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