Housing Gets a Solid B+

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

Slowly but surely, we're seeing more and more metropolitan areas return to pre-recession activity levels, giving more steam to the housing recovery at the national level and more confidence in housing overall.

In its latest data release, the National Association of Home Builders found that 52 out of approximately 350 metro areas nationwide have now returned to or exceeded their pre-recession activity in housing. NAHB's latest index puts housing at 85% of normal activity.

We're in solid B+ territory if we were to grade housing like a college professor.

Shifting Gears in Today's Real Estate Market

Real estate transactions aren’t like they used to be 20 years ago. Or 10 years ago. Or even 3 years ago. Today’s sellers often list their property slightly under the current market value, which encourages interest and activity and brings in multiple offers, many times over list price, and many time over the current market value. It’s a strategy that can be used on certain properties.

Conversely, today’s buyers need to make offers at list price or over, depending on the property and their Realtor’s advice. Buyers aren’t at all comfortable doing that. Sometimes they fire the agent who suggest an over-list-price offer and head out to find an agent who will do it their way. We’ve had that happen. That couple still doesn’t own a home, and they’re thinking about firing the second agent.

This article, about conditions in Washington, D.C., reflects conditions right here in Gilroy, and the surrounding area. Read the article, and know that if you are selling or buying, you have to go by the current conditions, which your local Realtor will know. Trust them.

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.

 

Gas Prices Throw a Wrench in Housing Rebound

By Gino Blefari

President & CEO

Intero Real Estate Services, Inc.

It's looking more and more like the rebound in housing markets across the country won't rear its head until 2012. At the end of last year, many folks expected more slow and steady recovery in 2011, but even that seems optimistic.

Why? A few reasons, of course. But the biggest and easiest scapegoat right now is gas.

Have you visited the pump lately? Each week, the cost of filling up is rising so fast you think your final price must be a mistake. That's not for my car, you think. But it is.

Historically, the price of gas is a serious enough issue for many Americans to cause a chain reaction of paralysis on consumer spending. It starts with the trade-offs like less eating out and shopping, then seeps into small changes like fewer car trips and different commuting habits, then onto downsizing – smaller, more fuel-efficient cars. Then finally, it gets into our heads.

And when it gets into our heads, we start to feel uncertain about the economic future (as if we weren't there already). This very psychology is enough to derail major purchasing decisions like buying a house or car, or making risky but beneficial moves with your business or career.

The other thing to think about with gas prices and the effect on housing is location. In many parts of the country, your car is your only means of travel. If we continue to see climbs in gas prices and sustained high prices like some are anticipating, then eventually this will start to impact how we think about where to live.

Suddenly, the "Can I live here?" question includes a lot more considerations.

As we move through the market this year, we had expected some obstacles thrown in from a new lending atmosphere and congressional attempts to regulate. We expected slow growth due to a slow job market. But did we stop to think about something as seemingly unrelated as the price of gasoline? Maybe not. But now it's time to realize how these things affect everything around us – big and small. And housing is definitely one of them.