From the Otteau Group:
June Purchase Activity Slower, But Still Strong
Home purchase demand in New Jersey recorded another double digit-increase in June with a 10% rise in signed purchase-contracts compared to one year ago (YOY). Considering last year’s 17% increase in June-2012, home purchase demand has risen by 28% over the past 2 years. Focusing on 2013, statewide purchase contracts have now risen by 17% YTD.
From Bloomberg:
Home Prices in U.S. Increased by Most Since 2006 in May
Home prices rose in May by the most in more than seven years as the recovery in U.S. residential real estate gained momentum.
The S&P/Case-Shiller index of property values climbed 12.2 percent from May 2012, the biggest 12-month gain since March 2006, after advancing 12.1 percent a month earlier, a report showed today in New York. The median projection of 31 economists surveyed by Bloomberg called for a 12.4 percent advance.
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Historically low borrowing costs, short supply and improving job market are boosting demand for residential property and driving prices up. The climb in home values is also bolstering household finances, which may spur consumer spending, the largest part of the U.S. economy.“We continue to look forward to upward momentum” in the housing market, said Anika Khan, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, a subsidiary of the largest U.S. mortgage lender. “We still have historically low inventory levels.”
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Home prices adjusted for seasonal variations rose 1 percent in May from the prior month, compared with a 1.7 gain in April. The Bloomberg survey median called for a 1.4 percent advance.The year-over-year gauge, which includes records going back to 2001, provides a better indication of price trends, the group has said.
All 20 cities in the index showed an increase in year-over-year prices, led by gains of 24.5 percent in San Francisco and 23.3 percent in Las Vegas. New York showed the smallest gain at 3.3 percent.
From the WSJ:
Higher Mortgage Rates Pinch Pending Home Sales
The number of Americans signing contracts to buy previously owned homes slipped in June, a sign higher mortgage rates could slow housing-market momentum in coming months.
The National Association of Realtors said Monday that its index of pending home sales fell 0.4% in June from a month earlier to a reading of 110.9. The pace of sales was still strong, with the slight drop coming after pending sales reached a six-year high in May. Pending sales in June were 10.9% higher from a year ago.
However, the Realtors group said the June drop was likely a sign a rise in mortgage rates from May is starting to scare away some prospective buyers. The group said some people appeared to pull out of contracts for homes after rates rose sharply form when they initially signed.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the latest data suggest that completed home sales will rise in August but could slow from there. “We think any further progress in the short term will be a real struggle, thanks to the surge in mortgage rates since early May,” Mr. Shepherdson said in a note to clients.
Other reports recently have indicated the housing market remains strong. The Commerce Department reported last week sales of new homes rose 8.3% in June from a month earlier. Also last week, the NAR said sales of previously owned homes eclipsed the annual pace of 5 million for the second consecutive month in June, despite slipping from May.
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Jim O’Sullivan, chief U.S. economist at High Frequency Economics, said the pending home-sales report will cause a greater focus on housing in the coming months as the Federal Reserve ponders when to rein in its stimulus measures. “A genuine weakening in housing would encourage the Fed to delay tapering plans,” Mr. O’Sullivan wrote in a note to clients.
From the WSJ (Hat tip ChiFi):
• When it comes to price, be realistic. Two years ago, when sales were still slow, buyers could sometimes get away with lowball offers. Now that things have heated up, make sure your initial bid isn’t insulting.
• At the same time, pick your “walkaway number”—and stick with it.
Don’t get carried away by a frenzied bidding war, experts say. Heated back-and-forth offers can be exciting and competitive, and agents warn that it is easy to get carried away. What might start as just a few thousand dollars to top another offer could end up costing far more if buyers lose their head. Pick a number at the beginning of your search that is the absolute maximum and don’t stray from it.
• Be flexible on other offer terms. While price may be what matters most to a seller, being flexible on other selling conditions can set your offer apart. Let the sellers know if you are open to discussing closing dates and moving arrangements, or offering “rent back” to sellers who want to stay in their house beyond closing in order to finish out their children’s school year or until they have bought another property.
• Once you know you want to buy, don’t dawdle. After losing four other bidding wars, Meredith Bolton moved as quickly as she could on a two-bedroom house in Waltham, Mass. She and her husband saw the house the morning after it hit the market and within an hour, they made an offer of $400,000, which was $10,000 over the asking price.
• Get prequalified. If you are getting a mortgage, be sure to get prequalified by a bank. If mortgage rates continue to rise, you will need to get reapproved, says Mr. Lamacchia, the real-estate agent, because sellers will want to know that the rate increase hasn’t pushed you out of their price range.
• Decide what you will do if the home appraisal is below the asking price. A deal can fall apart if the property appraisal comes in below the agreed-upon price. When that happens, buyers will have to put down more cash to save the deal. This is a big reason why sellers prefer all-cash offers, as well as those where the buyer can make a large down payment.
• Position yourself as a backup in case another buyer pulls out. In this market, it isn’t unusual for sales to fall through because of low appraisals, difficult buyers or for other reasons. If you really like a property, have your agent communicate your interest even after another bid has been accepted, says Mr. Dickinson. If the buyers pull out, you could be the first in line to get the house.
• Connect with the sellers. Consider another boom-era tactic: writing a letter introducing yourself to the seller and making a personal appeal, says Carrie Georgitsis, a real-estate agent on Chicago’s North Side.
From HousingWire:
Moody’s analyst cites housing recovery as risk to rental market
Moody’s Investors Service analyst and director of commercial-mortgage backed securitization research, Tad Philipp, sees a negative side to the housing recovery.
In the latest cross-sector impact report, Philipp says the loss of renters to eventual homeownership may not promote long-term sustainability to all of the apartment buildings currently under construction.
In other words, apartment construction is accelerating despite signs that renter numbers are likely to start decreasing.
Moody’s states that the “construction of new homes and sales of existing home sales will rise steadily, and an ongoing rise in housing prices and housing starts will affect the credit quality of not just housing-related corporate entities, but also local governments, financial institutions, and securitizations,” in an email accompanying the report.
Currently the home ownership rate for young adults is 28%, Philipp notes, compared to a national average of 66%.
The 28% number will likely move closer to the national average as rising house prices incentivize on-the-fence potential borrowers.
The analyst report does not parallel other datasets on the topic.
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However, the risk may not materialize, as Philipp writes.“As the single-family housing market recovers, multifamily apartment demand will be sufficient to maintain moderate rent growth if the pace of construction remains in line with the rate of apartment absorption,” he said in the report.
From Bloomberg:
Hoboken Moms Replace Maxwell’s Rock Fans in Housing Boom
Jack Mello first came to Maxwell’s in Hoboken, New Jersey, in the early 1980s to see a then-little-known band called R.E.M. He since has attended hundreds of shows at the club, most recently to watch the Feelies perform their July 4th farewell concerts before the venue closes next week.
“This is the sort of place where bands play that are up and coming as well as those that are well-known,” Mello, 53, said as he stopped for a drink at the club, located across the street from the fifth-floor walk-up apartment where he has lived since 1987. “I’m just glad it’s lasted this long.”
The demise of Maxwell’s, a 35-year-old rock institution where Kurt Cobain once performed and Bruce Springsteen filmed his “Glory Days” music video, highlights demographic and cultural shifts in Hoboken as young families and wealthy couples increasingly join the artists, post-college singles and Wall Street commuters that have transformed the mile-square city from its industrial roots. Home prices are surging as buyers seek a more affordable option than New York City, just across the Hudson River, while independent businesses are giving way to chain stores.
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“Driving down the streets in Hoboken five or 10 years ago, what you saw was young singles and couples, now you see mothers and fathers pushing strollers,” Otteau said. “Households with children are now opting to stay in places like Hoboken which, in turn, is putting pressure on demand for larger-sized apartments.”Demand for three-bedroom units is especially high, with frequent bidding wars, according to Lori Turoff, a Realtor in Hoboken since 2004. Home purchases rose to 140 in the first quarter from 137 the prior year as the number of active listings fell 45 percent.
Units were on the market for an average of 50 days in the first three months of the year, compared with 77 days at the same time in 2012, according to data compiled by Turoff earlier this month. That was the fewest for a first quarter in data going back to 2000. The average listing discount, or the difference between the asking and final sale price, fell to 1.12 percent, the lowest for the period since 2004, she said.
From the WSJ:
Housing Recovery Increasingly Prices Out First-Time Buyers
First-time home buyers, long a key underpinning of the housing market, are increasingly getting left behind in the real-estate recovery.
Such buyers, typically couples in their late 20s or early 30s, have accounted for about 30% of home sales over the past year. They represented 40% of sales, on average, over the past 30 years, and accounted for more than 50% in 2009, when recession-era tax credits fueled the first-time market, according to data from the National Association of Realtors.
The depressed level of first-time buyers could prove to be a drag on the housing rebound and the broader economic recovery over the longer haul. First-time home buyers are the foundation of the real-estate market and are major contributors to their local economies, often buying up older homes, revitalizing communities and spending money on furniture and renovations.
Once they have built some equity, they often move to more expensive residences.
“First-time buyers are important to get the housing market to move to a new plateau,” said Steven Ricchiuto, chief economist with Mizuho Securities USA Inc. “Without them, you just get stuck at a marginal recovery environment.”
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In June, first-time buyers accounted for 29% of purchases of existing homes, compared with 32% in June a year ago, according to the NAR’s June existing home-sales report released Monday.
From Bloomberg:
Sales of Existing U.S. Homes Unexpectedly Decrease: Economy
Previously owned home sales fell unexpectedly in June as tight supply and increasing rates for mortgages imperiled the real-estate market recovery in the U.S.
Purchases (ETSLTOTL) fell 1.2 percent to a 5.08 million annualized rate, the National Association of Realtors reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg called for a 5.26 million pace. Demand was the second-strongest since November 2009 following May’s downwardly revised 5.14 million rate.
First-time buyers are having difficulty finding properties for less than $100,000 as a lack of inventory pushes up property values, and higher mortgage rates are also starting to cool demand for more expensive houses in the West and Northeast, the real-estate agents group said. Federal Reserve Chairman Ben S. Bernanke last week said housing was one of the bright spots for growth and added policy makers will monitor the recent jump in borrowing costs to ensure it won’t derail the nascent recovery.
“Demand is still fairly strong, but this is where the inventory constraints come into play,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama, who predicted sales would decline to a 4.99 million pace. “Inventories still remain fairly tight, particularly on the low end of the price scale.”
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Estimates in the Bloomberg survey of economists ranged from 4.99 million to 5.5 million. The prior month’s pace was revised from a previously reported 5.18 million.Sales climbed 8.2 percent from June 2012 before adjusting for seasonal variations, today’s report showed.
The median price of an existing home climbed 13.5 percent to $214,200 last month from $188,800 a year earlier.
The number of properties on the market increased 1.9 percent to 2.19 million, the fewest for any June since 2001. These data aren’t adjusted for seasonal changes, so it’s important to compare figures for the same month each year.
“There’s going to be a few bumps in the road, but overall we expect the housing market to look pretty decent,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, who projected sales would slow to a 5.05 million pace.
From the WSJ:
Higher Rates Aren’t Enough to Stall Housing
The U.S. housing recovery that began unfolding early last year faces its first serious test: In the span of just two months, mortgage rates have jumped by a full percentage point, something that has happened only twice since 1994.
Mortgage rates, which at the beginning of May stood at 3.59% for the average 30-year fixed-rate loan, jumped to 4.68% during the first two weeks of July, the latest available data, according to the Mortgage Bankers Association. That is the highest level in two years.
Economists say that even at a 4.5% or 5% mortgage rate, housing is still affordable by historical standards—and that rates could rise to 6% or prices could rise an additional 20% before housing would become unaffordable relative to historical levels.
The spike nevertheless represents a big payment shock for would-be buyers. Many shop for a home based on their monthly mortgage payment. The monthly payment of principal and interest—and not including taxes and insurance—on a $200,000 home with a 10% down payment just went up by more than $100, to $925, while the monthly cost of a $450,000 home just went up by around $250, to $2,095.
“That’s extremely meaningful. It is putting people on the sidelines that were really at the margins of being able to qualify,” said Ronald Peltier, chief executive of HomeServices of America Inc., which owns real-estate brokerages in 21 states.
Some agents say it’s possible that rising rates will spur purchases by dawdling buyers who had already decided they were going to buy a home. But mortgage bankers say it’s rare that higher rates actually generate net new demand.
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The surge in rates could test buyers’ appetites to pay above asking prices, potentially slowing the run-up in home prices witnessed in the first half of the year. The biggest pinch will be felt by potential homeowners in high-cost housing markets that had been stretching to qualify for the largest loan possible.“The frenzy has concluded,” said Jim Klinge, a real-estate agent in Carlsbad, Calif. “The pool of crazy buyers—those willing to pay higher prices because they’re tired of losing bidding wars—has diminished considerably.”
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Does this mean the housing recovery is over? No, especially if rates rise because the economy is improving. “Prices will still go up, but it will be much more difficult to raise prices, which is a good thing because the momentum was heading for a bubble,” said John Burns, chief executive of a home-builder consulting firm in Irvine.For now, industry executives say the biggest problem facing buyers is the shortage of homes available for sale. “I don’t think rates are going to be an issue in the near term,” said Richard Smith, chief executive of Realogy Corp., which owns the Coldwell Banker and Century 21 real-estate brands. “You’re going to continue to see tight inventory. Pricing is going to continue to go up.”
Data tracked by housing analyst Ivy Zelman show that the ratio of homes for sale as a share of total U.S. households was at its lowest level in more than 27 years during the first quarter, at around 1.5%. Over that span, prices have increased whenever that ratio has fallen below the median of 2%.
From the NYT:
The ‘Shift the Goalpost’ Home Sale
It’s a deal. Or is it?
After apartment-hunting in Williamsburg, Brooklyn, for months this spring, Dr. Ronald Nath finally lucked out with a two-bedroom duplex at the top of a condominium, listed at $800,000.
A day after a crowded open house, Dr. Nath, a Massachusetts surgeon, offered $803,000 for the unit, which was to be a home for his son David, a television news producer. But because of its location and the outdoor spaces on both floors, the unit attracted more than a dozen offers, which prompted the seller to request higher bids.
For his “best and final” offer, which usually signals the end of the haggling process, Dr. Nath promised $912,000, which seemed to do the trick. The seller congratulated Dr. Nath and told him the unit was his; a contract was drawn up.
Not so fast. A few days later, like a kite in a gust of wind, the price soared again, to $995,000. Insulted by what he described as being “played,” Dr. Nath refused to raise his offer and ultimately lost the unit to a buyer who plunked down $1.1 million. “I was absolutely outraged,” he said. “When you give your word that a deal is done, you’re supposed to fulfill your agreement.”
A real estate deal, like any other business transaction, isn’t ironclad until signatures wind up on a contract, said Tom Le of the Corcoran Group, the seller’s broker, who defended his clients’ right to get the highest possible price for their unit, even if it left some raw feelings.
“Of course Dr. Nath is going to be upset, because his heart was set on the apartment,” Mr. Le said. “But the truth is, Dr. Nath was given every single opportunity to match the price.” He added that after watching home values plummet over the last few years, sellers finally have relief. “They’ve been scraping by for years just to get to this point.” Both the seller and the buyer declined to comment, said Mr. Le, who added that even he had been taken aback by the intensity of interest in the home.
Whether caused by economics, or the unseemly equivalent of moving the goalposts to prevent touchdowns, experiences like Dr. Nath’s are becoming more common in a market with a huge pool of buyers chasing a limited number of homes.
Not too long ago, an accepted offer marked the home stretch of the deal: the expectation was that the two sides would sign a contract and a deposit check would be cashed a few days later. Now, as sellers go back on their word and repeatedly increase their asking prices, “best and final” often seems to mean “O.K. and almost there,” according to real estate industry sources.
Buoyed by a new confidence in the market, some sellers seem intent on keeping the bidding alive even after there appears to be a winner, with some demanding sharply higher prices, as in Dr. Nath’s case, and others coming back with gradual $15,000 bumps every week or so. Are these sellers merely reacting to a fast-moving market — or are they, as unlucky buyers might suggest, just being greedy?
“It’s surprising how ugly it’s getting.” said Robert Frankel, a real estate lawyer who has handled closings for two decades. Years ago, goalpost-shifting was virtually nonexistent, he said. Recently, he has been seeing one a week, while other lawyers have complained about having to draft multiple contracts for some properties.
From the Star Ledger:
New Jersey added 4,600 jobs in June, as unemployment rate edges up
The state’s jobless rate inched up a notch in June as thousands of job seekers flooded the market and companies took a breather in hiring, according to data released today by the state Department of Labor and Workforce Development.
Employers added just 4,600 workers to their payrolls in June, or about a quarter of what they added in May. Meanwhile, the state’s unemployment rose slightly to 8.7 percent, the first time it has increased in a year.
State officials said the entry of new job seekers, including recent college graduates, helped bump up the jobless rate, which is a measure of unemployed people looking for work, from 8.6 percent in May. About 8,700 people entered the labor force in June, according to Labor Department data.
But while hiring in June proved tepid, May’s statistics ended up much better than originally thought, a fact that state officials were quick to tout. Based on more complete data from employers, the state added 17,300 workers in May, or 3,000 more than previously estimated, the Labor Department said.
“Putting together May and June, New Jersey created more than 21,000 new jobs over the last two months, continuing its recent impressive performance,” Charles Steindel, chief economist for the state Department of Treasury, said in a statement accompanying the job numbers.
From the Federal Reserve:
Beige Book – July 17, 2013 – Second District–New York
Economic activity in the Second District has continued to expand moderately since the last report. Manufacturers indicate that input price pressures have abated further, whereas service sector contacts report that they remain fairly widespread; prices of finished goods and services are stable to up slightly. Labor market conditions continue to improve gradually, and businesses have become more willing to negotiate on salary. Retailers report that sales were on the soft side in May and especially in June, whereas new automobile sales are reported to be steady. Tourism activity remains steady at a strong level. Commercial and residential real estate markets have continued to firm throughout the region. Finally, bankers report mixed but generally steady loan demand, no change in credit standards, continued narrowing in loan spreads, and further declines in delinquency rates across all loan categories.
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Construction and Real EstateResidential real estate markets in the District have strengthened further since the last report. Sales prices for Manhattan apartments (co-ops and condos) were up moderately from a year earlier, while sales volume was up nearly 20 percent, further sharply reducing the inventory of units on the market. Rents on Manhattan apartments continue to rise and are running roughly 5 percent ahead of comparable 2012 levels, however, rents have slipped modestly in Brooklyn. New Jersey’s housing market has shown more modest signs of improvement: prices are rising slowly, reportedly restrained by an ongoing backlog of distressed properties on the market. However, new construction activity–particularly of rental apartment buildings–is running substantially ahead of a year ago. Finally, housing market conditions remain particularly strong in western New York State: very tight inventory levels have pushed prices up, and multiple offers and bidding wars have become commonplace, despite continued tight lending standards.
Commercial real estate markets throughout the New York City metropolitan region also showed further improvement in the second quarter. Long Island’s office vacancy rate slipped below 8 percent for the first time in a number of years, while rates in northern New Jersey, Westchester and Fairfield counties edged down but remain on the high side. Office rents are little changed from mid-2012 in these areas. Manhattan’s office vacancy rate ticked up but remains low as of mid-year, while asking rents are up roughly 5 percent over the past year. Industrial markets have also tightened, particularly in Long Island, where vacancy rates have declined steadily and asking rents are up nearly 8 percent over the past year.
From HousingWire:
Fannie Mae economist: Rates will not halt current housing recovery
Interest rates on a 30-year, fixed-rate mortgage have risen from 3.35% at the beginning of May to 4.51% in mid-June. This 116 basis-point increase in nine weeks has raised the question whether the recent increase will stall the housing recovery, the bright spot in the economy thus far in 2013.
In a commentary on the impact of rising mortgage rates on the housing recovery, Fannie Mae Economist Mark Palim wrote, “While there is no historical precedent for the effect on the housing market from an increase or decrease in mortgage rates due to the Federal Reserve’s policy of quantitative easing, history suggests that interest rate increases at the level recently witnessed will not stop the current housing recovery.”
Palim continued to note that history shows that a rapid rise in interest rates tends to have little correlation with home prices. Rather, rising interest rates are more likely to be linked to a drop in home purchase volume and a rise in the market share of adjustable-rate mortgages.
He added that from 1992 to today, there have been two instances where housing experienced a meaningful rise in mortgage rates over a short period of time where there has been a noticeable impact of the housing market.
From October 1993 to December 1994, mortgage rates jumped from 6.83% to 9.20%. During this period, the rising trend in existing home sales was reversed.
However, the impact on home prices was muted. The rate of appreciation slowed, but annually price changes remained positive, according to Palim.
Also, from October 1998 to May 2000, mortgage rates rose from 6.71% to 8.51%. Compared to the previous report, this was smaller and more gradual. This longer adjustment period looks to have led to a more muted housing market response.
In this instance, the pace of home sales and the rate of increase in house prices moved horizontally, rather than vertically.
From HousingWire:
Conditions are ripe for household formation
A sharply positive turn in U.S. household formation has caused a rising demand for all types of housing over the last two years, including multifamily and single-family rental and ownership, according to data from a number of analysts.
“We believe steady, if unremarkable, monthly job growth is creating a similar household formation environment for 2013 which should support our positive housing outlook,” the analysts said in a report on housing demand.
“You’re just seeing a lot more people getting reengaged,” said Sterne Agee analyst Jay McCanless. “Housing demand, whether its rental or ownership, is a positive indicator,” he added.
The research note claims conditions are ripe for household formations — children moving out of their parents’ home or a college graduate renting their first apartment. They added that job growth is the primary driver for household formation and that the steady job growth of the past three years has created a fertile backdrop for new household formation.
Additionally, they noted that household formation has rebounded since it bottomed in 2009 and 2010. In these two years, household formation dipped to the mid-to-high 300k range compared to a 65-year average of 1.2 million.
With annual household growth of 1.1 million and 2.4 million in 2011 and 2012, respectively, we believe there will be a consequential increase in the level of housing demand.
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The analysts note that they expect this trend to shift as the cycle progress, but it has not happened quite yet.For the past three years, job growth, especially in the private sector, has been chugging along.
“That’s a very important point that tends to get lost in the shuffle — private employers have continued to hire and grow their businesses,” said McCanless.
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Secondly, the analysts monitor the progress of monthly nonfarm private job creation. “Both indicators have been trending positively since 2010, and as a result, we believe future growth in household formations and housing demand are likely,” the report said.
From the WSJ:
Housing Listings Multiply in June
Here comes the housing inventory.
The number of homes listed for sale increased by 4.3% in June to 1.9 million homes, the highest level in the last year, according to data released Monday by Realtor.com.
Housing inventory has steadily declined over most of the past two years. Listings typically climb heading into the spring and summer, when housing activity hits a seasonal peak. But inventories appear to be posting larger-than-usual gains in many markets right now as they rise from their lowest levels in at least a decade. Economists say rising home prices could convince more sellers to test the market if price increases keep up.
Nationally, the number of homes listed for sale stood 7.3% below their levels of one year earlier. The year-over-year decline stood at 18.6% in February, by contrast.
Among the nation’s 30 largest markets, listings were above the levels of a year earlier in four places. All four of those markets had seen big inventory declines over the past two years. Housing inventory was up by 11% in Sacramento, Calif.; by 10.9% in Atlanta; by 6.2% in Phoenix; and by 2.2% in Miami.
Another five cities posted declines of less than the national average decline of 7.3%: Los Angeles, Philadelphia, Baltimore, Chicago, and Charlotte, N.C.
By contrast, inventories were far below last year’s level in Boston (-35.1%), Denver (-30.1%), Detroit (-25.7%), Seattle (-23.2%), and San Francisco (-21.7%).
For the last two years, real-estate agents in a growing number of markets have complained that the low supply of homes for sale has limited the number of transactions—even though the supply constraints have propelled home prices higher.
The question now is whether higher inventory will lead to higher sales volumes, and whether it will also slow the pace of home-price gains. Another wild card: how homeowners respond to mortgage rates that have jumped by at least a percentage point over the last two months.
