A million dollars a job subsidy, nothing to see here, move on.

Posted on July 11, 2014 by grim

From the Star Ledger:

N.J. gives $260 million tax break to energy company with political ties

New Jersey officials today approved a $260 million package of tax credits — the third-largest economic subsidy in state history — for a nuclear-energy company planning to build reactors on the Camden waterfront.

It was the largest tax subsidy awarded in recent years by the state Economic Development Authority, and it went to Holtec International, a Marlton-based company whose board includes one of the state’s most influential Democrats, George Norcross.

Under the terms of the award, Holtec will create 235 new full-time positions and relocate 160 existing jobs from other parts of the state to Camden. Once those workers are in place, the firm will reap subsidies of $26 million a year for 10 years.

In exchange, New Jersey will realize $155,520 in net economic benefits over 35 years, the authority estimated. Under the terms of the agreement, however, the company is required to stay at the Camden location for only 15 years.

Liberals and conservatives alike criticized the $260 million tax break for a politically connected firm at a time when New Jersey is strapped for tax revenue to pay for its schools, hospitals, property tax rebates and pension obligations.

“This is just another form of crony capitalism, and it needs to end,” state Sen. Michael Doherty (R-Warren), one of the state’s most conservative lawmakers, said. “The more we do of this, the worse the economy gets in the state of New Jersey.”
…
New Jersey Policy Perspective, a liberal research organization, said the tax break awarded to Holtec was one of the largest ever bestowed in the United States. The state is paying $658,228 for each job — “a sky-high number that has never been seen before in New Jersey and is even far higher than the average per-job cost of the largest ‘megadeals’ across the country,” Jon Whiten, Policy Perspective’s deputy director, said.

Doherty said the real cost was even higher, since 160 of the jobs already existed in the state.

“It looks like New Jersey is paying over $1 million for each new job that’s being created, and this is a disturbing trend,” he said.

Doherty added: “My understanding is that small businesses create 98 percent of the jobs in the state of New Jersey. Let’s provide tax relief for small business — a broad-based program of tax relief — not a bunch of insiders sitting around a table picking the winners and losers, government picking the winners and losers.”

Posted in Demographics, Economics, Politics | 119 Comments

Wage Home Price Disconnect?

Posted on July 10, 2014 by grim

From HousingWire:

Is wage stagnation keeping homebuyers away?

Perhaps the reason buyers are staying away from the housing market is because they simply can’t afford it.

At least, that’s what one report suggests. In Trulia’s Price Monitor for June, Trulia’s chief economist Jed Kolko compares the rise in asking prices with the rise (or lack thereof) of wages in the 100 largest metro areas.

The results are a bit troubling for those who think they should be earning more money.

According to Trulia’s data, in the ten markets where asking prices have risen the most year-over-year, wages have barely increased. In Riverside-San Bernardino, California, asking prices rose 16.9% from June 2013 to June 2014. Wages in that area only rose by 0.6% from 2012-2013, according to recently released full-year 2013 wage data from the Bureau of Labor Statistics’ Quarterly Census of Employment and Wages.

In Atlanta, asking prices rose 15.7% while wages only rose 0.8%. In Bakersfield, California, asking prices rose 13.9% while wages actually dropped by 0.3%.

“In fact, average wages per worker rose less than 1% in 2013 in all but one of the 10 metros with the largest price increases,” Kolko said. “Nationally, asking prices (year-over-year in June 2014) rose faster than wages per worker (year-over- year in 2013) in 95 of the 100 largest metros.

Posted in Demographics, Economics, Housing Recovery | 168 Comments

NJ continues to lead nation in foreclosures

Posted on July 9, 2014 by grim

From MarketWatch:

5 states with the most (and fewest) foreclosures

There were 47,000 completed foreclosures nationally in May, down from 52,000 a year ago, which is a drop of 9.4%. But if you look at the month-over-month numbers from just April to May, completed foreclosures were up by 3.8%, according to mortgage-data firm CoreLogic. This is still more than double the amount of foreclosures that typically took place before the housing market crash in 2007: Completed foreclosures averaged 21,000 per month nationwide between 2000 and 2006.

Completed foreclosures reflect the actual number of homes lost to foreclosure. Since the financial crisis began in September 2008, there have been around 5 million completed foreclosures in the U.S. In May, roughly 660,000 homes were still in some stage of foreclosure, down from 1 million in May 2013, a decline of 37%. The foreclosure inventory as of May 2014 represented 1.7% of all homes with a mortgage, compared with 2.6% in May 2013.

Foreclosures may also weigh on house prices in areas where they’re more common, experts say, and there’s still wide disparity between the foreclosure inventories in states. The five states with the highest foreclosure inventory in May were New Jersey (5.8% of all mortgaged homes), Florida (5.2%), New York (4.3%), Hawaii (3.1%) and Maine (2.8%). The five states with the lowest foreclosure inventory were Alaska (0.3%), Nebraska (0.4%), North Dakota (0.4%), Wyoming (0.4%) and Minnesota (0.5%).

Posted in Foreclosures, New Jersey Real Estate | 109 Comments

Bad Vibes

Posted on July 8, 2014 by grim

From CNN/Money:

Housing market is a ‘crapshoot’

The housing market is a “crapshoot” now, according to one of America’s leading real estate experts.

Karl “Chip” Case is an economist whose name is synonymous with home prices. He is co-creator of the much watched S&P/Case-Shiller home price indexes with Bob Shiller, who won the Nobel Prize in economics last year.

“You’ve got much more negative vibrations in the housing surveys about homeownership than we ever had before,” Case told CNNMoney. “I think it’s because people got hosed. They thought that housing prices will never go down. That’s just bull — you know what.”

At age 67, Case still rattles off housing data with the kind of enthusiasm that most people use to recite popular song lyrics. For Case, the key metric to watch is housing starts, a measure of new residential home construction.

The housing starts figures have been “unbelievably regular” for 50 years, oscillating between a million a month (annualized) in not so great times and two million during peak economic times.

“Every time it’s gotten below a million in the past, it’s come right back,” Case says. Every time except the Great Recession.
…
He calls the real estate market “segmented” these days. It’s no longer a guarantee that housing prices will go up across the country. That only happens in some places at some times.
…
The demand side of the equation will also be key. Will millennials actually purchase homes? Will foreign buyers keep coming?

“The Chinese are coming over here with millions and billions of dollars, and they want to spend it on assets that tend to hold their value. And at least the theory is that housing does. But it is far from what it was in 2004,” Case notes.

The advice Case gives to first-time homebuyers is familiar to most. Be sure you can afford the house and don’t expect a quick profit.

“If you’re not buying it for the long haul, don’t buy because there’s a good chance you’ll have to sit through some down cycles. But when it goes, it’s very nice,” he says.
…
But even Case doesn’t always call housing trends correctly, at least in the short-term. He estimates that another property he owns lost close to half its value in the downturn. For now, he’s keeping it.

Posted in Demographics, Economics, Employment, Housing Recovery | 68 Comments

Living at home? Not quite.

Posted on July 6, 2014 by grim

From the Atlantic:

The Misguided Freakout About Basement-Dwelling Millennials

More than ever, young people are living in their parents’ basements.

You’ve surely heard that one before. The Washington Post, the New York Times, the New Republic, Salon, and others have repeated it over and over in the last few years. More than 15.3 million twentysomethings—and half of young people under 25—live “in their parents’ home,” according to official Census statistics.

There’s just one problem with those official statistics. They’re criminally misleading. When you read the full Census reports, you often come upon this crucial sentence:

It is important to note that the Current Population Survey counts students living in dormitories as living in their parents’ home.

When you were adjusting to your freshman roommate, you were “living with your parents.” When you snagged that sweet triple with your best friends in grad housing, you were “living with your parents.” That one time you launched butt-rattling bottle rockets at the stroke of midnight off your fraternity roof? I hope you didn’t make too much noise. After all, you were “living with your parents,” and mine definitely went to bed around 11.
…
According to Richard Fry, the wonderful Pew demographer, the answer has less to do with “laziness” or the recession’s impact on Millennial wages and jobs. It has mostly to do with education.

As you can see in the graph below, the share of 18-to-24-year-olds living at home who aren’t in college has declined since 1986. But the share of college students living “at home” (i.e.: in dorms, often) has increased. So the Millennials-living-in-our-parents meme is almost entirely a result of higher college attendance.

Posted in Demographics | 35 Comments

It ain’t the debt

Posted on July 5, 2014 by grim

From the NYT:

College Debt and Home Buying

Swelling student loan debt is commonly cited as a primary factor in the declining homeownership rate among 25- to 34-year-olds. But are the two really related?

While homeownership is down nationally since the housing market collapse, the drop among younger adults is particularly striking. Rates in the 25-to-34 age group dropped by nearly 8 percentage points from 2004 to 2013, according to a recent report from Harvard University’s Joint Center for Housing Studies.

Over the same period, student debt soared by more than 400 percent to top $1 trillion — a run-up that dwarfs the surge in mortgage debt during the housing bubble, said John Dyer, the lending practice lead for the Carlisle & Gallagher Consulting Group, which serves the financial services industry. He predicts the debt level will be a drag on home buying for years to come.
…
“What seems to be happening is you have a pause in your housing pipeline,” Mr. Dyer said. “Where a younger generation would normally be buying homes, it’s just not happening.”
…
Last year, a study by the Federal Reserve Bank of New York suggested that student debt was suppressing homeownership. Before 2009, the researchers found, 30-year-olds with student loan debt were far more likely to be homeowners than those without it, in part because of their higher levels of education and incomes. But the gap between homeownership rates of 30-year-olds with loan debt and those without began to close during the recession. And by 2012, the trend had reversed.

But Beth Akers, a fellow at the Brookings Institution’s Brown Center on Education Policy, says these findings do not prove a causal relationship. In fact, they could be misleading.

She said she has looked at young-adult homeownership rates over a longer period, and found that the reversal cited by the Fed is “a return to a longstanding trend that existed prior to 2004.” For most of the last 20 years, homeownership rates among young households with student loan debt have been lower, not higher, than rates among households with no debt, she said.

Her research, co-authored with Matthew M. Chingos, a senior fellow at the Brown Center, also disputes the notion that the payment burden is higher on today’s young adults. While the level of education debt has risen over all among young households (ages 20 to 40), the monthly burden of student loan repayment has not increased greatly over the last two decades. From 1988 to 2010, the typical household spent 3 to 4 percent of its monthly income on student loan payments. The monthly burden has remained fairly flat because of offsetting increases in income and longer repayment terms.

Extremely high burdens are still rare. In 2010, about 75 percent of households with people ages 20 to 40 who have education debt owed $20,000 or less, Ms. Akers said. Only 2 percent were carrying more than $100,000.

Perhaps the declining number of young homeowners has more to do with the weak economy and tight lending conditions.

Posted in Demographics, Economics, Employment, Housing Recovery | 21 Comments

Are the experts right or wrong?

Posted on July 3, 2014 by grim

From the Star Ledger:

NJ housing crisis: 8 key takeaways from live chat with experts

1) “New Jersey has quite a bit of affordable housing, but number one, not enough, and not necessarily in the right places.”

The overwhelming majority of affordable housing that’s available is in urban areas — far from the suburban places where there are jobs available.

2) “There are far more people who are eligible for affordable housing than there are units. As a result, most [eligible] people, the great majority of those people..spend more than 30 percent, often more than 50 percent, of their income for rent.”

3) “Let’s say you have a family income of…22,000, which means maybe you have somebody who’s working full time as a nurse’s aid or in a Wal-Mart or something, and trying to support 2 or 3 kids, and you’re paying $900 dollars a month for housing, which…is a pretty low rent compared to the average in New Jersey. After you’re done, you’ve got about $1,000 per month for everything else. … As long as everything goes well, you can somehow survive, but if anything goes wrong you’re over the edge.”

4) “The housing market has tiers. … If you don’t have first-time buyers, whether it be affordable or just above the affordable, then the whole housing market stalls. So you might be pretty well off. Your house might be worth $800,000. Well, it’s not going to stay at $800,000 or go up, if there isn’t this constant influx of new buyers into the market.
…
1) There’s currently a mismatch between what home buyers are looking for (smaller, higher density homes, closer to public transit and walkable downtowns) and what’s available (larger, single-family homes in suburban communities). The mismatch is due largely to local zoning laws, which were generally established in the 1950s, 60s and 70s, and which haven’t kept pace with demand.

2) Demand for rental properties is on the rise, in part because of the difficulties that people — especially young adults with short credit histories and large student debts — face in getting a mortgage than in past years. Outdated zoning laws, onerous approval processes and financing difficulties also makes it hard for developers to build enough rental properties to meet rising demand. With more people competing for a limited number of rental units, rental costs are on the rise.

3) Cities like Trenton and Newark are full of boarded up and abandoned homes that can be purchased inexpensively. But these homes don’t help solve the problem of supply. Crime and poor city services deter buyers from wanting to move into these areas. Plus, many of these homes require “gut rehab,” which would be prohibitively expensive for many buyers.

4) “Most of New Jersey, by its nature, particularly because of its proximity to New York, particularly because of the nature of its work/job base, is going to be a more expensive state than most in this country.”

Posted in Demographics, Housing Recovery, New Development, New Jersey Real Estate | 74 Comments

Where’s the Beef Risk?

Posted on July 2, 2014 by grim

From Bloomberg:

The Riskiest Housing Markets in the U.S.

20. Minneapolis – St. Paul, Minnesota
Risk of loss: 18.8%


Worst year: -10.1% (July 2010 – June 2011)

Best year: 13% (July 1999 – June 2000)

Average annual gain: 3.5%
Zillow 12-month forecast: -1.5%

19. Cleveland
Risk of loss: 20.5%
Worst year: -11.2% (Oct. 1981 – Sept. 1982)
Best year: 14% (Oct. 1982 – Sept. 1983)
Average annual gain: 2.3%
Zillow 12-month forecast: 5.9%

18. Washington, D.C.
Risk of loss: 20.5%
Worst year: -14.6% (Jan. 2008 – Dec. 2008)
Best year: 26% (April 2004 – March 2005)
Average annual gain: 5%
Zillow 12-month forecast: 1.5%

17. San Jose, California
Risk of loss: 21.4%
Worst year: -14.9% (April 2008 – March 2009)
Best year: 35% (July 1999 – June 2000)
Average annual gain: 6.6%
Zillow 12-month forecast: 4%

16. Las Vegas
Risk of loss: 21.4%
Worst year: -30.1% (Oct. 2008 – Sept. 2009)
Best year: 51% (Oct. 2003 – Sept. 2004)
Average annual gain: 3.1%
Zillow 12-month forecast: -1.2%

15. New Orleans
Risk of loss: 22.2%
Worst year: -7.2% (Oct. 1987 – Sept. 1988)
Best year: 16% (July 2012 – June 2013)
Average annual gain: 3.3%
Zillow 12-month forecast: 8%

14. Phoenix
Risk of loss: 22.2%
Worst year: -20.5% (Jan. 2008 – Dec. 2008)
Best year: 48% (Oct. 2004 – Sept. 2005)
Average annual gain: 3.8%
Zillow 12-month forecast: 3.8%



13. San Francisco
Risk of loss: 23.9%
Worst year: -16.3% (Jan. 2008 – Dec. 2008)
Best year: 28% (July 1999 – June 2000)
Average annual gain: 6%
Zillow 12-month forecast: 12.6%



12. Indianapolis
Risk of loss: 24.8%
Worst year: -8.9% (Oct. 2003 – Sept. 2004)

Best year: 12% (July 1980 – June 1981)
Average annual gain: 2.5%
Zillow 12-month forecast: 2.8%

11. Denver
Risk of loss: 27.4%
Worst year: -4.8% (Jan. 2008 – Dec. 2008)
Best year: 14% (Jan. 1999 – Dec. 1999)
Average annual gain: 3.9%
Zillow 12-month forecast: -0.1%

10. New York
Risk of loss: 27.4%
Worst year: -8.7% (April 2008 – March 2009)
Best year: 24% (July 1986 – June 1987)
Average annual gain: 6%
Zillow 12-month forecast: 3.6%

9. San Diego
Risk of loss: 27.4%

Worst year: -18.7% (Jan. 2008 – Dec. 2008)
Best year: 30% (Oct. 2003 – Sept. 2004)
Average annual gain: 5.3%
Zillow 12-month forecast: 5.3%

8. Sacramento, California
Risk of loss: 27.4%
Worst year: -19.1% (Jan. 2008 – Dec. 2008)
Best year: 25% (Jan. 2004 – Dec. 2004)
Average annual gain: 4.8%
Zillow 12-month forecast: 4.9%


7. Detroit
Risk of loss: 28.2%
Worst year: -19.1% (April 2008 – March 2009)
Best year: 20% (Oct. 2012 – Sept. 2013)
Average annual gain: 2.3%
Zillow 12-month forecast: -0.5%

6. Dallas-Fort Worth, Texas
Risk of loss: 29.1%
Worst year: -7.5% (July 1987 – June 1988)
Best year: 12% (Jan. 1980 – Dec. 1980)

Average annual gain: 2.1%
Zillow 12-month forecast: 1.5%

5. Los Angeles
Risk of loss: 29.1%
Worst year: -18.5% (Jan. 2008 – Dec. 2008)
Best year: 30% (Oct. 2003 – Sept. 2004)

Average annual gain: 5.8%
Zillow 12-month forecast: -0.4%

4. Boston
Risk of loss: 29.9%
Worst year: -8.3% (July 1990 – June 1991)
Best year: 29% (April 1985 – March 1986)
Average annual gain: 6.2%
Zillow 12-month forecast: 4.3%

3. Riverside, California
Risk of loss: 30.8%
Worst year: -28.7% (April 2008 – March 2009)

Best year: 37% (Oct. 2003 – Sept. 2004)

Average annual gain: 4.6%
Zillow 12-month forecast: -1.1%

2. Providence, Rhode Island
Risk of loss: 31.6%

Worst year: -12.1% (Jan. 2008 – Dec. 2008)
Best year: 30% (July 1986 – June 1987)

Average annual gain: 5.2%
Zillow 12-month forecast: 6.6%

1. Hartford, Connecticut
Risk of loss: 36.8%
Worst year: -8.2% (April 1990-March 1991)
Best year: 31% (Jan. 1987-Dec. 1987)
Average annual gain: 4.2%
Zillow 12-month forecast: 0.8%

Posted in Demographics, Economics, Employment, National Real Estate | 70 Comments

Home price growth to slow towards year end

Posted on July 1, 2014 by grim

From HousingWire:

Clear Capital: 0.9% growth the new normal for rest of 2014

Clear Capital’s midyear market report card says the industry needs to get used to less than 1% housing growth for the remainder of 2014.

That said, all total 2014 should see year-end housing gains of 3.9%, within the historic norms of 3-5% housing growth, Clear Capital’s analyst said. They note that from 1982 after the Carter recession, through 2013, home prices grew an average 3.2%.

“Our midyear forecast continues to support the initial 2014 projection for national price growth we made back in December 2013, with overall home prices expected to end the year up 3.9%,” said Alex Villacorta, vice president of research and analytics at Clear Capital. “While it might feel like a shock to market participants and observers who have grown used to double digit price growth, the market’s continued move back toward long-run historical levels and growth rates is something we have expected. What we will be watching for, however, is whether the market settles into this historical sweet spot or whether prices continue to underperform historical norms.
…
“The low price tier, one of the key drivers of the recovery, has put on the brakes. Through the end of 2014, national annual rates of growth will be more than cut in half from the current 12.4% to just 5.6%. By Q4, quarterly growth across all three price tiers is set to fall below 1%, with the low tier forecast showing the weakest quarterly growth of all,” the report states.

Posted in Demographics, Economics, Employment, Housing Recovery | 55 Comments

Still no end to the housing bailouts

Posted on June 30, 2014 by grim

From HousingWire:

Obama administration reveals plan to jump-start housing

Speaking Thursday at the Making Home Affordable five-year anniversary summit, U.S. Treasury Secretary Jacob Lew announced several initiatives designed to spur the flailing housing market.

Lew identified three specific issues that are holding back housing in the United States and announced plans to address each of those issues.

Citing the lack of private capital in the market, the dearth of affordable rental options and the abundance of Americans who are facing foreclosure or are underwater on their mortgages, Lew announced three new plans:

The extension of the Making Home Affordable program until “at least December 31, 2016”
A plan to expand access to credit by working to revive the private-label mortgage-backed securities market
A new partnership between the Treasury and the Department of Housing and Urban Development to build new, affordable rental housing
Lew recognized the progress that the housing market has made in the wake of the crash but said that there is still more work to do.

“Families and neighborhoods across the country continue to recover from the financial crisis, and we must not lose our resolve to help them, even as the economy continues to expand,” said Secretary Lew.

Posted in Economics, Housing Recovery, Politics | 57 Comments

“Oversupplied and under-demolished”

Posted on June 29, 2014 by grim

From the Star Ledger:

Diamonds to dinosaurs: NJ towns struggle under weight of massive office park vacancies

They’re visible from many New Jersey highways – hulking, seemingly endless structures surrounded by oceans of asphalt parking lots and carefully planned landscaping.

Merck Headquarters in Readington. The former Bell Labs complex in Holmdel. Hoffman La-Roche’s main campus in Nutley and Clifton. There are countless others.

Once, they represented New Jersey’s boom times; commercial palaces built mostly in the 1980s and 1990s that served as professional homes for new residents in the state’s ever-expanding suburban sprawl.

But as technology leapt forward and the Great Recession knocked New Jersey backward, the state’s large office campuses symbolize a shifting economy.

About a quarter of New Jersey’s office space currently sits vacant, eroding municipal tax bases by tens of millions of dollars. Experts say companies are now gravitating toward more compact offices with collaborative workspaces in downtowns and away from the large, cubicle-heavy spaces so common in the state’s suburbs.

“This is a sea change, and we’re only at the very, very beginning,” said Jeffrey Otteau, a real estate analyst and president of the Otteau Valuation Group in East Brunswick. “We’re not in the 80s anymore. This is a broad change, and its impacts are going to be sweeping.”

The companies that helped build New Jersey’s commercial real-estate foundation decades ago are no different. In the last decade, many of the state’s largest commercial taxpayers, such as Roche and Merck, have undergone reorganizations and have chosen to depart from the monolithic structures they once had built.

It leaves their host communities with real-estate white elephants and huge holes in their budgets.

“I think the worst news in the world you get as a mayor is notice from one of your largest corporations that they’re going to be moving out,” said Bill Dressel, director of the New Jersey League of Municipalities. “The implications of those decisions have a direct impact on not only your tax base but the quality of life in your community.”

Companies like Merck and Roche have been actively involved in trying to market their properties. But according to James Hughes, dean of the Bloustein School for Planning and Public Policy at Rutgers University, would-be tenants aren’t exactly beating down the doors of towns that have one million square-foot office campuses available.

“The decision makers now have to worry about the Millennials. That old suburban pattern was linked to the fabled baby-boom generation. Now, Millennials, they don’t remember the bad old days of public transit, they don’t remember the urban despair of the 70s.”

“And they don’t find plain, vanilla office buildings very attractive.”
About 80 percent of all the existing office space in New Jersey was built in the 1980s, Hughes said, and much does not fit the interactive, more compact work environment in walkable, urban communities that companies are seeking.

“The suburban market is oversupplied and under-demolished,” he said.

Posted in Demographics, Economics, Employment, New Jersey Real Estate | 17 Comments

Nobody wants a mortgage?

Posted on June 27, 2014 by grim

From the NYT:

Fewer Loan Applications

Spring failed to inspire a surge in home sales nationally this year, even though mortgage rates are still reasonably low. Although economists insist that the housing market is on an upward trend, abnormal conditions left over from the recession continue to be a drag.

Mortgage applications for home purchases as of June were down 15 percent from the same period last year, according to the Mortgage Bankers Association. And sales of existing homes were about 6 percent weaker this spring compared with 2013, the association said. (In May alone, sales were down 5 percent from the previous year, the National Association of Realtors reported on Monday.) So what is holding buyers back? At least three major dynamics are at work.
…
MISSING SUPPLY OF HOMES Many markets are undersupplied with the homes buyers are looking for. One reason is that homeowners who refinanced when interest rates were very low now have little incentive to sell, as they would almost certainly have to buy at higher rates. According to Mark Fleming, the chief economist for CoreLogic, a real estate information service, almost half of all mortgaged homeowners obtained financing at rates of less than 4.5 percent.
…
UNEMPLOYED YOUNG ADULTS The engine of recovery is dependent upon young people forming new households, but they are still struggling, said Jed Kolko, the chief economist for Trulia, a real estate website, and another conference speaker.

Joblessness among adults 25 to 34 was among the highest of all age groups during the recession. From 2009 to 2012, the employment rate for young adults dipped as low as 73 percent, compared with 81 percent in 2001, Mr. Kolko said. It is currently at about 75 percent.
…
INVESTORS DRIVING UP PRICES In some areas like Las Vegas and Phoenix, first-time buyers are in competition with institutional investors, who are buying up cheaper homes by the hundreds to turn into rental properties. Last year, strong investor demand helped drive a rise in home prices that was significantly ahead of household income growth, according to a recent report by Mark Palim, a vice president in the economic and strategic research group at Fannie Mae.

But investor activity appears to have peaked, which means the market will shift to what Mr. Kolko describes as “a slower but more sustainable recovery.”

Posted in Economics, Employment, Housing Recovery, Mortgages, National Real Estate | 68 Comments

Froth, bubbles, or much ado about nothing?

Posted on June 26, 2014 by grim

From Time:

The Housing Market Won’t Be Undervalued Much Longer

Trulia’s latest analysis shows homes in three-fourths of major U.S. cities are still undervalued, while seven are more than 10% overvalued (most in California). Even there, prices are no where near boom frothiness.

Trulia’s Bubble Watch reveals whether home prices are overvalued or undervalued relative to their fundamental value by comparing prices today with historical prices, incomes, and rents. The more prices are overvalued relative to fundamentals, the closer we are to a housing bubble – and the bigger the risk of a future price crash.
…
Home Prices are 3% Undervalued Nationally We estimate that home prices nationally are 3% undervalued in the second quarter of 2014 (2014 Q2), which is far from bubble territory. During last decade’s housing bubble, home prices soared to a level that was 39% overvalued in 2006 Q1, then dropped to being 15% undervalued in 2011 Q4. One quarter ago (2014 Q1), prices looked 5% undervalued, and one year ago (2013 Q2) prices looked 8% undervalued. This chart shows how far current prices are from a bubble:

At this pace, home prices nationally should be in line with long-term fundamentals – i.e., neither over- or undervalued – by the last quarter of 2014 or the first quarter of 2015. The good news for bubblephobes is that price gains are now slowing down while prices still look (slightly) undervalued. We’d be at greater risk of heading toward a bubble if price gains were still accelerating, but they’re not.
…
Even in the Bubbliest Markets, It’s Not 2006 All Over Again Eight of the 10 most overvalued housing markets are in California, with Orange County, Los Angeles, and Riverside-San Bernardino in the top four. However, they are not seeing the return of last decade’s bubble. These California markets are much less overvalued than they were at the height of the bubble. Orange County, today’s frothiest market, is just 17% overvalued now versus being 71% overvalued in 2006 Q1. Among the most overvalued markets today, only Austin looks more overvalued now (13%) than in 2006 Q1 (8%) – and that’s because Austin (and Texas generally) avoided the worst of last decade’s bubble and bust.
…
Three-Fourths of Markets Still Undervalued Of the 100 largest metros, home prices in 76 of them look undervalued. But the number of overvalued markets – 24 – has climbed up from 19 last quarter (2014 Q1) and just 5 last year (2013 Q2). Most of the 24 overvalued markets are overvalued just a bit, with 17 overvalued by less than 10% and 7 overvalued by more than 10%. While the number of overvalued markets is rising, there remains little reason to worry about a new, widespread bubble forming. The last two years of strong price gains have been from a relatively low level and still haven’t pushed home prices nationally above our best guess of their long-term fundamental value.

Posted in Demographics, Economics, Employment, Housing Recovery, National Real Estate | 54 Comments

CS: Price Increases Slow in April

Posted on June 25, 2014 by grim

From Bloomberg:

Home Prices in 20 U.S. Cities Rose at Slower Pace in April

Home prices in 20 U.S. cities rose at a slower pace than forecast in the year ended in April as declining affordability put a lid on appreciation.

The S&P/Case-Shiller index of property values increased 10.8 percent from April 2013, the smallest 12-month gain in more than a year, after rising 12.4 percent in March, the group reported today in New York. The median projection of 25 economists in a Bloomberg survey called for an 11.5 percent year-over-year increase in April.

Sellers’ ability to ask ever-higher prices has diminished as smaller wage gains make it difficult for some prospective buyers to qualify for financing. Cheaper properties, an easing of credit standards and employment opportunities accompanied by faster income growth would help brighten the outlook for residential real estate.
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“It’s a movement toward a more normal market,” Scott Anderson, chief economist at Bank of the West in San Francisco, said before the report. “We’re seeing a normalization of the market going forward.”
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All 20 cities in the index showed a year-over-year gain, led by an 18.8 percent increase in Las Vegas and an 18.2 percent advance in San Francisco. Cleveland showed the smallest year-over-year increase, with prices rising 2.7 percent.
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Slower price appreciation and borrowing costs that have fallen since the start of the year will help support sales. The average rate on a 30-year, fixed mortgage was 4.17 percent in the week ended June 19 compared to 4.53 percent in the period ended Jan. 2, according to Freddie Mac in McLean, Virginia.

“Near-term economic factors favor further gains in housing: mortgage rates are lower than a year ago, the Fed is expected to keep interest rates steady until mid-2015 and the labor market is improving,” index committee chairman David Blitzer said in a statement. “However, housing is not back to normal.”
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Marianne Lake, chief financial officer for JPMorgan Chase & Co. in New York, called 2014 “a transition year” for housing and mortgage markets. Most owners have refinanced into lower rates and demand for purchase financing is weaker than it once was, she said at a June 11 conference.

“The combination of refi burnout as well as slow purchase improvement has led to the smallest production market in over 14 years,” Lake said. “Income growth isn’t where it needs to be, but we are still expecting that to be recovering over the course of the next several years.”

Posted in Demographics, Economics, Employment, Housing Recovery, National Real Estate | 28 Comments

Flipping? What year is it?

Posted on June 24, 2014 by grim

From the Press of Atlantic City:

Home flipping gains momentum in South Jersey as foreclosures soar

The business of buying and selling houses for quick profit is in decline nationally, but a second wave of foreclosures in New Jersey has bumped it up locally.

The practice known in the real estate industry as “home flipping” is defined as the resale of single-family homes within six months of their purchase. It can make money for people when home prices are rising, or when distressed properties are available to be touched up and resold.

Flipping declined nationally from 6.5 percent of home sales in the first quarter of 2013 to 3.7 percent in the first quarter of 2014. Some see that as a good trend.
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Blomquist noted, however, that the Jersey Shore retains a rather strong home-flipping market. From March 2013 to April 2014, there were 472 properties flipped in Atlantic County, 206 in Cape May County, 146 in Ocean County and 22 in Cumberland County, according to RealtyTrac data.

He said it probably comes down to an inflated housing inventory that is being fed at the shore by the large number of foreclosures.

“I think in most areas the flipping frenzy will die down. It already has in areas such as Phoenix and Las Vegas. There’s less inventory for flippers to buy. You’ll see less in Atlantic City as foreclosure numbers decline,” Blomquist said.

Foreclosures in Atlantic County rose 116 percent between the first quarter of 2013 and the first quarter of this year. They were up 90 percent in Cape May County, 127 percent in Cumberland County, and 71 percent in Ocean County during that time. New Jersey is fifth in the nation for foreclosure filings.

Anthony D’Alicandro, a real estate agent with Coldwell Banker Casa Bella in Linwood, said the foreclosure trend is far from over. He knows of about 100 properties that have gone through foreclosure and are not even on the market yet.
“Foreclosures are up substantially. This presents a lot of flip opportunities,” D’Alicandro said.

He noted banks are starting to renovate some houses for sale. They key is to do the work and keep the price in the median home value for the area.

“If they’re in good condition, they’re selling for every bit of market value,” he said.
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The average gross return on the home-flipping investment, nationally and in New Jersey, is about 30 percent, according to RealtyTrac figures. The national average purchase price is $183,276, with the home sold within six months for $238,850. The New Jersey average purchase price is $228,962, with the home selling for $298,505.

RealtyTrac figures for counties for the 12 months ending April 1 show the return is much higher for home flippers at the shore, with the exception of those in Cape May County.

Atlantic County had an average purchase price of $115,550 and a sale price of $186,612, for a gross return of 62 percent.

Ocean County had an average purchase price of $153,028 and a sale price of $220,928, for a return of 44 percent.

Cumberland County has a purchase price of $80,156 and a sale price of $146,311, for a return of 83 percent.

Cape May County had a purchase price of $508,338 and a sale price of $638,865, for a return of 26 percent.

Posted in Economics, Housing Recovery, Shore Real Estate | 81 Comments