A Tale of Two Markets

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

Two sets of data about California real estate released this past week reveal a housing market that’s healthy, yet complicated and moving in a few different directions.

What we’re seeing is a market that’s improving overall, but that continues to struggle with supply – especially in certain pockets like the San Francisco Bay Area.

2013 brought about vast improvements in the state’s luxury markets, with sales of homes costing $1 million or more soaring 45% to their highest level in six years, according to La Jolla-based housing data company DataQuick.

Buyers are Optimistic



End of Summer Housing Trifecta Tells a Good Story

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

Three highly watched housing indicators were released at the close of summer last week, giving us a high-level view of how housing is performing. While sales of existing homes appear to be slowing, negative equity and the foreclosure market are improving substantially, thanks in part to increasing home values.

Let's take a look at all three data releases below.

Pending sales slow

In the National Association of Realtor's latest index of pending sales, we saw a 1.3% decline in July from June. However, the forward-looking indicator was 6.7% above the same month a year ago.

8.3 Million Homeowners Will Soon See the Light

 

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

Here's a bit of fantastic news in the housing market: 8.3 million homeowners are about to resurface from the doldrums of negative equity.

Given the abysmal situation with lack of homes for sale in many markets nationwide, the takeaway from this news is that we could be looking at a lot more inventory becoming available by the beginning of 2015.

We hope.

According to RealtyTrac, 8.3 million homeowners, or about 18% of homeowners with mortgages, will gain enough equity to sell their homes in the next 15 months without resorting to short sales.

Home Values Inching Closer to Record High

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

Have you checked out the sale-to-list price of some of the homes in your neighborhood recently?

I have. And the difference was over six figures.

Realizing of course, that home prices are different across markets, neighborhoods and school districts, something definitely has hit the value vein in the housing recovery.

The National Association of Realtors reports the median home price, $213,500 in July, was just 7.3% off the record high in 2006 when it was $230,400.

The median price was 13.7% higher than the same period a year ago, and the 17th consecutive month prices have risen year over year.

Clearly, values have bounced back.

But it's important to note that median literally is the middle number between the highest and the lowest. So the bounce back doesn't necessarily mean there's a recovery at all price points or for all.

Existing home sales also were up in July – increasing 6.5% to a seasonally adjusted annual rate of 5.39 million from 5.06 million in June. The pace of sales was 17.2% higher than July 2012.

NAR says that monthly existing home sales have now remained above year-ago levels for 25 months.

Along with the rise in values, inventory levels are also increasing, though still too low to fully meet demand in some markets. Total housing inventory at the end of July climbed 5.6% to 2.28 million existing homes for sale, representing a 5.1-month supply at the current sales pace.

Restricted inventory is the reason for the above-normal price growth in many markets.

The last piece of our housing snapshot is interest rates, which clearly have been increasing. Average rates on 30-year conventional fixed-rate mortgages were 4.37% in July, up from 4.07% in June. The question going forward will be how much will rates rise before starting to remove large swaths of buyers from the market?

We're likely to see all of these trends continue to the end of the year, making 2013 pivotal in the big picture of the housing recovery.

Pending Sales Slip in June, but Soar Above Last Year's Levels

 

By Gino Blefari, President and CEO, Intero Real Estate Services, Inc.

 

Pending home sales, a key indicator pointing to short-term market projections, eased back from a six-year high in June as rising interest rates and restricted supply began to impact buyers.

 

The National Association of Realtors' latest Pending Home Sales Index was down 0.4% in June from 111.3% in May, but still 10.9% above the same month a year ago when it was 100%.

 

Regionally, the pending sales index fared the best in the West where it jumped 3.3% to 114.2% and is 4.4% above where it was a year ago. The index remained unchanged in the Northeast at 87.2, while coming in 12.2% higher than year ago levels.

 

In the Midwest, the index fell 1% to 114.3%, but was 19.5% higher than it was a year ago. And pending sales in the South fell 2.1% to an index of 118.3% in June, which was 9.5% higher than the same month last year.

 

Does this mean summer is over and markets will ease through the end of the year? Not necessarily.

 

The fact that pending sales are still notably higher across the U.S. than they were at this time last year bodes well. What we're seeing in the month-to-month slippage is more likely to be from the recent rise in interest rates, as well as continued low supply in markets where there is healthy demand.

In some places, buyers are either getting outbid due to excessive competition or they simply cannot find a home that suits their needs.

Because of this, new construction is another indicator we all should watch closely. I expect to see much more aggressive building in the next five years in markets where land is abundant.

 

With demand so high and interest rates still incredibly attractive, many markets could probably see sales increase substantially if there were more opportunities to buy.

 

Pending sales may have slipped, but the fact is the market is still moving pretty well in many areas. Supply is the wildcard this year.

 

Watch the video on the NAR's Pending Home Sales Index by clicking below:

 

 

Hot Spring Leads to a Hot Summer Ahead

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

  The rise in prices means more homeowner equity, which could lead to more available inventory if more people jump off the fence and list their homes for sale. It could also lead to more buyers – especially first-timers – being priced out.

The positive pending home sales report means that the hot spring will spill into summer in many parts, since pending sales are an indicator of things to come. These are sales that are under contract but haven't closed.

Strong Price Gains Fuel Market Confidence

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

Intero value #14 is confidence.  Confidence /con·fi·dence/ •noun.  Freedom from doubt; belief in yourself and your abilities.

Confidence is also the word in housing this week. At least that's what we're hearing from some of the top companies in housing finance.

JPMorgan Chase revised its forecasts for the industry, prompted by large gains in home prices. And Fannie Mae released its monthly national housing survey, showing a sharp increase in consumer confidence in the housing market.

Home prices could grow as high as 7.2% this year, according to JPMorgan's new report. Analysts at the bank studied prices and demand conditions as the market moves into summer. They revised 2013 predictions higher as well as projections for 2014 and 2015, with an expected 3.9% and 3.2% growth, respectively.

Defaults Down and Flipping Returns

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

Here are two fun things to ponder this week:

Mortgage defaults are down – way down. First-time delinquent home loans fell to 0.84% of the 50.2 million mortgages in March, according to LPS.

It was monumental because it was the first month defaults fell below 1% since 2007, when the first defaults of the financial crisis reared their heads.

First-time delinquents are defined as loans that went from performing to at least 60 days delinquent when the report was created.

The days of problem loans aren't fully behind us – there will be some amount of that in the market for a while. But the days of massive waves of these loans are safely tucked in the background, for now it seems.

Flip: Real estate's four-letter word

Flipping made a media comeback this past week when RealtyTrac released a report highlighting the top 25 markets for flipping homes in 2012. The markets reflect those cities in which flipping produced the highest rate of return for flippers, i.e., gross profit.

Phoenix had the highest number of flips in 2012 with 10,589 property flips. Inland Empire, CA, Las Vegas, Miami, Denver and Detroit also topped the list by volume of flips.

The top five markets in terms of dollar amount profit in 2012 were San Jose ($103,241), San Diego ($85,714), San Francisco ($80,306), Las Vegas ($70,746), and Ventura County, CA ($70,426).

While flipping may conjure up bad memories of its TV glory days when everyone from waiters to hairdressers was a self-proclaimed real estate investment guru, it's not a bad thing.

Flipping implies property improvements and increasing values - two important factors in pushing a healthy, widespread recovery.

Something tells me it'll be less circus-like this time around. More seasoned investors and levelheaded borrowers. More lending restrictions. Less snap decisions and debt digging.

Lessons learned indeed. But it's something to keep an eye on. If we start to see insane rampant flipping by real estate hobbyists again, we may need to step back and reboot.

Real Estate’s Top 10 Hits from 2012

A video preview of The Intero Insider:

 

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

The end of the year is upon us. It’s been a good ride! Following is a rundown of the top 10 stories in real estate that made our list this year:

1. Home prices pick up. Home prices have been on an upward trek this year, fueled by strong demand, low interest rates and constrained supply in many markets. The most recent report year-end from Lender Processing Services showed a 3.6% increase in the home price index from a year ago. We expect the story to continue this way next year.

2. Foreclosures take a tumble. Total foreclosure inventory has fallen 9% this year, according to the latest report from CoreLogic, a good indicator of improving conditions. The number of foreclosures completed in October slipped to 58,000 from 77,000 in September and 70,000 a year ago.

3. Stellar year for Silicon Valley. We were fortunate enough to have some of the strongest housing markets in the country in 2012. In particular, Los Altos, Palo Alto and Burlingame showed the strongest comebacks this year with home prices just several percentage points away from peak levels in 2008, according to DataQuick. We expect this to continue in 2013 as our tech-fueled economy continues to flourish.

4. Housing in with Millennials. Many have speculated that the Millennial generation – 18 to 34 year olds – don’t have the voracious appetite for homeownership that previous generations have had. A recent survey showed differently as 72% of young adults said owning a home was part of their personal dream, and 43% are already homeowners.

5. Bidding wars back in vogue. The tight inventory across markets has created multiple bidding situations for buyers once again. This has been good for sellers, but obviously frustrating for buyers. The indirect effect of course will be good, though. Multiple bids help to push prices up, which can
help pull homeowners off the fence and get more sellers back in the market next year.

6. Borrowers more creditworthy. After the recession hit, lending standards tightened up considerably, which made it difficult for folks with credit problems to get home loans. The good news out of this has been that apparently borrowers got the message, and have improved their situations. Borrower creditworthiness in 2012 reached the highest in 12 years.

7. Mortgage interest deduction remains a hot issue. As Congress struggles to reduce the national debt, tax break programs are constantly on the table for potential cuts or eradication. The Mortgage interest deduction has been no exception. So far, with help from housing industry lobbyists like the National Association of Realtors, we’ve staved off any cuts. But we’re likely to hear more on this next year.

8. Interest rates at unbelievable lows. Rock-bottom interest rates have enabled a ton of refinance activity this year. Average rates on a 30-year fixed-rate mortgage will end the year below 4%. The Federal Reserve has indicated they’ll continue to keep short-term rates low, which means we’ll continue to see attractive rates for mortgage borrowers next year.

9. The “underwater” story improves. Throughout the recession and recovery, we’ve heard endless stories about the number of homeowners across the country that are underwater, or owe more on their mortgages than their homes are worth. The issue is significant when we talk about housing recovery because underwater owners often can’t sell and absent that option, markets have already started seeing problems with lack of available inventory to new buyers. The good news, though, is that it’s gotten a lot better this year.

10. Dealing with housing data conflict. Even a light tread through housing news can often lead you confused. Conflicting headlines are a regular thing. It’s important to understand the context around the data, the sources and how to interpret its impact or lack thereof on your own personal housing decisions.

There you have it. Overall, 2012 has been a great turning point in housing. We look forward to bringing more commentary and context to the discussion next year.

Happy New Year!

A Quick Pulse on the National Market

The housing market had a glimpse of good news this past week when the latest report on existing home sales showed an increase in sales both from the previous month and compared with a year earlier. There were a lot of things going on this report, so let’s dig in:

• Sales of existing homes increased 7.7% to a rate of 5 million in August, up from 4.67 million in July. Sales were up 18.6% from August 2010. Obviously, this is a great sign. While many news reports early this week focused on the dismal housing starts numbers, existing home sales are a better indicator to watch because as long as there’s a glut of existing home inventory in many markets, starts will remain low. In other words, existing sales need to move first before any improvement in starts will take place.
• Investors continue to gobble up property; the share of investors buying existing homes in August accounted for 22% of total sales, up from 18% in July and 21% in August 2010. Investors are motivated by the incredibly low cost of borrowing right now and the hot rental market that continues to see more demand and rising rents in many areas.
• First-time buyers remained steady, accounting for 32% of home purchases in August. That was unchanged from July, and up slightly from 31% in August a year ago. This is surprising, given the many problems with contracts falling through. But again, it’s a great time to buy for those buyers who are financially ready – rock-bottom interest rates, amazing affordability, and plenty of home inventory to choose from.
• Contract problems persist. The percent of contracts that fell through in August was 18%, up from 16% in July and 9% a year ago. Realtors say cancellations are largely due to declined mortgage applications or problems with appraised values coming back too low to support the negotiated price.

What’s the overall read? Not much has changed, despite the positive growth in sales. Low rates, bargain prices and a healthy rental market continue to lure more investors and first-time buyers. Restrictions in the lending market and problems with fluctuating home values continue to plague a lot of deals. What we’re seeing now is the slow growth many predicted and expected to happen earlier in the year.

What’s next? The Fed’s been discussing its new “Operation Twist” tactic, which basically means it’s going to be manipulating long-term interest rates by buying long-term bonds. The Fed has already said it’s keeping short-term rates low for the next two years – and at zero, they can’t even really do much more on that front. So, you guessed it – even lower interest rates may be on the horizon for home loan borrowers, which should help to fuel demand going into the traditionally slow season.