Whats happening in Real Estate
Barclays: ‘Turning Point’ for Home Owners in 2013
Falling housing inventories and an increase in demand bode well for the market’s recovery next year, according to Barclays 2013 housing outlook report.
Real estate wealth is expected to give a long-awaited boost to consumer spending in 2013.
“This would mark an important turning point for household balance sheets, where net-wealth effects from falling financial prices and the collapse of the housing market have been significant impediments to the strength of consumer spending and, in turn, the pace of the broader recovery,” Barclays reports.
Meanwhile, housing starts are projected to reach 944,000 in the first quarter of the new year and then rise to 973,000 by the second quarter, according to the report. Also, housing inventories are expected to increase modestly through the year.
“New-home inventories have fallen to their lowest levels ever, as home builders have held housing starts below even the depressed pace of new-home sales in recent years,” according to the report. “Now that new- and existing-home sales are on sustained upward trends, new-home inventories have fallen enough that builders need to raise housing starts to prevent inventories from falling further.”
Source: “Barclays: Housing market to remain resilient,” HousingWire (Dec. 17, 2012)
Buyer Urgency Expected to Drive 2013
Home shoppers will likely have more urgency in the new year, wanting to buy before home prices rise even more.
Home prices are edging up in most markets, and buyers are taking notice. Buyer surveys recently have shown that home shoppers expect home prices to continue to inch up, and they want to cash in before they rise too much higher.
“Every single thing about housing is flashing green” with household formation rising, inventory falling, and affordability hovering at record highs, James Dimon, chief executive of J.P. Morgan Chase told CNBC last month.
In 2013, rising rents are expected to push more renters to buy, The Wall Street Journal reports. Also, investors who’ve had a big appetite for housing in recent years may start to decrease their share in some markets that have seen prices rise, such as Phoenix, and focus on other markets still in recovery mode, like Chicago and Atlanta.
“Rising prices could eventually encourage more sellers to put their homes on the market, which would help boost demand even further,” The Wall Street Journal reports.
To meet the expected increase in demand in 2013, some real estate companies are going on a hiring spree. For example, Redfin says it plans to increase its 400 agents nationally by 50 percent by the end of January after having to send about half of its referrals to other companies earlier this year because demand outstripped its supply of agents.
Source: “2013: How Rising Prices Could Boost Housing Demand,” The Wall Street Journal (Dec. 18, 2012)
15-Year Mortgages Gain Popularity With Buyers
Record-low rates are driving more borrowers to seek shorter term mortgages.
Freddie Mac reports that nearly 16 percent of the fixed-rate mortgages that lenders sold to the agency during the third quarter were comprised of 15-year mortgages. That’s up from nearly 10 percent a year ago. The data excludes mortgages for refinancing.
For refinancings, 15-year mortgages accounted for nearly a third of loans during the first seven months of this year, according to CoreLogic.
“The 30-year mortgage became the standard in lending because its lower monthly payments made real estate affordable to more Americans,” The Wall Street Journal reports. “While the 30-year remains king, the gap between the two loans’ popularity is shrinking.”
Fifteen-year fixed-rate mortgages have recently averaged 2.81 percent — compared to 5.85 percent in mid-December 2007, according to HSH.com, a mortgage information Web site.
Some refinancers are finding that by switching from a 30-year to a 15-year fixed-rate mortgage they are able to not only get big savings on the life of their mortgage but also even slightly lower monthly payments. Traditionally, refinancing into a shorter-term mortgage meant paying a heftier monthly payment. But with mortgage rates so low, some home owners are finding the monthly payment isn’t increasing and may actually be less by shortening the terms of their mortgage.
Source: “Fringe 15-year Mortgage Becomes Hot Property,” The Wall Street Journal (Dec. 18, 2012)
WASHINGTON (December 20, 2012) – Existing-home sales continued to improve in November with low inventory supply pressuring home prices, according to the National Association of Realtors®.
Total existing-home sales1, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 5.9 percent to a seasonally adjusted annual rate of 5.04 million in November from a downwardly revised 4.76 million in October, and are 14.5 percent higher than the 4.40 million-unit pace in November 2011. Sales are at the highest level since November 2009 when the annual pace spiked at 5.44 million.
Lawrence Yun , NAR chief economist, said there is healthy market demand. “Momentum continues to build in the housing market from growing jobs and a bursting out of household formation,” he said. “With lower rental vacancy rates and rising rents, combined with still historically favorable affordability conditions, more people are buying homes. Areas impacted by Hurricane Sandy show storm-related disruptions but overall activity in the Northeast is up, offset by gains in unaffected areas.”
The national median existing-home price2 for all housing types was $180,600 in November, up 10.1 percent from November 2011. This is the ninth consecutive monthly year-over-year price gain, which last occurred from September 2005 to May 2006.
Distressed homes3 – foreclosures and short sales sold at deep discounts – accounted for 22 percent of November sales (12 percent were foreclosures and 10 percent were short sales), down from 24 percent in October and 29 percent in November 2011. Foreclosures sold for an average discount of 20 percent below market value in November, while short sales were discounted 16 percent.
“The market share of distressed property sales will fall into the teens next year based on a diminishing number of seriously delinquent mortgages,” Yun said.
Total housing inventory at the end of November fell 3.8 percent to 2.03 million existing homes available for sale, which represents a 4.8-month supply 4 at the current sales pace; it was 5.3 months in October, and is the lowest housing supply since September of 2005 when it was 4.6 months.
Listed inventory is 22.5 percent below a year ago when there was a 7.1-month supply. Raw unsold inventory is now at the lowest level since December 2001 when there were 1.89 million homes on the market.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 3.35 percent in November from 3.38 percent in October; the rate was 3.99 percent in November 2011.
NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, Calif., said there’s been speculation of a rise in short sales before the end of the year with pending expiration of the Mortgage Forgiveness Debt Relief Act. “However, there’s been no movement in short sales, their market share is staying in a narrow range, and they’re still taking much longer to sell – typically three months,” he said.
“The fact remains it is extremely difficult to expedite a short sale, and banks’ response to client urgency is only starting to improve. However, we’re hopeful that the act will be extended before it expires on December 31 so sellers don’t have to pay taxes on forgiven mortgage debt, which would be unfairly treated as income for owners who are selling under duress,” Thomas said.
The median time on market for all homes was 70 days in November, slightly below 71 days in October, but is 28.6 percent below 98 days in November 2011. Thirty-two percent of homes sold in November were on the market for less than a month, while 20 percent were on the market for six months or longer; these findings are unchanged from October.
First-time buyers accounted for 30 percent of purchases in November, down from 31 percent in October and 35 percent in November 2011.
All-cash sales were at 30 percent of transactions in November, up slightly from 29 percent in October and 28 percent in November 2011. Investors, who account for most cash sales, purchased 19 percent of homes in November, little changed from 20 percent in October; they were 19 percent in November 2011.
Single-family home sales rose 5.5 percent to a seasonally adjusted annual rate of 4.44 million in November from 4.21 million in October, and are 12.4 percent higher than the 3.95 million-unit level in November 2011. The median existing single-family home price was $180,600 in November, up 10.1 percent from a year ago.
Existing condominium and co-op sales jumped 9.1 percent to an annualized level of 600,000 in November from 550,000 in October, and are 33.3 percent above the 450,000-unit pace a year ago. The median existing condo price was $181,000 in November, which is 10.6 percent higher than November 2011.
Regionally, existing-home sales in the Northeast rose 6.9 percent to an annual rate of 620,000 in November and are 14.8 percent above November 2011. The median price in the Northeast was $232,900, down 2.0 percent from a year ago.
Existing-home sales in the Midwest increased 7.2 percent in November to a pace of 1.19 million and are 21.4 percent higher than a year ago. The median price in the Midwest was $141,600, which is 7.0 percent above November 2011.
In the South, existing-home sales rose 7.9 percent to an annual level of 2.04 million in November and are 17.2 percent above November 2011. The median price in the South was $157,400, up 10.5 percent from a year ago.
Existing-home sales in the West rose 0.8 percent a pace of 1.19 million in November and are 4.4 percent higher than a year ago. With ongoing inventory constraints, the median price in the West was $248,300, which is 23.9 percent above November 2011.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.
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NOTE: For local information, please contact the local association of Realtors® for data from local multiple listing services. Local MLS data is the most accurate source of sales and price information in specific areas, although there may be differences in reporting methodology.
1 Existing-home sales, which include single-family, townhomes, condominiums and co-ops, are based on transaction closings from multiple listing services. Changes in sales trends outside of MLSs are not captured in the monthly series. A rebenchmarking of home sales is done periodically using other sources to assess the overall home sales trend, including sales not reported by MLSs.
Existing-home sales differ from the U.S. Census Bureau’s series on new single-family home sales, which are based on contracts or the acceptance of a deposit. Because of these differences, it is not uncommon for each series to move in different directions in the same month. In addition, existing-home sales, which account for more than 90 percent of total home sales, are based on a much larger sample – about 40 percent of multiple listing service data each month – and typically are not subject to large prior-month revisions.
The annual rate for a particular month represents what the total number of actual sales for a year would be if the relative pace for that month were maintained for 12 consecutive months. Seasonally adjusted annual rates are used in reporting monthly data to factor out seasonal variations in resale activity. For example, home sales volume is normally higher in the summer than in the winter, primarily because of differences in the weather and family buying patterns. However, seasonal factors cannot compensate for abnormal weather patterns.
Single-family data collection began monthly in 1968, while condo data collection began quarterly in 1981; the series were combined in 1999 when monthly collection of condo data began. Prior to this period, single-family homes accounted for more than nine out of 10 purchases. Historic comparisons for total home sales prior to 1999 are based on monthly single-family sales, combined with the corresponding quarterly sales rate for condos.
2 The median price is where half sold for more and half sold for less; medians are more typical than average prices, which are skewed higher by a relatively small share of upper-end transactions. The only valid comparisons for median prices are with the same period a year earlier due to a seasonality in buying patterns. Month-to-month comparisons do not compensate for seasonal changes, especially for the timing of family buying patterns. Changes in the composition of sales can distort median price data. Year-ago median and mean prices sometimes are revised in an automated process if more data is received than was originally reported.
The national median condo/co-op price often is higher than the median single-family home price because condos are concentrated in higher-cost housing markets. However, in a given area, single-family homes typically sell for more than condos as seen in NAR’s quarterly metro area price reports.
3 Distressed sales (foreclosures and short sales), days on market, first-time buyers, all-cash transactions and investors are from a monthly survey for the NAR’s Realtors® Confidence Index, posted at Realtor.org.
4 Total inventory and month’s supply data are available back through 1999, while single-family inventory and month’s supply are available back to 1982 (prior to 1999, single-family sales accounted for more than 90 percent of transactions and condos were measured only on a quarterly basis).
The Pending Home Sales Index for November will be released December 28 and existing-home sales for December is scheduled for January 22; release times are 10:00 a.m. EST.
Seeds of a Housing Shortage
The market is looking much improved today, with home sales and prices heading up. But within this improvement are the seeds of a long-term challenge: falling inventories.
The inventory of existing homes is at its lowest level in seven years, while newly constructed home inventory has hit a 50-year low mark. Falling inventory is causing home prices to shoot up higher and faster than most analysts anticipated. The national median price of transacted homes was up 9.5 percent in August. Other price measures, like Case-Shiller and the Federal Housing Finance Agency price index, which look at price changes in sales of the same properties over time, have been rising as well, at double-digit annualized rates in recent months. Of course, not all markets are this robust. Phoenix is looking to notch a 25 percent gain for the year, while Chicago is just emerging from negative territory.
As winter approaches, inventory will slide further. Few homes are newly listed after Thanksgiving. Historically, inventory tends to be 15 percent lower in winter than summer. Last year’s seasonal decline was even more dramatic, at 25 percent. We hope we won’t see an inventory decline of that magnitude this winter. Home values rising much faster than income growth will markedly cut into housing affordability.
But that may well be what’s in store. Distressed home listings will continue to fall because fewer borrowers are now seriously delinquent. Home construction is up, but only reaching half of the historic average of housing starts. Even the many pent-up sellers—those normal, nondistressed home owners who’ve been holding back for better market conditions—will not help the net inventory situation, because most of them will be selling to buy a trade-up property.
Slight seasonal relief should come in March, just as the spring buying season gets underway. But a deeper and longer-term issue to watch out for is the increasing possibility of a housing shortage across many parts of the country.
Americans Get More Confident About Home Buying
The percentage of Americans who have been waiting to buy a home over concerns about the economy has dropped by more than half since 2010, a new survey by FindLaw.com says.
Sixty-three percent of Americans surveyed said in 2010 that they were putting off homebuying decisions because of the sluggish economy. In 2012, the percentage has dropped to 30 percent.
“Two years ago, the economic situation was driving a lot of potential home buyers to the sidelines,” says Stephanie Rahlfs, an attorney and editor with FindLaw.com. “But today we’re finding that the state of the economy is becoming less of a factor in keeping people out of the housing market.”
Many more factors are driving home buying decisions today, regardless of the state of the economy, Rahlfs adds. For example, she says homebuying motivators can be income, housing prices, schools, commute times, job relocations, mortgage rates, and the ability to sell an existing home.
“Among middle and upper income levels, we’re seeing a significant rise in people saying the economy is making them more likely to enter the housing market,” Rahlfs says, attributing that to the low mortgage rates and housing prices.
Source: “Survey Shows People Becoming More Likely to Participate in the Housing Market,” RISMedia (Nov. 7, 2012)