait for home owners seeking a Federal Housing
Administration loan after a foreclosure or short sale. Some home owners who
underwent a foreclosure because of at least a 20 percent cut in their pay may
be able to qualify for a new loan after just a year through FHA's Back to Work
program. Source: Sun Sentinel
Note: Every situation is different in this regard and certain
lenders may follow different guidelines depending upon the type of transaction.
It is always best to check with a lender and get pre-approved before you
submit an offer to purchase a home.
Builder confidence in the
new-home market rose to its highest reading in nearly 9 years, according to the
latest reading from the National Association of Home Builders/Wells Fargo
Housing Market Index. September marked the fourth consecutive month that
builder confidence has been on the rise. "Since early summer, builders in
many markets across the nation have been reporting that buyer interest and
traffic have picked up, which is a positive sign that the housing market is
moving in the right direction," says NAHB Chairman Kevin Kelly. For the
new-home market, builder confidence rose to a level of 59 in September,
according to the index. Any reading above 50 indicates that more builders view
conditions as "good" than "poor." The seasonally adjusted
index measures builder perceptions of the single-family new-home market on home
sales and sales expectations for the next six months, as well as builders'
perceptions of buyer traffic. All three of the index components in September
posted gains, with current sales conditions and traffic of prospective buyers
rising to 63 and 47, respectively. Expectations for future sales also rose two
points to 67. Source: National Association of Home Builders
Some home buyers are making
an unusual request: They’re asking to spend the night at a home before they
make an offer on it. HGTV’s “Sleep On It,” which follows potential buyers as
they stay overnight in two homes with the sellers’ approval before deciding
which one to buy, hasn’t seemed to spark a national trend. But it has prompted
such proposals to surface more often, real estate professionals say. The
sleep-overs can help buyers gain a better perspective on what it actually would
feel like to live at the home, whether the kitchen is the right size, the noisy
neighbors are too distracting, or the water pressure just isn’t right. Corlie
Ohl, a real estate professional at Citi Habitats in New York City, recalls a
client who requested to take a shower in an $865,000 apartment he was
considering purchasing. He wanted to make sure the place had adequate water
pressure. "It's the strangest request I've ever experienced in my life for
someone who wanted to purchase an apartment," Ohl says. “The seller said,
‘Yeah, I guess, as long as he brings his own towel." Contracts are a good
idea for any buyer sleep-overs to protect both parties from liabilities, such
as loss of personal belongings, say real estate professionals. A couple in
Boulder, Colo., were staying at a condo when they decided to check out the
condo’s parking area at night. But, “as they exited the elevator, they were
abruptly confronted by two police officers, weapons drawn,” says real estate
professional Bob Gordon. The neighbors had thought they were burglars. But the
incident prompted the couple to put in an offer immediately on the home,
“knowing the neighbors would be concerned enough to call police," Gordon
says. Source: US News and World Report
Wednesday, October 1, 2014
Wednesday, September 17, 2014
The Real Estate Report 9/17/2014
Employment Report Analysis
At first blush, it
appeared that the jobs report was disappointing. The addition of 142,000 jobs
in August was much less than the average of over two hundred thousand for the
previous six months. Yet, the day of the report, the stock market reacted
positively and interest rates did not fall as expected. What could have caused
this "adverse" reaction? To us there are three possibilities. First,
the same day as the jobs report, a cease fire was signed in Ukraine. As we have
said previously, the world news is over-shadowing our domestic economic news
this summer. If the truce holds, this is a positive indicator for the stock
market but not necessarily positive for the continuation of lower interest
rates.
Secondly, the markets
may be betting that the lower number of jobs added might be a one-time
occurrence. The jobs numbers are often revised in future months and the markets
are not likely to get upset over one report. Now, if we get two or three
reports below an average of 150,000 jobs each month, this could be worrisome to
the markets. Looking at other indicators such as first time claims for
unemployment and the ADP private payroll report, there was no indication that
the job creation machine slowed down last month.
Finally, even if
the production of jobs does slow down, the markets may not be too upset. Slower
job growth might cause the Federal Reserve Board to keep short-term interest
rates lower for a longer period of time and nothing would boost the stock
market more than the prospect for a continuation of lower rates. This factor
would apply if the production of new jobs does not slow any further from here.
As we indicated last week, it is a good sign with regard to how far we have
come in our recovery for the markets to now consider over 140,000 jobs created
in a month a poor performance. Which of these factors is correct? There
could be a bit of truth in each theory. You can bet on the fact that the
Federal Reserve Board's Federal Open Market Committee will be considering these
possibilities as they meet this week.
At least 2.5 million borrowers will face an average increase of
$250 per month on their monthly mortgage payment due to the imminent reset in
home equity lines of credit over the next three years, according to Black
Knight Financial Services’ Mortgage Monitor Report. However, depending
upon borrower behavior between now and the time of the reset, payment increases
could change, Kostya Gradushy, Black Knight’s manager of research and
analytics, said. Borrowers whose HELOCs will reset over the next three years
are utilizing just under 60% of their available credit. If these borrowers
utilize more of their credit, they could face even more payment shock as the monthly
increase would rise above the $250. And the news is not much better for the
borrowers whose payments are not likely to reset until 2019. These borrowers
are exhibiting even lower utilization ratios — about 40% of their available
credit. Once reset, they will likely face an average monthly increase of $200.
"Should their drawing pattern match that of older vintages, we could be
looking at a significantly higher risk of ‘payment shock’ for this segment,”
Gradushy said. Source:
HousingWire
Builder confidence
in the market for new, single-family homes rose two points in August, bringing
the National Association of Home Builders/Wells Fargo Housing Market Index to
its highest score since the beginning of 2014. NAHB surveys builders across the
country and asks them to rate their sales expectations for the next six months,
their confidence in current single-family home sales, and their perceptions of
prospective buyer traffic. “Each of the three components of the HMI registered
consecutive gains for the past three months, which is a positive sign that
builder confidence appears to be firming,” NAHB chief economist David Crowe
said in a statement. Builder confidence in current sales conditions rose to a
score of 58, while expectations for future sales rose to 65. The third index,
which gauges expectations for prospective buyer traffic, hit 42. The overall
increase in the HMI index can be attributed to factors including sustained job
growth, historically low interest rates, and affordable home prices, Crowe
said. Source: NAHB
Recently, the
Federal Housing Administration announced that they are halting the policy of
allowing lenders to collect interest to the end of the month when the
homeowner's FHA mortgage is paid off. Beginning in January of 2015, lenders
will be able to collect interest until the day the loan is paid off. However,
it should be noted that for the millions of homeowners who currently have home
loans insured through FHA, there is no change in policy. The new policy affects
only those who obtain new FHA loans in January of 2015. What does this mean for
present homeowners? It is important to time refinances and sales of houses to
allow time to get the payoff to the present lender before the end of the month.
Otherwise, the homeowner could owe a full month of extra interest. The worst
time to close on a real estate transaction is the last day of the month because
all service providers are especially busy on that day -- from the lender to the
settlement company. This rule is more on target for those who have FHA
loans because payoffs do not go to the lender the same day. On refinances, the
homeowner should close their new loan 10 days before the end of the month
because the present loan is not paid off until a three day "right of
rescission" expires. On a purchase, allow at least one full week before
the end of the month to make sure you don't get stuck paying almost a full
extra monthly payment on the present loan being paid off. Note:
If you are considering moving up or refinancing your present home and are not
sure whether you presently have an FHA loan, we would be happy to help you
determine this as well as assisting you with your new transaction.
Friday, September 12, 2014
Weekly Real Estate Report
Well, Perhaps Not The Best of All Worlds
Last week we spoke
with optimism about the fact that the economy is indeed recovering but interest
rates are remaining lower than most had predicted for this year. We wondered
whether we might actually have the best of both worlds -- at least for a short
period of time. However, we have to recognize why rates are so low while the
economy is edging its way back to normal. If rates are low because there is no
evidence of inflation and the economy is not in danger of overheating, that is
a good thing. As long as the economy keeps improving.
On the other hand,
if rates are down because of the violence which is occurring in several areas
of the world, that is another matter. When the world is in crisis, it is not
unusual for U.S. Treasuries to be a safe haven for investors. While the effects
of low rates are still positive for our economy, we can't actually describe
this as a good thing. And there is a connection between the economy and these
events. For example, the economic sanctions levied against Russia are already
affecting the European economy. During the financial crisis we saw how an
under-performing economy in Europe can affect our economy's performance.
With regard to our
economic recovery, this past week's jobs report gave us evidence that the
economy is not about to overheat and thus the Federal Reserve Board is not
likely to move on increasing interest rates more quickly than originally
anticipated. Wage growth has not been strong enough to contribute to concerns
about inflation at this point in time. When you add the aforementioned concerns
about world conflicts, it appears the Fed is more likely to keep rates low
until sometime next year. On the other hand, the fact that 142,000 new jobs
added in a month is now considered disappointing shows how far our economic
recovery has progressed over the past year.
A pick-up in the
economy is expected to help propel the housing market forward, with an increase
in household formation and a stronger recovery, according to Freddie Mac's
Economic and Housing Market Outlook for August. "We are getting closer to
a more normalized economy, and now we are expecting to see housing driven by
fundamentals, and, in fact, we've already seen this in some markets," says
Frank Nothaft, Freddie Mac's chief economist. "The economic growth and
labor market gains we saw in the second quarter of this year are projected to
continue, strengthening household formations and the housing sector. A
recovering housing sector will sustain the rally in homebuilding, despite
likely increases in long-term rates. Increased construction activity will
further accelerate the improvement in labor markets and fuel even more
household formations and more housing demand. The result is an economy that
gradually recovers back toward its potential." The labor market has added
an average of 230,000 net new jobs during the first seven months of the year,
the first solid improvement after several years of weak employment. Over the
past four quarters, net household formations totaled 458,000, according to
Census Bureau data. But the Joint Center for Housing Studies is projecting that
to jump 1.2 million to 1.3 million per year in the long-term. The number of
persons per household has risen by 2.6 percent since 2005, from 2.69 to 2.76
persons. "If the persons per household had held steady over the period,
there would be an additional 3 million households today," according to
Freddie Mac's report.Source:
Freddie Mac
Following two years
of increasing home sizes, the median size of new-homes appears to be leveling
off as entry-level buyers return to the market drawn to more modest homes. The
median size of homes that builders started construction on in the second
quarter was 2,478 square feet, holding the same as the previous quarter. It
remains near the record high of 2,491 square feet, which was reached in the
third quarter of 2013, the Commerce Department reports. The median size of new
homes began to increase in 2012 as move-up and luxury buyers began a drive to
purchase larger homes. Also, buyers were showing preferences for more bedrooms
(at least three), larger garages, basements, and wide-open living spaces like
great rooms, according to a 2012 survey of new-home buyers conducted by the
National Association of Home Builders. While move-up and luxury buyers
mostly drove the demand to bigger homes, entry-level and first-time buyers, who
tend to buy smaller homes, have been notably absent from the market. However,
homebuilders are reporting a slight uptick in entry-level buyers heading back
into the market. Homebuilders such as D.R. Horton Inc., KB Home, PulteGroup
Inc., and Century Communities Inc. have all reported a slight increase in
entry-level buyers re-emerging. For example, Pulte reports that sales of its
entry-level Centex homes, priced at an average of $202,000, rose by 26 percent
in the second quarter compared to a year earlier. "The expectation will
be, whenever we see an increase in first-time buyers, that will put downward
pressure on the trend of new-home sizes," says Robert Dietz, an economist
with the home builders group. "Then it will be a question of whether we'll
see some actual decreases in the median as the market mix [of buyers] changes
over the next two years." Source: The Wall Street Journal
The next generation
of home buyers say they will move to the suburbs if it means they can find
quality schools there, according to a newly released survey by realtor.com®. In
fact, millennials – the generation born between 1980 and 2000 – are less likely
than other generations to compromise on school districts when in house-hunting
mode, the survey revealed. Fifty-two percent of millennials said school
districts are a deal-breaker in their home search, compared to 31 percent of
all buyers, the survey found. “Local schools are clearly more important to
specific population segments—such as today’s millennials, who either have or
are planning to have children,” says Jonathan Smoke, the realtor.com®
chief economist. “High-ranking schools can have a positive impact on home
values over time as new families pay a premium for access to better schools.”
The majority of buyers who are using the realtor.com® search-by-school web tool
to find school information are researching elementary schools in particular
while looking up homes for-sale online, according to realtor.com®. “This
indicates the majority of people who research good schools either have young
children or expect to start a family when they buy their next home,”
realtor.com® notes. Source: realtor.com®
Tuesday, September 2, 2014
Wednesday, August 13, 2014
The Real Estate Report 8/13/2014
The Aftermath
We have had a week
to consider the barrage of data released during the last week of the month and
the first days of August. The markets were very volatile during this period
with the Dow moving from record territory by mid-July to a 2.5% loss in one
week and negative territory for the year as of August 1. Other markets moved as
well during this period as oil moved down below $100 per barrel the same week
and long-term interest rates were also volatile.
Previously we asked
why rates are staying so low if it looks like the economy is rebounding. As a
matter of fact, one of the reasons the stock market reacted so negatively to
the good news regarding the economy is that there was a concern the Federal
Reserve Board might raise rates more rapidly than expected. The Fed even noted
in its recent announcement that inflation was moving closer to their target
numbers. We note that this was just one reason for the negative reaction in the
stock market. There were others. For example, there continues to be plenty of political
and financial turmoil overseas. Plus, with the Dow and S&P reaching record
territory again and again in the first half of the year, the markets could have
been due for a correction.
Keep in mind that
if the Fed does raise their benchmark rates, short-term rates will rise. But
this is no guarantee that long-term rates will also rise. With international
turmoil and plenty of negative economic news to balance the overall good
reports we have seen, long-term rates are more likely to go up if the markets feel
that the Fed is over-stimulating the economy. In other words, the Fed paring
down the purchases of Treasuries and Mortgage Backed Securities and talking
about raising rates can actually ease the concerns of the markets and keep
long-term rates stable. At least for now. The Fed and the markets will be
watching the real estate markets closely from here because this is the one area
which has been weak and the economy is not likely to overheat while real estate
sales continue to be sluggish.
If you’ve ever shopped for a house, or are thinking about doing
that in the future, then chances are you have thought about mortgage
pre-approval at one time or another. What is pre-approval? Why should you get
pre-approved? Is it just something lenders cooked up to rope you in? Now that
I've shopped for and bought a house, I have had the time to research the topic
and understand the value and significance of it. There are several advantages
to getting pre-approved for a home loan. The first is that by getting your
preapproval, you can focus only on houses that are within the range of what the
lender will finance for you. Secondly, getting pre-approved gives you a leg up
over other potential buyers who are not pre-approved. If two people have put in
the same offer on a house, the seller is more likely to go with the person who
is pre-approved, knowing that he already has his ducks in a row, and knows what
he can afford. From the seller's perspective, that could make the whole process
go more smoothly, with less chance of the buyer backing out because of
financing issues. It is also important to note that there is a difference
between pre-approval and pre-qualification. Pre-qualification is a very simple
process that takes your word for your income and credit and then estimates what
the lender would be willing to finance for you. Pre-approval, on the other
hand, requires that you submit documentation proving your income, as well as
your credit history, giving the bank a more accurate basis on which to pre-approve
you. It is best to get a pre-approval before you even start looking for a
house. Once you have pre-approval in hand, you’ll know exactly how much the
lender will finance for you, as well as the down-payment expectation on such a
loan, which will allow you to fully realize the financial responsibility of
purchasing a house. Source: Retch Lindow, Market
Intelligence Center Looking to purchase a home in the near future? We
can provide a pre-approval so that you can enjoy all of the advantages stated
in this article. Just contact us — it is easy to get started.
The
S&P/Case-Shiller home price index, a closely watched measure of home
values, posted a 9.3% annual increase in its May reading, down from the 10.8%
rate in April. The rate of increase was as high as 13.7% in November before
slowing every month since. The good news for homeowners is that the index has
now been up every month over the last two years -- after posting drops almost
every month over the previous five years. And some experts say the current
growth is better for the market, because rapid price increases can keep some
buyers on the sidelines. "Today's Case-Shiller data is consistent with the
slow glide-path down towards a more normal housing market," said Stan
Humphries, chief economist for real estate Web site Zillow. "Almost
across the board, lower-priced homes have been appreciating more quickly than
the most expensive homes, a welcome reversal from prior years."
Prices rose in all 20 cities measured by the index, and nine of those markets
posted double-digit percentage gains. A drop in foreclosures and
unemployment rates and pent-up demand for people who had wanted to buy
homes have combined to help lift home prices. A recovery in home sales and
prices has been a major driver of the rebound of the U.S. economy so far this
year, as the jump in prices has increased household wealth. The price
increases and low rates also helped many homeowners refinance and lower their
home payments. But even with two years of increases, prices are still 17% below
the peak reached at the height of the housing bubble in early 2006. Source: CNN/Money
Baby boomers aren't
showing any signs of leaving the single-family home market that has defined
their generation's real estate habits, despite many predictions that they would
by now. As boomers hit age 65 and become empty nesters, many housing analysts
forecasted that a huge wave of them would downsize and move into an apartment,
condo, or townhouse. But Fannie Mae researcher Patrick Simmons says that isn't
happening yet. "There's a perception, particularly in many media reports,
that this massive generation born between 1946 and 1964 is altering its housing
consumption," Simmons, the director of strategic planning for Fannie Mae’s
economic group, told the Chicago Tribune. "It's true that they're becoming
empty nesters in droves. But by one measure, the proportion of boomers who live
in single-family homes actually increased between 2006 and 2012." Baby
boomers' mobility has gone down. Nine out of 10 boomers surveyed by AARP
reported that they wanted to stay in their current home as long as possible.
Some boomers could still be underwater and are waiting to recoup more on their
house before they sell. Others may be holding on to their home because they
snagged a record low rate in recent years, and they know borrowing won't be any
cheaper if they do decide to sell. Some baby boomers are downsizing but
choosing to stay in smaller single-family homes rather than move to a condo or
townhome. But,"eventually, boomers will slow down with age and have the
same physical frailties that their predecessors had," Simmons told the
Tribune. "My sense is that it's not going to be a major shift — something
we see in the numbers in a year. It will likely unfold over a decade or
more." Source: Chicago Tribune
Wednesday, August 6, 2014
The Real Estate Report 8/6/2014
Let's Add Up The Data
We very rarely get
a week of economic data like the past week. We had a week of employment
releases, culminating in the release of the employment report on Friday. We
also had the Federal Reserve's Open Market Committee meeting last week. Add to
that the release of personal income and spending data for June and for good
measure add in the first estimate of the second quarter growth of the economy
(GDP). It is tough to sum up all that data in a short amount of time and indeed
it may take some time for the markets to fully absorb the data as well. But
let's give it a shot by asking the general question -- how did we do?
With regard to
second quarter growth, the preliminary number released on Wednesday was strong.
However, the 4.0% growth rate is subject to revision and it comes after a drop
of 2.1 % in the first quarter due to the harsh winter we experienced. Taken
together, the economy grew at less than a 1.0% rate during the first half of
the year and economists expect faster growth during the second half, but not
necessarily as strong as 4.0%. Meanwhile, the Fed's statement after their
meeting contained no surprises as they continue to lessen stimulus by paring
down on purchases of securities and were a bit more upbeat in their assessment
of the economy which gave the markets the idea that a rate increase will still
come down the road, but that "down the road" is probably closer than
it has been.
The big release was
supposed to be the jobs report on Friday. Actually the numbers released were
fairly tame. The 209,000 jobs created were close to expectations, but did not
exceed expectations. Even the increase in the unemployment rate from 6.1% to
6.2% was not seen as bad news because more Americans were participating in the
labor market which is a key component of confidence. The tame numbers served to
calm the markets which fell precipitously on Thursday because of fears that if
the positive GDP report was coupled with strong jobs growth, the Fed could
raise rates even sooner than expected.
Young people are starting to leave their parent’s home and move
out on their own. The Current Population Survey for 2013 showed a drop in the
percentage of 20-somethings living with parents, marking the first decline
since 2005. As of now, the percentage drop appears minimal: Those aged 18 to 24
living with parents or a related subgroup dropped from 56 percent to 55 percent
in one year. However, Brad Hunter, chief economist at Metrostudy, notes in a
Builder online article that the one-percentage-point decline represents 300,000
people who were previously living with their parents that are now looking for a
household of their own. Indeed, a recent report by Harvard University’s Joint
Center for Housing Studies predicts that 2.7 million more households will form
among people in their 30s over the next decade. First-time buyers usually make
up about 40 percent of home buyers. However, lately, the share has been in the
35 percent to 38 percent range, Hunter says. The delay in millennials branching
out on their own has greatly reduced household formation in recent years.
Household formation rates usually average 1.4 million per year. Lately, the
rate has been about 500,000 to 700,000 a year. “We are seeing some evidence
that young people who had moved in with their parents or relatives are now
finding the means and the motivation to move out and get their own place,”
Hunter notes. “While most of these newly-emerging twenty-somethings will be
going into rentals, the movement out of the parental home is nonetheless
expected to support a series of positive steps from rentals to entry-level
re-sales to entry-level new homes, and on up the ladder.” Source:
Builder
The average monthly
rent for an apartment increased in the most recent quarter to $1,099, up 0.8
percent from the first quarter of this year and up 3.4 percent year over year,
according to Reis Inc., a real estate research firm. It marked the 18th
consecutive quarter for rent increases at a time when income growth has mostly
been stagnant. All 79 U.S. metro areas that Reis tracks saw an increase in
effective rents, with coastal cities posting some of the highest rent growth in
the past year. For example, rents rose more than 6 percent in the past year in
San Francisco, San Jose, and Seattle, according to Reis. Other metros not
usually associated with high rent increases also saw a rise, such as
Charleston, S.C., and Nashville, Tenn., where each saw rents increase about 5
percent or more in the past year. "You have definitely seen that recovery
now spread to all of the major markets around the country, even if some of them
were laggards," Ryan Severino, an economist at Reis, told The Wall Street
Journal. While rents have been rising, household incomes have mostly been
stagnant. The median household income in 2012 was $50,017, compared to the 2007
peak of $55,627, according to U.S. Census data. Some relief may be in sight for
renters soon. Apartment vacancies in the second quarter were unchanged nationwide
at 4.1 percent, which could signal that supply is starting to catch up with
demand. The market is expected to add 180,000 multifamily units this year,
according to Reis.Source:
The Wall Street Journal
A new study
initiated by Smart Growth America says that creating dense, walkable
developments gives cities a fatter wallet. In Washington, D.C., cited as the
most walkable U.S. city, the most walkable parts take up less than one percent
of the area but contain almost half of the city's top wealth-generating square
footage. Smart Growth America says that while urban areas can contain drivable
communities and outer areas can encourage walking, a community with good
walkability will still feature "high density, a mix of real estate uses,
multiple transportation options, and the ability to serve the daily needs of
residents largely on foot," according to Gizmodo.com writer Alissa Walker. Source:
Gizmodo.com
Friday, August 1, 2014
Happy August!
INTERESTING FACTS...
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"This month was originally named Sextilis in
Latin, because it was the sixth month in the original ten-month Roman
calendar under Romulus in 753 BC, when March was the first month of the
year."
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August is Back to School Month, Happiness Happens
Month, and American Indian Heritage Month.
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Woodstock began in a field near Yasgur's Farm in
New York on August 15, 1969.
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August Birthstone: Peridot.
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August Flower of the Month: Gladiolus, Poppy.
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Zodiac Signs: Leo, Virgo.
ALSO IN AUGUST...
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Wednesday, July 30, 2014
The Weekly Real Estate Report
After a good hike in long-term rates during the second half of 2013, just about every analyst in the country seemed to be sure that this was just the first phase of rate increases to come. After all, rates were the lowest in a generation and the increase we witnessed last year still put rates in very, very attractive territory. Jobs growth started accelerating during the second half of the year and the systems were ready to fire on all cylinders while the recovery finally got into full gear. Then came the long, cold and hard winter. So we understand that factor. Once again, the recovery halted and rates came down.
But this factor has passed. Job growth has heated up again and the stock market is at all time highs. The Federal Reserve has been slowing their purchases of treasury bonds and home loans in an effort to slow down fiscal stimulus and they are meeting this week with most observers feeling that rate hikes will be coming in early 2015. The question remains, why aren't rates going up in response to all of these factors? We could take the easy way out by saying that predictions of the future are futile and while this is true, we believe there are other factors at work.
Certainly one factor encompasses the political tensions around the world. Ukraine, Syria, Libya, Iraq and Gaza are all spots of conflict right now. The tragedy of a passenger jet being shot down just demonstrates how dangerous these situations are. When the world erupts, while our economy has not been as stable as we would like -- it is still a haven of safety compared to the rest of the world. When there is unrest, Treasuries are still a choice for those who are looking for safety in a world of conflict. While this factor does not completely explain why rates are not rising right now, there is no doubt that this factor is important and it also explains why predictions are futile. Next week, in addition to the analysis of the Fed meeting and the employment data, we will talk about one other factor contributing to low rates.
Sixty-seven
percent of consumers say they're planning a home renovation within the next six
months, according to realtor.com®'s Home Improvement Survey of more than 1,500
home owners. They're planning to spend more money on their renovations than
last year, the survey found. The most common budget range for home improvements
was between $2,001 and $5,000. Eighteen percent of respondents who say they
plan to renovate before the end of the year are budgeting $10,000 to $20,000 on
their renovation. Respondents indicated that these are the most popular areas
of the home to renovate: the kitchen (61%), bathrooms (59%), backyards or
patios (33%), and the exterior of the home (32%). "With 32% of
consumers planning to spend money on improving the look and feel of their
homes, home buyers should think about purchasing homes that require
renovations," says Barbara O'Connor, chief marketing officer for Move
Inc., the operator of realtor.com®. "By considering these kinds of homes,
buyers open themselves up to more affordable options and the ability to
renovate their homes to fit their specific needs and tastes." Source:
Move, Inc.
Want to know
exactly what employees relocating to a new housing market for a job are looking
for in their next home? Cartus, a provider of domestic and global relocation
services, recently surveyed 267 brokers who specialize in working with
relocating employees to find out the most important home characteristics for those
clients. These were the top three items transferees identified as most
important to have in their next home: A larger home than their former residence
(70%); new construction (64%); and single story (37%). Meanwhile, transferees
identified the following amenities as the most important in their next home:
·
Upgraded kitchen: 91%
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Master bedroom on first floor: 60%
·
Finished basement: 44%
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Pool/spa: 23%
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Outdoor kitchen: 11%
·
Smart-home technology (such as control via phone/tablet for heat,
electricity, electronics, media, security, etc.): 10%
·
Media room/home theater: 7%
·
Fitness room: 4%
When it comes to
relocation, transferees ranked location near a specific school district and
less than a 30 minute commute to work as two key items of importance. “A
job transfer is a major life change for employees and their families, and
finding a home that fulfills their needs is important and enables the employee
to transition to the new job efficiently and with little disruption to family
lifestyles and routines,” says Gerry Pearce, executive vice president, broker
and affinity services for Cartus. Source: RISMedia
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