The Real Estate Report 5/23/2014

Listing Shortage: Just The Beginning?

Last week we wrote about a shortage of listings which has characterized the real estate markets for the last several months. From an economic perspective with bank owned properties still being put on the market, it seems that this shortage is surprising. Yet, it is not. Some three years ago, we reported that several analysts had concluded that we were not building enough houses to meet the demands of population growth. Here is a quote from one article published in Alpha in 2011 ... housing starts are going to have to increase by leaps and bounds over the next several years, if only just to catch up to the demands of a growing population...
The Census Bureau has projected that the population will grow from the baseline of 300 million in 2007 to 440 million in 2050, an increase of 140 million in just over 40 years. By contrast, it took the country 100 years to grow by 200 million during the last century. Another perspective? We are adding two times the population of the whole country in 1900 during the next three and a half decades. And these people will need somewhere to live.
One might argue that the current homeownership rate is around five percent less than at the peak of the real estate boom. But when you increase the population by 50%, a drop in the homeownership rate of 5% or even 10% does not make a dent. And keep in mind that many who rent will still be renting single family homes. Therefore, a drop in the homeownership rate does not necessarily drop the demand for single family housing--including condominiums. So the question we must ask: Is today's listing shortage the beginning of a severe housing shortage which could cause housing prices to increase further in the future? We don't have the answer with regard to whether such a shortage will occur or when it might occur, but the question is valid. Either way, expect more homebuilding to accommodate this growth in the future.

Sixty-nine percent of consumers recently admitting to having a “home crush”—a property they liked so much they were drawn back to looking at it more than once online or in person, according to a new realtor.com® survey of 1,000 consumers. But men and women respond quite differently to these crushes, according to the survey. For example, the survey found that women are more likely than men to have a crush on a home that was out of their financial league. Forty-one percent of women revealed their home crush is out of their price range, compared to only 30 percent of men who said the same. Men were more likely than women to move from one home crush to another. Thirty-six percent of men surveyed say they find a new house crush weekly, compared to 29 percent of women. But when it comes to true love, the sexes agreed on one thing that makes them most fall in love with a home: outdoor living space. Both men and women identified this feature as the top attribute in a home. Women's hearts tended to be set a-flutter by open floor plans, great curb appeal, and appliances and fixtures, while men said they swooned over good garage space, curb appeal, and open floor plans. Source: realtor.com ®

The federal government had a budget surplus of $114 billion in April, the Congressional Budget Office estimated. That is $1 billion more than a year ago and would be the biggest April surplus since 2008. CBO estimates receipts were 2% higher in April versus the same month a year ago. Spending rose 2.5%. For the fiscal year to date, CBO estimates the deficit to be $301 billion, down $187 billion compared to the same period in 2013. The fiscal year runs from October to September. Source: MarketWatch

Buy a new or existing home? An untouched abode offers advantages, of course, such as a sleek modern layout and few repairs. Buying an existing home, however, may allow you to seal the deal faster and can offer better short-term price appreciation. These head-to-head comparisons can help you decide which choice better fits your priorities.

1. Sales Price. Winner: Draw. All else being equal, new structures typically command 10% to 15% premiums over similar existing places. You're unlikely to be making an equal comparison, however. "In most of the country the lots in the best locations are already gone," says David Brown, a Dallas-based housing consultant for Metrostudy. The newest homes are often built farther from centrally located areas and may have smaller yards than their older counterparts, so they can wind up costing less.
2. Speed of Transaction. Winner: Existing. Most builders today are selling new homes from models, says Jody Kahn of John Burns Real Estate Consulting in Portsmouth, N.H. Once you agree to buy, the actual construction begins. The upside: There are still lots of ways to personalize the home, such as adding extra storage or creating an office. But the finished product probably won't be ready for six to nine months, which can be tough for those who need to move in soon. Timing the purchase is also a challenge when you're looking at a waiting period, especially if you have a home to sell.
3. Cost of Ownership. Winner: New. After a few decades, roofs get leaky and boilers go bust. You'll spend an average of $18,000 on a new roof, according to Remodeling magazine, and $3,000 for a furnace. New homes also carry lower utility bills. Energy use per house has fallen over the past decade in part thanks to changes to building energy codes, which call for more insulation and tighter sealing, and should fall further in new homes as more states adopt the latest 2012 codes. "New construction on average is 30% to 40% more efficient than existing homes," says Indiana energy consultant John Milligan.
4. Chance for Near-Term Gains. Winner: Existing. While handy homeowners can reap the benefits of sweat equity, a new home offers very little room for improvements and is likely to sell for about the same price as others around it. "New homes are for the most part based on a set of conforming architectural styles," says Corbett. Prefer new? It can pay to buy into a development early, since builders usually raise prices as construction progresses (particularly if the homes prove popular). The risk is that there's no guarantee how the neighborhood will turn out. Source: CNN/Money

Laura Glass