Rising inventory to deflate prospects of a bubble

Posted on June 20, 2013 by grim
Posted in Economics, Housing Recovery, National Real Estate | 1 Comment

From HousingWire:

CoreLogic: Housing recovery is durable, but not bulletproof

The trend of rising home prices continues and is expected to carry on, but don’t expect double-digit gains as a norm, analysts say.

Home prices rose 12.1% in April, making it the 14th consecutive month of year-over-year increases, according to the latest CoreLogic Home Price Index. This is the largest annual gain since February 2006, a clear sign of a market in recovery mode.

However, double-digit gains are also cause for some concern, say experts who recall the unsustainable home price increases before the last housing downturn.

“While our recent projected CoreLogic HPI indicates continued home price gains, bolstered by still-tight supply and strong demand, we expect recent double-digit gains to moderate as markets normalize,” said CoreLogic.
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With some early post-recession investors in distressed single-family properties saying the market overheated and they’re pulling back, it appears a sudden shift is taking place in the market.
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“Regaining equity creates options for those who might now consider selling their homes because they can close a transaction with enough cash to make a down payment on the next home,” said CoreLogic. “Higher prices also attract the interest of builders who see opportunity in increased demand. In both cases, a broader supply brings inventory more in balance with demand.”
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The current January to April year-to-date increase in the supply of existing homes is the third highest in nearly 30 years, indicating a lessening in the inventory crunch.

“The increase in the supply in context of current tight underwriting standards should deflate the risk of any bubbles,” said CoreLogic.

High-end feeling the pain in Jersey?

Posted on June 19, 2013 by grim
Posted in Demographics, Economics, Housing Recovery, New Jersey Real Estate | 116 Comments

From the Record:

High-end homes in North Jersey await price rebound

Home sales and prices are beginning to rebound in North Jersey, but what effect that will have on the still-sluggish higher end of the market – which slumped the most in 2012 – remains to be seen.

Prices of single-family homes in Bergen County rose 5.9 percent for the first five months of this year, to a median $413,000, while prices in Passaic County rose less than 1 percent, according to multiple listing services in both counties.

That’s a marked improvement from 2012, when, according to an analysis by The Record, home prices dropped 1.3 percent in Bergen and 1.7 percent in Passaic. Prices of homes $700,000 and up in Bergen and Passaic — stung by the loss of thousands of high-paying jobs that vanished in the recession — fared much worse, dropping 6.6 percent, the analysis shows.

Although the listings services don’t break the 2013 sales down by prices, evidence that the overall market is gaining is potentially good news for sellers in towns like Demarest, Old Tappan and Saddle River, which suffered double-digit price declines last year, according to The Record’s analysis. As home values firm up in the middle of the market, more households may find they have the equity to trade up and boost values in those towns.

For now, however, “The upper end is still sluggish,” said Robert Abbott of Abbott & Caserta Realtors in Ho-Ho-Kus.

Patricia Nichols, a fashion industry executive, has seen it firsthand.

Looking to downsize after her daughter left for college, she sold her five-bedroom Upper Saddle River colonial in 2012 for $780,000 — about 22 percent less than her original asking price in 2010.

“Would I have liked to have gotten more? Of course,” said Nichols, who moved to a town house. “But it was almost a two-year process. At some point, you have to cut your losses.”

Part of the problem is fewer buyers. From 2006 to 2011, the North Jersey economy lost 10 percent of the jobs in industries where the average salary is at least $80,000, according to an analysis of jobs data by The Record. One example: The number of finance jobs in New Jersey — about 249,000 — is down by about 11.5 percent from 2005.

“The labor markets have fewer top-end salaries than they did before,” said Jeffrey Otteau, an East Brunswick appraiser who tracks the housing market statewide.

In addition, fewer households can trade up to luxury homes, because their current homes haven’t been gaining value.

“Demand for high-priced houses depends on appreciation and equity buildup in the middle-priced houses,” Otteau said. “That has not occurred.”

S&P: No bubble yet, home prices continue to rise

Posted on June 18, 2013 by grim
Posted in Housing Recovery, National Real Estate | 89 Comments

From HousingWire:

S&P expects home prices to keep rising

Surging home prices throughout the country have spurred talk of a housing bubble, as many markets are still recovering from the last bubble bursting in 2007.

But Standard & Poor’s Ratings Services states that, although double-digit gains are ultimately unsustainable, we may not have reached bubble status quite yet.

Home price appreciation can be attributed to a number of factors, including historically low rates, property purchases by investors who are renting homes out and a shortage in home inventory. In fact, recently the S&P/Case-Shiller home price index hit an 11% year-over-year increase, from 8%.

Across the U.S., home prices are back to 2003 levels, yet they remain far from their 2006 peak. Lack of available inventory coupled with high demand has played a large role in this. In April, the sales of existing homes were up 9.7% year-over-year, while existing housing inventory dropped 13.6% from a year earlier, according to the National Association of Realtors.
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S&P states that U.S. home prices are relatively low compared to historical values. Prices remain 28% lower than their July 2006 peak.

Additionally, housing remains undervalued about 8% based on the price-to-income ratio, which takes into account the median sales price of a home relative to median annual incomes. The typical median home in the U.S. costs 4 times as much as the median annual income. It’s now at 3.7 times

Overall, S&P expects that the current pace of home prices gains will not last for long; however, it’s too soon to call this a bubble. In fact, as home values are still below their pre-recession peaks, home prices could continue to rise throughout the year.

First timers still missing from the market?

Posted on June 17, 2013 by grim
Posted in Demographics, Economics, Housing Recovery | 79 Comments

From the Philly Inquirer:

Are there enough first-time buyers to sustain housing recovery?

hiladelphians Luis Valenti, 25, and Eleonora Barbieri, 26, are getting married July 14.

If planning a wedding doesn’t seem stressful enough, the couple are settling July 10 on their first house, a duplex in the 2200 block of West Thompson Street listed at $155,000.

Two major events in the lives of anyone, and just four days apart.

“With the housing recovery and interest rates going up, we thought the time was right,” said Valenti, who works in the financial industry.

They also wanted to lock into an FHA loan by June 1, before the rules changed, Barbieri said.

Since then, all loans with less than 10 percent down require that mortgage insurance be paid for the life of the loan. In addition, mortgage insurance will no longer be canceled when the loan balance is 78 percent of the original amount.

They beat the deadline.

First-time buyers like Valenti and Barbieri are key to the health of residential real estate. So there is concern, at least on the national level, that there might not be enough of them to sustain the housing recovery.

This buyer segment is so important, in fact, that the National Association of Realtors surveys 3,000 members monthly for the latest percentages.

The April survey, said spokesman Walt Molony, put first-time buyers at 29 percent, “weaker than the historic norm” of 40 percent.

Other research organizations report similar findings. Tight credit, competition with investors for lower-end properties, and limited inventory typically are cited as reasons.

Economist Kevin Gillen, of the University of Pennsylvania’s Fels Institute, maintains that since the housing bubble burst in 2007, “many lower-income home buyers have been effectively cut out of the market.”

“Whether they’re unemployed, underemployed, can’t assemble a sufficient down payment, or can’t get credit, these are problems,” he said, “that disproportionately affect young, first-time home buyers.

“We’ve been left with a housing market composed of relatively wealthier households trading relatively high-priced homes with each other.”

That may be changing. In many parts of the region, the numbers of first-timers are increasing. Owing to the shortage of inventory, many of them are not having an easy time, however.

“Gen Y may turn out to have unrealistic expectations about what they can afford”

Posted on June 15, 2013 by grim
Posted in Demographics, Economics, National Real Estate | 24 Comments

From the NYT:

Home Loans for Millennials

The next generation of potential home buyers prefer to live in developments with an array of housing types close to shops and mass transit, a recent survey shows. Is this bad news for the baby boomers who will eventually be looking to sell their big suburban houses?

It’s too soon to tell, analysts say, because the generation that is now roughly 18 to 34 is still moving into its child-raising years. As Jed Kolko, the chief economist of Trulia, noted, “It’s very hard to imagine before you have kids what you will want when you have kids.”

But it’s likely that this generation, who are known as millennials or Generation Y, will force some type of shift in the housing market; it is more racially and ethnically diverse than previous generations, as well as more deeply affected by the recession than older adults.

“I do think their preferences are going to result in sustained change,” said Lynn Ross, the executive director of the Urban Land Institute’s Terwilliger Center for Housing. “This group is so different from previous generations.”

The institute recently released the results of a survey showing the generation’s penchant for urban-style living. About 60 percent say they prefer a mix of housing choices, along with proximity to shops, dining, offices and transit. Seventy-five percent said they valued walkability — a preference that jibes with this generation’s declining number of licensed drivers, according to a report by U.S. Pirg, a nonprofit consumer advocacy group.

Of the 63 percent who said they planned to move within the next five years, nearly 40 percent expect to live in some type of multifamily housing.

Ms. Ross said the findings didn’t necessarily mean this generation would move en masse to city locations. These young buyers may also be drawn to compact development in downtown suburban locations.
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Mr. Kolko noted that although people surveyed by Trulia often say they want walkability and proximity to mass transit, property searches on Trulia.com are more often conducted by city people looking in the suburbs than vice versa. “Gen Y may turn out to have unrealistic expectations about what they can afford,” he said, “but that doesn’t mean they want something radically different. It’s too soon to tell whether there is a permanent shift.”

FEMA: Just Kidding!

Posted on June 14, 2013 by grim
Posted in Shore Real Estate | 61 Comments

From the Bridgeton News:

Large areas of N.J. Shore to be removed from high-risk flood zone

Declaring the controversial federal flood zone maps issued in the wake of Hurricane Sandy “fundamentally flawed,” U.S. Sen. Robert Menendez (D-N.J.) said today revised maps will be released next week removing large areas from the worst at-risk zones.

Menendez said earlier versions of the maps, which aren’t yet final, “incorrectly included far too many homes” in areas at risk of major waves — sections called “V” zones.

“For residents in many of the areas affected by Superstorm Sandy, the release of these updated flood maps could be the deciding factor in whether they are able to stay in their homes or are forced to relocate,” Menendez said.

The new maps, to be released Monday, will cover Monmouth, Ocean, Hudson and Atlantic counties.

The debate over which homes fall in the dreaded “V” zone has been one of the most contentious issues for homeowners along the shore since the hurricane struck last October.

Property owners have been anxiously awaiting revised maps from the Federal Emergency Management Agency because they will dictate how many — and how high — homes or businesses have to be raised to protect from flooding. That ultimately affects flood insurance rates as well and whether homeowners will even be able to afford to rebuild.

Removing large numbers of homes from the “V” zone would be good news for those property owners who have not yet rebuilt.
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“This is great news for the hundreds, if not thousands, of people who were incorrectly included in high-risk, high-cost ‘V’ zones,” George Kasimos, founder of Stop FEMA Now, a property-owners advocacy group, said in a statement.
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In Brick, about 4,000 homes were slated to move to “V” zones. Mayor Stephen Acropolis said he expects 3,500 homes will move back to “A” zones when the new maps come out.

Still, there will likely be an additional 10,000 to 12,000 Ocean County residents who must now obtain flood insurance, he said.

Banks taking advantage of higher prices … to foreclose

Posted on June 13, 2013 by grim
Posted in Economics, Foreclosures | 45 Comments

From Bloomberg:

Foreclosures Jump as Banks Bet on Rising U.S. Home Prices

Home repossessions in the U.S. jumped 11 percent in May after declining for the previous five months as rising prices and limited inventory for sale across the country spurred banks to complete foreclosures.

Lenders took back 38,946 homes, up from 34,997 in April, according to Irvine, California-based data firm RealtyTrac, which tracks notices of default, auction and seizures. Thirty-three states had increases in the number of homes repossessed, RealtyTrac said in a report today.

Banks are more willing to move to the final stage of foreclosure because there is sufficient demand and prices are improving, said Eric Workman of Tinley Park, Illinois-based Mack Cos., which aggregates single-family rental homes and resells them to individuals and institutional investors. U.S. home prices advanced almost 11 percent in the year through March, the biggest 12-month gain since April 2006, according to the S&P/Case-Shiller index of values in 20 cities.

“For a very long period of time, the market in general and specifically banks were unsure of what these assets were valued at,” Workman, vice president of sales and marketing at Mack, said in a telephone interview. “With increasing stability of the economy and housing prices throughout the U.S., these banks and sellers are getting much more comfortable with the value of their properties.”
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“Given the shortage of inventory and rising home prices, banks have little motivation to hold back on any foreclosures, so homeowners who have not been making payments for several months or even years without a foreclosure notice should expect to see that notice coming,” Craig King, an agent at the Reno, Nevada-based Chase International brokerage, said in RealtyTrac’s report.
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The current pace of home seizures would result in more than a half million repossessions by the end of the year, compared with 671,251 in 2012, RealtyTrac said.

“However, the numbers for 2013 could be higher if the increase in May continues and lenders have a good market to unload distressed inventory,” Blomquist said.

Waters recede, homeowners learn to float

Posted on June 12, 2013 by grim
Posted in Economics, Housing Recovery, Mortgages | 61 Comments

From Bloomberg:

Homeowners With Negative Equity Fall Below 20% of U.S. Borrowers

The share of U.S. borrowers who owe more than their homes are worth fell to less than 20 percent in the first quarter as prices surged in hard-hit markets, according to CoreLogic Inc.

About 850,000 residential properties gained positive equity during the quarter, leaving the number of underwater homes at 9.7 million, or 19.8 percent of all U.S. homes with mortgages. That’s down from 21.7 percent at the end of last year, the Irvine, California-based real estate data provider said today in a report.
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“The negative-equity burden continues to recede across the country thanks largely to rising home prices,” Anand Nallathambi, president and chief executive officer of CoreLogic, said in a statement today. “We are still far below peak home-price levels, but tight supplies in many areas coupled with continued demand for single-family homes should help us close the gap.”

The aggregate value of negative equity in the U.S. fell to $580 billion in the first quarter from $631 billion at the end of last year.

The majority of home equity is concentrated at the high end of the market, according to CoreLogic. For mortgaged homes valued at more than $200,000, 88 percent are above water, compared with 73 percent for properties worth less than that, the firm said.

Does a middle class recovery require a housing recovery?

Posted on June 11, 2013 by grim
Posted in Demographics, Economics, Housing Recovery | 149 Comments

From Forbes:

Housing Boom Is The Best Chance For A Recovery For The Rest Of Us

Our tepid economic recovery has been profoundly undemocratic in nature. Between the “too big to fail” banks and Ben Bernanke’s policy of dropping free money from helicopters on the investor class, there have been two recoveries, one for the rich, and another less rewarding one for the middle class.

Viewed in this light, the recent run-up in home prices, the biggest in seven years, offers some relief from this dreary picture. Home equity accounts for almost two-thirds of a “typical” family’s wealth (those in the middle fifth of U.S. wealth distribution); there is no other investment by which middle-class families can so easily grow their nest eggs.
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Perhaps even more important, the growth of housing sales also revives something many have written off as obsolete: “the American dream” of owning a home. Since the great recession, some economists have argued that the future of America will be a “rentership” society.

Others such as Richard Florida have argued forcibly that home ownership is “over-rated,” maintaining that America’s fixation on it has fostered “countless forms of over-consumption that have a horribly distorting affect on the economy.” Workers, he argues, are better off as renters since this allows them to change jobs more nimbly. If anything, he suggests, the government would be better off encouraging “renting, not buying.”
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Perhaps this is true for some, but overall the desire to own a home is far from dead. A 2012 study by the Woodrow Wilson Center found that over 80% of Americans associated homeownership with the American dream. A 2012 study by the Joint Center for Housing Studies at Harvard, found “little evidence to suggest that individuals‘ preferences for owning versus renting a home have been fundamentally altered by their exposure to house price declines and loan delinquency rates, or by knowing others in their neighborhood who have defaulted on their mortgages.”

Some predict that changing demographics — and attitudes — will erode such sentiments. Yet homeownership seems to be embraced by two groups who will dominate our future: the emerging millennial generation and immigrants . Between 2000 and 2011, there has been a net increase of 9.3 million in the foreign-born (immigrant) population, largely from Asia and Latin America. These newcomers have accounted for roughly two out of every five new homeowners.
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But, still, the housing recovery is the best news to hit the American middle class in at least half a decade. Some investors seem to be realizing there are limits to rental income and might be persuaded to start selling homes to individuals. Already in Phoenix, a hotbed of investor interest, the percentage of homes sold to investors dropped to about 25% in March from a high of 36% last summer.

If this trend takes hold, investors, rather than undermining the market, could be seen as having played a critical role in maintaining housing during a very hard time. If they start an orderly withdrawal, or start selling their homes to families, the speculators, not always a lovable group, could end up being among the unlikely saviors of the American dream, particularly for the next generation.

Housing recovery becoming even more polarized

Posted on June 10, 2013 by grim
Posted in Economics, Housing Bubble, Housing Recovery | 62 Comments

From the WSJ:

Housing’s Up, but Is Foundation Sound?

The housing-market recovery is here but there’s a growing debate among bulls and bears over how long it will last and how strong it will become, with both groups pointing to the same data to make their case: U.S. demographics.

The bull case says the housing market is in the early stages of a rebound that should last several years because the U.S. hasn’t built enough housing to support the country’s growth. The recession and the foreclosure crisis led to a sharp slump in new-home construction and in household formation. But the population didn’t stop growing. Instead, households simply doubled up or moved in with family.

The bears argue that the recent gains in housing will be short lived, pointing to changes in access to credit, elevated consumer-debt levels, and an over-reliance on investors. They don’t believe housing will crash again, and they concede that it should provide some contribution to economic growth. But they see little evidence that the price or sales momentum is durable or that housing will provide the big boost to the economy that the bulls are expecting.

For anyone considering whether to buy a home to live in, the decision should focus primarily on whether they can afford the payments and other costs of ownership, regardless of where home prices go.

The slump’s impact set up today’s dynamics. The country added around 1.3 million new households every year for the 10-year period ending in 2007, after which household formation fell to more than half that level. New-home construction ground to a halt in 2008 as home builders were sidelined by rising volumes of foreclosures and other distressed sales.

Housing bulls see the slow economic recovery releasing pent-up demand, first for rental housing and then for home purchases. More young adults—many of them among the 65 million “echo” boomers born to baby boomers between 1981 and 1995—are moving out of their parents’ homes and into apartments. Others that had delayed home purchases during the bubble are ready to buy.

Rising prices in many parts of the country today show what happens when demand outstrips supply. To be sure, some homes are being held off the market by owners who can’t sell because they owe more than their homes or worth. Others are reluctant to sell at prices that leave them with little money to make a down payment on their next home.

Meanwhile, bulls still see too few homes being built, even after accounting for that “shadow” inventory. Population growth will require 14 million additional housing units this decade, around three-quarters of them single-family homes, according to Zelman & Associates, a research and advisory firm. Analysts at Zelman estimate that only 5.7 million of those units will be built by 2015, meaning the U.S. would need to add two million homes a year over the last four years of the decade—spurring a big boost of construction that would ripple through the economy.

“There’s just not enough shelter,” says Ivy Zelman, the firm’s chief executive.
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The bear case, the outlines of which are laid out in a forthcoming paper by Joshua Rosner, managing director of Graham Fisher & Co., draws attention to several forces that had helped housing—and the economy—expand over the past few decades but whose end will now hinder growth.
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In 2001, Mr. Rosner was among the first to prophesy how rising debt levels would fuel a housing bubble and later, in early 2007, he warned how the bursting of that debt bubble would trigger a severe financial crash. Now, he sees major drags not only from the potential echo-boom buyers but also from the aging baby boomers, who sustained huge losses in the housing-market downturn, leaving them less prepared for retirement and putting greater strains on the social safety net.

Skeptics also haven’t taken comfort in the housing rebound because they see it as too dependent on investors. “We shouldn’t look at it as a fundamentally recovered housing market,” says Mr. Rosner. Sooner or later, he says, there needs to be “a handoff from the investor purchase to the primary-resident purchase.”

How that handoff unfolds will go a long way toward deciding whether the bulls or the bears have the last laugh.

Bubble calls premature?

Posted on June 7, 2013 by grim
Posted in Economics, Housing Bubble, National Real Estate | 124 Comments

From the Economist:

Bubble-hunting

UST seven years after the biggest housing bubble in American history began to deflate, could another be inflating? Prices in a 20-city index compiled by CoreLogic Case-Shiller rose by 11% in the year to the end of March, and by more than 20% in Phoenix and Las Vegas, both cities at the centre of the housing collapse. Inventory is down: homes are selling in days, and often for more than the asking price. In Phoenix, bidding wars have broken out between would-be homeowners and investors paying cash. Americans once more see property as a winning asset.

But to qualify as a bubble, an asset must not simply appreciate; it must decouple from its intrinsic value. For houses, The Economist each quarter compares the ratio of prices to household income and rents against their long-run average in 20 countries. We have now done the same for the 20 metropolitan areas in the Case-Shiller index. The verdict: in most markets houses are at or near their long-run values, but none looks bubbly.

For America as a whole and in most cities, price-to-rent and price-to-income ratios are at or near their 25-year average. (To be sure, the bubble era dragged that average up; valuations are still higher than in the 1990s.) How they got there varies, however. Cities in Arizona, California, Nevada and Florida experienced the biggest bubbles, and in the subsequent bust values fell well below long-term averages. Price rises in Phoenix, Tampa and Miami have restored values only to their long-run averages.

In New York prices never gave up much of their bubble-era rise, and have since recovered more slowly than in the country as a whole. Relative to rents and incomes, valuations have been flat or down slightly. Homes around Washington, DC sell for roughly double their level of the late 1990s, but that seems justified by strong gains in rents and incomes. A brisk rental market also explains the strong run-up in prices in San Francisco.
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In Denver house prices have regained their peaks, and valuations are above their long-run average. This is the only city that, by our methodology, counts as expensive. But by the standards of recent history the over-valuation is trivial. Many things could trip up the housing recovery, from stalling job growth to higher mortgage rates. But at the moment a bursting bubble is not one of them.

“Northern New Jersey continues to see modest, steady improvement in its housing market”

Posted on June 6, 2013 by grim
Posted in Economics, Housing Recovery, New Jersey Real Estate | 121 Comments

From the Fed:

June Beige Book – Second District – New York

Economic activity in the Second District has continued to expand at a moderate pace since the last report. Price pressures have abated somewhat among manufacturers, though they remain more widespread in the service sector; contacts continue to report that selling prices are steady to up modestly. Labor market conditions continue to improve, and businesses increasingly report difficulty finding well-qualified workers. Retailers report that sales were tepid in April but picked up in early May, and new automobile sales have remained strong. Tourism activity has been mixed but generally robust. Commercial and residential real estate markets have strengthened further since the last report. Finally, credit conditions improved across the board, with bankers reporting increased loan demand, widespread narrowing in loan spreads, and declining delinquency rates across all loan categories.
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Construction and Real Estate

Residential real estate markets in the District have strengthened further since the last report. New York City’s home sales and rental markets have shown further signs of tightening–on both the sales and rental sides. Both apartment sales prices and transaction volume continue to run well ahead of a year ago in Manhattan and especially in prime areas of Brooklyn, reflecting a low inventory of available units. The rental market also remains tight: rents continue to rise at a roughly 6-7 percent annual rate in Manhattan and at a somewhat faster pace in Brooklyn; the Queens rental market is also seeing a pickup. Long Island, where the housing market had been generally flat until recently, has seen a recent sharp pickup in pending home sales and a drop in the inventory of homes for sale. Northern New Jersey continues to see modest, steady improvement in its housing market. With a relatively low inventory of new homes, prices are rising gradually; however, a sizable overhang of distressed properties is reported to be restraining price appreciation. A real estate contact in western New York reports increasingly strong market conditions: inventories have fallen, bidding wars have become increasingly common, and home prices have been rising.

Schiff’s scathing commentary on the recovery

Posted on June 5, 2013 by grim
Posted in Economics, Housing Bubble, National Real Estate | 89 Comments

From Forbes:

Great Reflation Produces Mirage Of Recovery In Housing

Investors and politicians are being treated to some of the “best” home price data since the frothy days of 2006 when home loans were given out like cotton candy and condo flipping was a national pastime. The Case-Shiller 20 City Composite Home price index was up a startling 10.9% for the 12-month period ending in March. Prices in all 20 cities were up, with some (Las Vegas, Phoenix, and San Francisco) notching gains of more than 20%. Meanwhile the National Association of Realtors announced that April pending home sales volume reached the highest level in nearly three years.

The strong housing data are taken as proof that the economy has turned around and that a recovery is under way. Cooler heads may simply see how government policies have channeled money into real estate in order to reflate a bubble that has been collapsing for the last five years. Although the money is entering the market through slightly different paths than it did in 2005 and 2006, its effects on housing, and the broader economy, are the same as they were before the bubble burst. When the inevitable happens again, the ensuing damage will be eerily familiar.

After five years of dismal real estate performance and a lackluster economy, it’s hard to fault people for believing that rising home prices are a good barometer of economic health. There can be little doubt that rising home prices feel good. Even single digit appreciation can make modest home buyers feel like mini-moguls.
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The truth is that most buyers cannot afford today’s prices without the combination of government guarantees and artificially low mortgage rates. The Federal Reserve has been conducting an unprecedented experiment in economic manipulation. By holding interest rates near zero and by actively buying more than $40 billion monthly of mortgage-backed securities and $45 billion of Treasury bonds, the Fed has engineered the lowest mortgage rates in generations.

At the same time, federal control of the mortgage industry has become nearly complete, with government agencies Fannie Mae , Freddie Mac , and the FHA buying or guaranteeing virtually all new mortgages. In addition, a variety of Federal programs, such as the Home Affordable Modification Program (HAMP) are in place to help keep underwater homeowners in homes that they could not otherwise afford. Taken together, these programs create far more favorable terms for home buyers than those that existed before the crash.
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This trend has allowed a recovery in home sales even while the national home ownership rate has dropped to 65%, the lowest rate since 1995 (down from almost 70% during the last decade). Now that most of the available foreclosures have been picked through (with the rest log jammed with litigation and red tape), many of the new classes of investment buyers are striking deals directly with the large home builders to buy homes before they are even built. It is no coincidence that the southern tier markets with the fastest appreciation, and the fastest declines in inventories, have been those with the greatest participation of institutional investors.
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The current combination of low rates and investor demand has succeeded in pushing up prices, but that doesn’t mean the market is healthy. For the first quarter of 2013, the Federal Reserve reports a 10% delinquency rate for residential mortgages (those with payments that are at least 90 days past due). This is more than 6 times the rate in the first quarter of 2006. In contrast, credit card delinquencies currently stand at 2.65%, the lowest rate in decades and 31% lower than the rate in the first quarter of 2006. Whether it is by choice, or simply by the ability to pay, Americans are clearly placing a low priority on paying their mortgages.
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In the meantime, by blowing more air into a deflating housing bubble, the Fed is misdirecting money into a sector that investment capital should be avoiding. A successful economy can’t be built on housing. Rather, a robust real estate market must result from a healthy economy. You can’t put the cart before the horse. As a nation, we do not need more houses. We built enough over the last decade to keep us well sheltered for years. Private equity funds should be using their investment capital to fund the next technology innovator, not wasting it on townhouses in Orlando and Phoenix.

Of course the real risks in housing center on the next leg down, in what I believe will be a continuation of the real estate crash. We can’t afford to artificially support the market indefinitely. When significantly higher interest rates eventually arrive, the fragile market will again be impacted. We saw that movie about five years ago. Do we really want to see it again?

North Jersey Contracts – May 2013

Posted on June 4, 2013 by grim
Posted in Economics, Housing Recovery, North Jersey Real Estate | 78 Comments

Here it is! The first look at pending home sales (contracts) for Northern NJ.

(Source GSMLS, except Bergen- NJMLS) – Updated with 2011 Data

May Pending Home Sales (Contracts)
——————————-

Bergen County
May 2011 – 732
May 2012 – 879
May 2013 – 1087 (Up 23.7% YOY, Up 48.5% Two Year)

Essex County
May 2011 – 352
May 2012 – 392
May 2013 – 569 (Up 45.2% YOY, Up 61.6% Two Year)

Hunterdon County
May 2011 – 109
May 2012 – 119
May 2013 – 172 (Up 44.6% YOY, Up 57.8% Two Year)

Morris County
May 2011 – 441
May 2012 – 460
May 2013 – 679 (Up 47.6% YOY, Up 54.0% Two Year)

Passaic County
May 2011 – 178
May 2012 – 233
May 2013 – 336 (Up 44.2% YOY, Up 88.8% Two Year)

Somerset County
May 2011 – 268
May 2012 – 359
May 2013 – 462 (Up 28.7% YOY, Up 72.1% Two Year)

Sussex County
May 2011 – 100
May 2012 – 157
May 2013 – 183 (Up 15.9% YOY, Up 83.0% Two Year)

Union County
May 2011 – 344
May 2012 – 355
May 2013 – 466 (Up 31.3% YOY, Up 35.5% Two Year)

Warren County
May 2011 – 78
May 2012 – 95
May 2013 – 111 (Up 16.8% YOY, Up 42.3% Two Year)

Recovery at the high-end lags

Posted on June 3, 2013 by grim
Posted in Economics, Housing Recovery, New Jersey Real Estate | 111 Comments

From the Star Ledger:

Million-dollar homes haven’t fully emerged from recession yet

The upper end of the housing market was the last to feel the recession, and will be the last to see a recovery, housing experts say.

According to data compiled for The Star-Ledger by Trulia and Otteau Valuation Group, the percentage of homes for sale over $1 million peaked between 2006 and 2008 in New Jersey. The recession officially began in 2007.

But million-dollar-and-higher home sales fell sharply by 2009, from 4.2 percent of total market in 2007 to 2.7 percent two years later, according to Otteau. Trulia, which tracked a smaller market area in New Jersey, reflected a similar plunge from 3.2 percent to 2.4 percent.

Jeffrey Otteau, president of Otteau Valuation, said the plummet coincided with the crash of the brokerage firm Lehman Brothers in 2008.

“Following the collapse of Lehman Brothers and the commencement of the recession,” he said, “that market share began to decline steadily.”

It’s not, however, that the rich suddenly became poor.

“What the affluent have is the ability to pick the time they want to sell,” Otteau said. “They can ride out tough times. They didn’t experience unemployment like the lower-income households did. They are more liquid and can ride out rough patches.”

According to Otteau, the decline of high-end homes on the selling block was about half of what occurred elsewhere. While the overall market dropped by 25 percent, it fell only 12 percent in towns that have easy access to New York City.

Joseph Seneca, an economics professor at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, saw other factors at play as well.
“You could make the other case that a lot of finance jobs were lost,” he said. “Employment losses in the financial sector were also significant.”
…
“In the good years of the decade, we probably saw more houses priced at $1 million and that’s why the rate of increase in those years is higher,” he said. According to Trulia, the percentage of homes more than $1 million rose from 1.5 percent of sales in 2003 to 3.2 percent in 2008.

“More homes were pushed above $1 million in those years,” Seneca said. “And then we had the bust and all sales collapsed. But the share of million-dollar-homes didn’t go down as quickly as the total market did,” he said.
…
A study by Otteau Valuation of home sales between 2011 and 2012 showed that while sales rose 21 percent, the segments with the largest increase were homes under $400,000 (22 percent), and homes between $400,000 and $600,000 (21 percent). Homes priced between $1 million and $2.5 million rose 12 percent, and homes above $2.5 million were up 3 percent.

Otteau said the post-recesssion economic isn’t creating a new crop of noveau-riche and is unlikely to jolt the upper-end housing market.