The Real Estate Report March 26, 2014

Around the World

Here is the rule---as our economy gets stronger, rates will rise and so will oil and gas prices. But rules are made to be broken. In mid-March we saw a stark reminder of how the rules don't always work. Though the news from the economy looked pretty good--from retail sales to first time claims for unemployment, rates dropped. How can that be? We can never tell what will affect the markets. In this case we received some not-so-good economic news coming from China and a growing crisis with regard to the Russian incursion into Crimea.
Therefore, in a week in which we should have seen rates rise, rates actually fell. This does not mean that the rule is now broken forever. It means that intervening events can always make life more interesting for market prognosticators. As a matter of fact, it took about one day for the rate reversal to happen as the Federal Reserve Board met for the first time under Chairman Yellen and announced that they believed employment will continue to grow this year and hinted that the winter doldrums was due to the weather. The Fed cutting back on purchasing Treasuries and Mortgage Backed Securities is one thing that is contributing to the long term rise in rates.
Even assessing our own economy is a difficult task. For example, when we read reports that the better economy is actually increasing the rate of divorces, it does not seem quite right. We understand that a better economy spurs household growth in terms of sons and daughters leaving home and striking out on their own. Certainly, marriages should increase in a better economy. But divorces? Apparently, if you don't have a job, getting divorced is not an option. For those having a hard time finding a house to buy in areas of tight inventory, you may want to get tips from your local divorce attorney. Yes, following the economy and the markets is tricky at best.

The 2014 home buying season is off to a strong start with year-over-year increases in housing inventories and “sustained growth in home prices,” according to the latest National Housing Trend Report from realtor.com, which reflects data of 143 markets across the country. The number of properties for sales edged up 3.1 percent in January while the median age of inventory basically held steady, indicating a “less frenzied market” than in January 2013, realtor.com reports. This is “an encouraging sign of sellers’ interest, particularly given the adverse conditions brought on by the polar vortex,” says Errol Samuelson, realtor.com’s president. “We saw the tight-supply market of last fall carry all the way into November – later than is typically expected – and this early rise in inventory is a welcome trend.” While inventory levels were up across most parts of the country, markets that have been badly hit by the “polar vortex” – recent harsh frigid weather conditions – tended to see some of the biggest declines in month-over-month inventories. Overall, 83 of the 143 markets that realtor.com tracks – or 58 percent – showed increases in year-over-year inventories. “While the next few months will be critical to watch, these trends suggest a more balanced housing market going into the 2014 home buying season,” realtor.com notes in its report. The median list price nationwide moved up in January, rising 8.3 percent compared to year ago levels, according to the realtor.com report. Source: Realtor.com

Even as demand for rental housing remains very strong, there is a great deal of confusion over existing rental laws among many landlords, and among tenants themselves, according to a Zillow Rentals survey. On average, renters and landlords answered about half of survey questions incorrectly (47 percent incorrect for renters/50 percent for landlords) when asked about their respective rights and responsibilities. Eighty-two percent of renters/76 percent of landlords lack understanding of laws on security deposits, credit and background checks. Seventy-seven percent of renters/69 percent of landlords lack understanding of privacy and access rights. Sixty-two percent of renters/50 percent of landlords lack understanding of laws on early lease termination. The survey included those who rent the home they live in ("renters") and those who own the home they live in and own one or more additional homes, which they rent to a tenant ("landlords"). Renters and landlords alike demonstrated the least amount of knowledge around credit and background checks, security deposits, early lease termination, and privacy and access rights. Both renters and landlords showed the most knowledge around discriminatory advertising for rentals, responsibility for repairs and maintenance, and requirements around terminating month-to-month agreements. "It's concerning that so many renters and landlords are signing a legal contract without fully understanding their basic rights. In doing so, landlords and renters could be setting themselves up for future disputes and legal costs," said Carey Armstrong, Zillow director of rentals. "While rental laws vary by state and local jurisdiction, there are some important rules that affect just about everybody. Every landlord and renter should take time to research and understand their rights." Source: National Mortgage Professional 

Now that the recession has ended, the divorce rate is back on the rise. The number of Americans getting divorces rose for the third year in a row to about 2.4 million in 2012, according to census data. The divorce rate had plunged to a 40-year low in 2009. "Whatever the social and emotional impact, the broad economic effects of the increase are clear: It is contributing to the formation of new households; boosting demand for housing, appliances, and furnishings; and spurring the economy," Bloomberg News reports. “As the economy normalizes, so too do family dynamics,” says Mark Zandi, chief economist at Moody's Analytics Inc. in West Chester, Pa. “Birth rates and divorce rates are rising. We may even see them rise strongly in the next couple of years, as households who put off these life-changing events decide to act.” The rise in divorces has coincided with a rise in household formation. While divorces aren't the sole contributor to the rise, nearly 5.3 million households have been formed in the past four years, after dropping to fewer than 400,000 in 2009, according to Census Bureau data. “Separations and divorce often create additional housing demand by creating two households when there was one,” says David Crowe, chief economist at the National Association of Home Builders in Washington. Rising home prices may give couples greater financial security to proceed with a divorce. "Home prices are going up [and] many people who were postponing their divorce might start thinking about it,” says Abdur Chowdhury, a professor at Marquette University in Milwaukee and an adviser to the Federal Reserve Bank of Chicago, who published a paper in July 2011 that examined the impact of recessions on divorce. “In many cases after divorce, people sell their homes and divide up the proceeds." That provides “each of them with a nest egg to begin their separate lives.” Source: Bloomberg

Laura Glass

Spring has Arrived...

May the newness of the spring season brighten your day!

Laura Glass

The Real Estate Report 3/19/2014

 A Bunch of Bull
With the economy still undergoing a very slow recovery, it is hard not to question why the stock market seems to be doing so well. The bull market for stocks is about to turn five years old with a gain of approximately 150% in the Dow over that time. Those are pretty impressive numbers, however when you look at the numbers more carefully, it depends upon the perspective. Measure from the peak in October of 2007 before the financial crisis hit and one will see that the Dow increased less than 20% total over the past 6.5 years. Measure from 1995 and the Dow increased over 300% in the past 19 years, showing that the long-term numbers are indeed pretty impressive.
The real question is--why has the stock market fully recovered from the financial crisis while other areas of the economy still lag? Real estate is on the way back but has a ways to go to reach its peak just before the crisis. Many companies are still struggling and paring staff while employment has not recovered. Certainly the Federal Reserve Board has helped with record low rates. Companies have been reticent to hire in uncertain economic times, keeping staffing levels low while building up cash reserves and boasting profits. Some of this cash is making its way into the real estate sector as investors have purchased a record number of homes for cash.
Is the stock market's rally telling us that better economic times are ahead? This is certainly a possibility. However, we also know that better economic times may cause the Fed to eventually raise rates and it will be interesting to see if that move would take the wind out the market's sails. A better economy actually slowing stocks down sounds perverse but it could happen. In the meantime, we enjoy the ride and the historical perspective reminds us that trying to time the market is an exercise in futility. This statement holds for real estate as well. If you bought a home in 1990 and stuck with a 30-year fixed home loan, you would have impressive gains regardless of what has happened since 2007.

Buying costs less than renting in all 100 large U.S. metros, according to the Rent vs. Buy Report from Trulia. Rising rates and home prices have narrowed the gap between renting and buying -- yet historically low rates have kept homeownership from becoming more expensive than renting. Trulia says that at a 30-year fixed rate of 4.5%, buying is 38% cheaper than renting nationally, versus being 44% cheaper at the start of 2013. The range of difference, as one expects, varies from market to market. Trulia’s interactive Rent vs. Buy Map shows how the math changes under alternative assumptions for the rate, the income tax bracket for tax deductions, and the number of years that one stays in the home. To compare the costs of owning and renting, Trulia’s model assumes buyers get a 4.5% rate on a 30-year FRM with 20% down payment. Further, it assumes buyers itemize their federal tax deductions and are in the 25% tax bracket; and will stay in their home for seven years. Under these assumptions, buying is 38% cheaper than renting nationwide, taking into account all of the costs and proceeds from buying or renting over the entire seven-year period. Source: Housing Wire To access Trulia's Rent vs. Buy Map Click Here
Single-family new-home sales surged in January to a five-and-a-half-year high, giving the industry new hope that the new-home sector isn't heading for a slowdown this spring after all. New-home sales rose 9.6 percent to a seasonally adjusted annual rate of 468,000 units in January, the highest level since July 2008, the Commerce Department reported. "The fact that the cold weather that hit much of the country didn't stop home buyers from going out and purchasing a piece of the American dream is a great sign," says Kevin Kelly, chairman of the National Association of Home Builders. "However, the very low supply of new homes on the market and the continued concern of available buildable lots still have builders cautious about getting ahead of themselves." The inventory of new homes for sale held mostly steady in January, remaining at a tight 4.7-month supply at the current sales pace. Last month, housing starts had posted their largest decline in nearly three years, sparking concern that the new-home sector was headed for a downward spiral with rising rates and home prices. But in January, new-home sales increased 2.2 percent from a year ago, and the median price of a new home rose 3.4 percent to $260,100 compared to year-ago levels. Source: Reuters

City planners across the country are looking to revitalize suburban areas by making them more walkable. Neighborhoods that boast greater walkability tend to have higher resale values in both residential and commercial properties, finds a recent study published in Real Estate Economics. In fact, a 2009 report by CEOs for Cities found that just a one-point increase in a city’s walk score could potentially increase homes’ values by $700 to $3,000. "There's a strong preference for being in a neighborhood where people can walk to shops, restaurants, parks," says Joe Molinaro, NAR's managing director of community and public affairs. In NAR’s 2011 Consumer Preference Survey, two-thirds of those surveyed cited walkability as an important factor in choosing where to live. What’s more, the study found that consumers were willing to sacrifice other items on their wish-lists in order to be located in a walkable neighborhood. These high-density spaces that blend commercial workspaces, retail housing, and parks mostly have been in high demand in places like Boston, Chicago, New York, and San Francisco. But now other cities want to follow suit. For example, officials in Woodstock, Ga., a small town about 30 miles outside of Atlanta, decided to counter its suburban sprawl by redesigning its city center to include more than 30 acres of the surrounding land, 300 housing units, 80,000 square feet of commercial space, and open parks. The move helped make the city more walkable. The change has helped to contribute to a 17 percent growth in the town’s downtown property values over the past five years. "Walkability plays a big part in an area's economic vibrancy," says Scott Bricker, executive director of America Walks, a national nonprofit that promotes walkable communities. "The most valuable real estate around the world is in walkable places, places where people are living and working in closer proximity." Sources: NAR and CNBC

Laura Glass Landmark Bank

Happy St. Patrick's Day

Laura Glass

Weekly Real Estate Report 3/14/2014

Spring Thaw?
Here is about the only thing we will predict. This winter is not lasting forever. It may seem like it has lasted forever but a spring thaw will come. When it comes, we will see that many Americans will emerge from their homes with a bad case of cabin fever. What will we do when the weather is nice? Well, many will wash the salt off their cars. Others will go looking at cars, homes and furniture. Still others will start spring cleaning and see that they need to begin home improvement projects.
The next question is -- will they just look or will they buy? We know some will come out and spend. This will give a boost to the economy, but we don't know how much of a lift the economy will experience. We do know that the winter slowdown is a temporary phenomenon, but we also know that short- term factors can affect long-term performance. The winter lull could have a lasting effect upon growth in 2014 or if the consumer comes out roaring with our spring thaw it will be but a small speed bump in the road as opposed to a big winter pot hole.
Did February's jobs report give us a clue? It would have been easy to write off poor numbers to bad weather if we did not have two disappointing jobs reports preceding February's release. As it turns out the number for February did not give us a clear picture. The new jobs created were 175,000 and this was slightly more than expected, but certainly not something that would make us forget December and January. The unemployment rate rose slightly to 6.7%, which was slightly higher than expected, but last month the rate dropped by the same amount. The revision of the data from the previous two months also did not show a clear picture as the previous numbers were revised higher, but by a nominal amount. Looks like we will have to wait for March and April to see how strong the thaw is going to be.

Saving for a down payment remains the No. 1 obstacle to homeownership. Many American's have good credit and have the income to qualify for a home loan -- especially considering the fact that owning is cheaper than renting in most areas of the country. Yet, coming up with the cash is the problem. Here is what most renters do not realize. There are several alternatives designed to lessen or eliminate the cash necessary to purchase. Many renters do not realize that they may be eligible for no-down payment programs if they are a veteran or live in a rural area. Others can use techniques such as gifts or loans against 401K programs. Even the lender can help with special programs which can lessen or eliminate mortgage insurance and closing costs. Many times the issue is not a lack of resources, but a lack of education.  Source: The Hershman Group
*If you are interested in finding out more about the different ways to reduce or even eliminate the amount of cash necessary to purchase a home -- we have available a special article which covers these alternatives. Just contact me and I will forward this valuable information to you.
As rental housing demand continues to surge, more landlords are testing out dynamic pricing to figure out what to charge tenants based on real-time supply and demand—adopting a software system similar to how Priceline.com determines hotel rates and airfare, CNN/Money reports. Landlords use real-time supply and demand to determine what to charge tenants. Therefore, when demand for apartments is high, the software will advise the landlord to raise rents on vacant apartments. In turn, when demand drops, the software will suggest lowering rent rates. The software automatically lowers the rent based on day-to-day market conditions until a tenant takes the apartment. Dynamic pricing is used to determine the rent of some 5 million apartments today, says Andrew Rains, president of the multifamily division at Rainmaker Group, a company that produces one of the software packages most widely-used by landlords to determine prices. “When pricing is done manually, emotion enters into it,” says Rains. He adds that the software also helps avoid overpricing units that can lead to vacancies and steep losses for landlords. Source: CNN/Money

The average new-home size has increased more than 300 square feet since 2009, growing from 2,362 square feet in 2009 to 2,679 square feet in 2013, according to recently released Census Bureau data. With that added square footage, new homes are adding more bedrooms, bathrooms, and amenities than they had in 2009. Forty-eight percent of homes built in 2013 had four bedrooms compared to 34 percent with that number in 2009. Thirty-five percent of homes in 2013 had three or more full baths compared to 23 percent in 2010. Also, homes today are also accommodating more garage space. Twenty-two percent of homes built in 2013 had garage space to fit three cars or more compared to 16 percent in 2010. The amenities that builders say they are most likely to include in new homes are a walk-in closet in the master bedroom, low-e windows, a laundry room, and a great room, according to the National Association of Home Builders. Amenities favored by many builders are granite countertops, double sinks, and a central island in kitchens, as well as nine-foot or higher ceilings, a front porch, exterior lighting, and a patio. Bigger homes also translate into higher prices. The average sales price rose from $248,000 in 2009 to $318,000 in 2013. Source: NAHB

Laura Glass at Landmark Bank

Weekly Real Estate Report

The Employment Report Beckons
The monthly jobs report is the single most important economic release every month. Why? It is all about jobs--the economy, interest rates, real estate and more. To put it simply, consumer spending drives the economy and without enough jobs being created, consumer consumption will not grow. The relationship between job creation and real estate is a perfect example. When more jobs are created, increased demand is created within the real estate sector. When there is more real estate demand, more jobs are created.
The next question is -- what are we looking for within the report? Traditionally, the unemployment rate is the headline number each month. Yet, as the unemployment rate has dropped more than 3.0% from its recessionary high, we see that the rate tells only part of the story. The labor "participation" rate can cause variations in the unemployment rate. Many who have removed themselves from the labor force through retirement and other factors can be enticed back if there is a demand for workers. Thus, the unemployment rate can go up with the creation of more jobs or the rate can go down with the creation of fewer jobs even though these results seem to be counter intuitive.
More recently, the number of jobs created appears to have become just as important as the unemployment rate. Even the Federal Reserve Board which had set a goal of a 6.5% unemployment rate before considering altering their fiscal policies admitted at their last meeting that other factors will be taken into consideration within the decision-making process. Plus, because the last two reports have been disappointing with regard to jobs creation, we will also keep a close eye on revisions of the previous two months' of data. Complicating matters even further is the fact that winter storms continued through a good portion of February. As muddled as the picture is -- a surprising report in either direction can affect the markets and the economy significantly.

Home affordability took a turn for the better in the fourth quarter. Among the biggest cities, homeowners in the most expensive metropolitan area need to earn nearly $100,000 more than borrowers in the least expensive area. In Cleveland, a homeowner needs an annual salary of just $19,435 in order to afford a median-priced home in the area -- the lowest of any of the 25 biggest metropolitan areas. The value was determined from the National Association of Realtors' fourth-quarter data for median home prices, while the salary needed was based on average rates for a 30-year fixed home loan. At the other end of the scale was San Francisco. Someone looking to buy a home in the City by the Bay would need to earn $115,510. The findings were discussed in a report issued by HSH.com. The average salaries were based on principal and interest payments and excluded property taxes, insurance and other expenses. "In the most recent update of the study, using data from the fourth quarter of 2013, HSH.com found that affordability has increased significantly since the third quarter of 2013 as home prices and rates on home loans have fallen," the report said. Source: Mortgage Daily
Home inspections have the power to send all parties back to the negotiation table. As such, some sellers are taking the precautionary step of having an inspection done before listing the home for sale. Real estate professionals say that having a home inspection prior to listing can offer several benefits to the seller. “The buyer has the upper hand when they have an inspection,” says Jessica Edwards, Coldwell Banker consumer specialist and real estate professional. “If you are willing to do it ahead of time, you give the control back to the seller.” Sellers who have a home inspection upfront also can identify any major problems that could potentially derail a sale later on at the closing table. Any major repairs can be addressed beforehand. Doing repairs ahead of time might also be more cost-effective than having to pay a buyer's own licensed contractor do the work. “If you have the items repaired or replaced ahead of time and it doesn’t come up with the buyer, it’s a non-issue,” says Edwards. Edwards says having a home inspection beforehand can also help sellers adjust their asking price if they aren’t willing to do certain repairs. Leslie Piper, consumer housing specialist for realtor.com, suggests sellers consider a pest and roof inspection before listing. “The costs of repairs or the replacement of a roof can vary and could be a big-ticket item a seller may want to be aware of before they choose the price they are hoping to get for their home,” Piper says. “Having these inspections can be beneficial for a successful home sale, and also beneficial for a seller’s future budgeting plans.” Source: FOX Business

Many housing experts have predicted a slowdown in investor activity this year, but investors don’t appear to be fading away from the market. They might just be shifting their focus to different types of properties, as distressed inventories dry up in many markets. “There has been a clear rebound in investor participation in the housing market,” says Thomas Popik, research director for the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, which showed strong activity among investors in December 2013. “The statistics for the housing market, particularly the non-distressed segment, remain generally strong, but investors still are increasing their activity.” Investors are increasingly targeting non-distressed properties. In November, investors accounted for 13.2 percent of purchases of non-distressed properties based on a three-month moving average. That's up from 10.5 percent in August, marking a seven-month market share high for investors, according to the HousingPulse survey. Investors had started pulling away from the market in March 2013 as home prices soared, with their overall market share dropping to 16 percent, according to a survey by the National Association of Realtors®. But by December they bounced back -- ending the year strong with a 21 percent market share — about the same level at which investors’ presence peaked during the foreclosure crisis. Source: RISMedia  

Laura Glass Landmark Bank

Interesting March Facts...

Laura Glass