New Jersey Real Estate Report

From the WSJ:

Housing Prices Are on a Tear, Thanks to the Fed

The U.S. housing market has broken out of a deep slump, and prices are shooting up faster than anyone thought possible a year ago. For many homeowners, that is a cause for celebration.

But the speed at which prices are rising is prompting murmurs of concern that the Federal Reserve’s campaign to reduce interest rates could be giving the housing market a sugar high.

Prices of existing homes rose 10% in February nationally from a year ago. They have been rising during the seasonally slow winter months—and they show signs of jumping further as the spring buying season gets under way. What’s going on?

First, inventories of homes available to buy have fallen to 20-year lows. Home builders have added little in the way of new construction since 2008. Banks are selling fewer foreclosures. Investors have scooped up more homes, converting them to rentals.
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Demand has also revved up, first from investors buying homes below their replacement costs, and later as rising rents and falling interest rates encouraged more first-time buyers to purchase homes that have monthly payments that are less than what it costs to rent.
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But the population never stopped growing. Households simply doubled up. Between 2008 and 2010, the country had around two million households that “couldn’t wait to launch on their own,” says Mike Simonsen, chief executive of Altos Research. Many of those new households have been renters, but more are opting to buy.

The upshot is that, in a reversal from just two years ago, demand is outstripping the available supply. Even though sales volumes could be constrained this year by low inventories, some economists say prices are set to soar. “A lot of folks are realizing, ‘Wow, there is no second wave of foreclosures. Interest rates if anything could head up. Prices are rising. If I’m going to get in I better get in now,'” says Christopher Thornberg, a housing economist with Beacon Economics in Los Angeles.
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So is this the beginning of another bubble? Not really. For now, home prices on a national basis are still below their long-run average relative to incomes. “The recovery is solid. There are pure fundamentals you can point to,” says John Burns, chief executive of a real-estate consulting firm in Irvine, Calif.

But he says the housing market is turning up sharply, “hockey-sticking faster than it otherwise would,” because of investors, low inventories and low mortgage rates. The worry is that if prices keep rising at their current pace, “we’re going to have a real affordability problem” once rates move above 6%, says Mr. Burns.

Buyers face a dilemma: paying more for a home today, compared with a year ago, or paying even more tomorrow at a time when interest rates might also be higher.

“It’s been a lot slower process than we had hoped it would be, and things were getting a lot more expensive,” says David Fritsche, a retired architect who lost bids on six properties in the past six months before closing last week on a home in Rancho Santa Margarita, Calif. He and his wife, Darlene, want to be closer to their daughter’s family but plan to hang onto their old home in Phoenix for a few years.

From HousingWire:

Home prices expected to remain positive in 2013

Home prices nationwide are going into the second quarter on solid ground and are expected to remain positive throughout the year, according to data from Clear Capital.

For the nation, the three-quarter forecast is 1.7%, which would bring home price growth for the entire total year to 2.6%.

Compared to January’s one-year forecast, growth is anticipated to be even stronger, due partly to the solid winter season in which home prices stayed positive over the winter for the first time since 2006.

“It has been seven years since home price growth continued throughout winter. This is very strong evidence of the start to a new leg of the recovery, one that should give further confidence to consumers and lenders alike that the recovery is real,” said Alex Villacorta, director of research and analytics at Clear Capital.

Villacorta notes that as buyers become more confident the recovery is sustainable, this sentiment should grow to create a positive feedback loop.

Broken down, the Northeast is expected to see the largest gain in home prices over the next three quarters with a 2.1% jump. The Midwest, South and West are expected to see gains of 1.9%, 1.8% and 0.7%, respectively.

According to Clear Capital, this year should experience a balance in growth across the regions, with the hardest-hit markets seeing buyer interest cool due to price appreciation. Conversely, more fair market sellers may help boost supply.

From the WSJ:

Home Prices Seen Making Stronger Gains in 2013

Many housing analysts underestimated the severity of the home price crash when the downturn began seven years ago. Now, many are racing to keep up with the current rebound.

At the start of the year, the conventional wisdom went something like this: home prices rose so much last year, they will probably have to cool down a bit in 2013. But the first three months of the year have shown the conditions that produced last year’s gains are just as strong — if not stronger — than last year.

The S&P/Case-Shiller index on Tuesday reported prices in January were up 8.1% from one year ago, up from a 6.8% annual gain in December.

Two analysts who have stayed ahead of the pack are among those upgrading their forecasts for 2013. Ivy Zelman, chief executive of research firm Zelman & Associates, said Wednesday she was now expecting prices to rise by 7% this year, up from earlier estimates of 6%, 5%, and 3%. Zelman was one of the first analysts to identify the turnaround in late 2011 and produced some of the most accurate housing forecasts last year.

She’s also calling for a 5% gain next year because she says the supply shortages and growing demand that fueled last year’s turnaround show no signs of easing. “The shortage of housing capacity continues to resonate,” Zelman said in a research note on Wednesday. “Just as deflation was a national headwind that stretched deeper into the economy than anyone would have imagined, we believe that appreciation can carry broad, positive implications for the consumer and economy beyond many expectations.”

John Burns, who runs a real-estate consulting firm in Irvine, Calif., is calling for a 9% gain in home prices this year, up from a 5% forecast late last year. The reason: strong investor demand and low interest rates that have boosted the purchasing power of buyers. Burns had similarly turned bullish on housing early last year.
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A quarterly survey of more than 100 economists and housing forecasters last found that all but two expect prices to rise this year, with the average forecast of a 4.6% gain. Among those who have revised up their forecasts in the last month are analysts at Morgan Stanley, Bank of America, Capital Economics and J.P. Morgan, which have taken their forecasts to 6-8%, from earlier predictions of 3-6%.

From Reuters:

Location crucial for the U.S. housing recovery

By one measure, the U.S. housing market turned a significant corner early this year: Prices are on the rise everywhere.

For the first time since the bottom fell out of residential real estate beginning in the summer of 2006, all the 20 major cities tracked by the closely watched S&P/Case Shiller Home Price Index rose on a year-over-year basis in January, data released on Tuesday showed.

That is a significant milestone for a property market recovery that has been characterized by inconsistent momentum and spotty regional performances. On average, U.S. homes lost more than a third of their value in the recession, according to Case Shiller data, but some areas lost more than half their value, while others barely registered double-digit declines.

After marking what turned out to be two false bottoms in early 2009 and 2011, the market turned the corner in early 2012, and a host of data, from increasing new and existing home sales volumes to a pickup in housing starts, suggest the recovery is strengthening.

“Definitely we’re seeing more evidence of a rebirth of the housing market,” index co-creater and Yale economics professor Robert Shiller told Reuters Insider. “The housing market is very different from the stock market. (Prices) have momentum and when they start going up, they generally keep going up for a year or even more.”

But the fact that it has taken nearly seven years for all 20 metropolitan areas to show improvement at once belies the fragmented nature of the comeback. For instance, Phoenix has outperformed whereas Chicago remains a laggard.

While it is a positive sign that the gains are widespread, “The housing recovery does remain a bit uneven,” said Stan Humphries, chief economist at Zillow.

“These appreciation rates we’re seeing are certainly not sustainable and I think are not good for the market in the long-term. We’re going to see a period of volatility in home price appreciation until we clear out the negative equity and until mortgage rates get back to more normal rates.”

From the WSJ:

Investors Pile Into Housing, This Time as Landlords

U.S. housing recoveries almost always have been ignited by rising demand from families and individuals looking for a place to live. This recovery is different. Investors—including some big Wall Street players—are leading the way, say industry executives and analysts. Their role is noteworthy given that flippers and speculators were blamed for helping to inflate the housing bubble of the past decade.

Today’s investors are mostly buying with the intention of holding on to the homes and renting them out. As they pile into the housing market, they have set off a chain reaction that has stabilized prices and changed market psychology, industry executives and analysts say. Fear of buying homes when prices are dropping has been replaced by the fear of missing out on cheap homes.

“Whether they knew it or not, investors helped set a floor. They warmed up the market, and it brought buyers back,” said Lanny Baker, chief executive of real-estate brokerage ZipRealty.

Investors have always played a role in the housing market, but their presence was often small. Currently, cash buyers—largely investors—make up about 32% of sales nationally, according to the National Association of Realtors. In Southern California, a favorite target for investors, absentee buyers accounted for 31.4% of purchases last month, up from an average of less than 17% between 2000 and 2010, according to DataQuick MDA, a real-estate research firm.
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The rush of investors into the housing market follows a long push by federal policy makers to foster the American dream of homeownership that unraveled for some people in the housing crash. The homeownership rate fell to around 65% last year from 69% in 2005. “We’re clearly at the beginning of a rental boom,” says Christopher Thornberg of Beacon Economics. “We all saw there had to be a shift towards renting single-family units that owners could no longer afford. Investors played a critical role in that transformation.”
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Around 12% of all U.S. households—more than 14 million people—rented a single-family home in 2011, up from 9% in 2004, according to the most recent U.S. Census figures. Three-fifths of people who lost their homes to foreclosure in the past five years ended up renting a house, said Ms. Zelman.
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Not everyone believes that the current level of investor activity is healthy. Some worry that investors will eventually flee the housing market if values erode again or if the expense of maintaining a large number of homes becomes onerous. “Are they going to continue to maintain them? Or are they going to dump them into the single-family market?” said Mr. Thornberg of Beacon Economics.

Some investors have a notorious history in the housing market. During California’s housing bust in the late 1980s and early 1990s, the federal government sold hundreds of homes in California’s San Bernardino and Riverside counties, about an hour east of Los Angeles. Some homes weren’t maintained, turning entire neighborhoods into shabby rental communities.

From the Street:

Manhattan Housing Inventory Vanishes

In the tiny island of Manhattan, supply of homes has always been limited and homeownership has been the privilege of a lucky few.

But the supply-demand dynamic in the city is now so out of whack that even a million dollars in the bank and pristine credit doesn’t do you much good.

Buyers who are re-entering the housing market after waiting on the sidelines for so long are waking up to the cold reality that there are few homes left to buy.

“The market is absolutely insane,” says Jacky Teplitzky, managing director at Douglas Elliman Real Estate. “It has completely changed in the last five weeks. There is just no inventory.”
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The absorption rate — the number of months it would take to sell the amount of listings in the market at the current sales pace — fell to 5.5 months at the end of the fourth quarter of 2012, compared to the 10-year average of 9.3 months. Listings have dropped even further since then in the early months of January and February.
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Doug Perlson, CEO of online real estate company RealDirect.com says prices are on the rise with bidding wars among buyers starting to drive offers above the asking price. “It is amazing how in such a relatively short time, Manhattan has gone from a neutral [housing] market to a buyers’ market to a sellers’ market now because of a lack of inventory. It is frustrating for buyers who have been sitting out for so long only to find out that there is nothing left.”
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Supply of homes has plunged nationally for a number of reasons. New home construction came to a standstill following the bust. Foreclosure activity has declined reducing the inventory of existing homes in the market. Some homeowners cannot sell their homes because they continue to owe more than their homes are worth. Others can’t sell because they can’t qualify for the loan they would need to “trade up” to a bigger home, owing to tight credit conditions.

In Manhattan, however, there are other factors at play. Unlike the rest of the country, there are relatively fewer underwater borrowers in the city and foreclosures are also low.
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The real reason why there are not enough listings, he says, is because potential sellers are staying put in their homes due to lack of supply. “When sellers sell, they become buyers or renters,” says Miller. “If you are a homeowner and you want to trade up, but can’t find anything to buy, even though you still have plenty of equity in your home, what do you do? Nothing.” says Miller.

Perlson of RealDirect.com says the inability to trade up to larger homes has dramatically reduced the supply of middle-tier housing, effectively freezing the market.
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Are there concerns of a brewing bubble? “We are still in a rational housing market,” says Kathy Braddock, co-founder of Rutenberg Realty. “Everything is not flying off the shelf. When you hit the sweet spot, you get multiple offers. But there is no stupid money.”

Miller does worry that prices might be rising a little too quickly in some areas, but believes that buyers this time are a little more cautious. “Back then [in the boom], buyers were panicked. This time they are more skeptical and less willing to become totally irrational. But if inventory continues to fall and the economy improves a little bit, that could change,” he warns.

From CNBC:

Finally, More Homes for Sale

For the first time in over six months, the supply of homes for sale is beginning to rise.

While inventories are still down nearly 20 percent from a year ago, they did rise more than the seasonal norm in February from January, according to a new report from the National Association of Realtors.

The raw number of for-sale listings rose 10 percent month-to-month, and when seasonally adjusted, they were up 2.6 percent, the biggest jump in over two years.

“Tight inventory has been a critical issue for the housing market: The limited supply of homes has fueled bidding wars and has meant that buyers have little to choose from and agents have little to sell,” said Trulia.com’s Jed Kolko. “Inventory has been tightening because construction levels are still low, adding little new housing stock, and homeowners are waiting to sell until they have more positive equity. This inventory spiral been especially severe since prices bottomed.”
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So the increase in supply is welcome news, as the severe lack of homes for sale has been pushing home prices higher far faster than anyone expected. That swift jump in prices, along with low supply, have been hampering sales, which were up just 0.8 percent month-to-month in February, missing analysts’ expectations. Single-family home sales were actually weaker, while condo sales jumped nearly 9 percent from January.

“Rapid price appreciation is not good news for home buyers,” said Lawrence Yun, chief economist for the NAR. “Wages are up just 2-3 percent, while prices are rising 4-5 times that.”

From HousingWire:

Freddie Mac predicts healthiest housing spring since 2007

Continued low mortgage rates, increased house prices and improving consumer confidence are all factors contributing to increased home sales heading into the spring homebuying season, according to Freddie Mac’s March economic and housing outlook.

Compared to 2012, Freddie Mac expects home sales to increase 8% to 10% in 2013. Housing starts are anticipated to increase to 950,000 units for 2013 compared to 780,000 in 2012.

Last year, real estate added $1.5 trillion to balance sheets, while increasing outstanding residential mortgage debt by 0.1% in the fourth quarter of 2012. This indicates that household deleveraging may be coming to a close.

Freddie Mac warns that the unemployment rate in 2013 will average near 7.8% due to sequestration spending reductions. This will make the unemployment rate essentially flat for the year, or possibly .25 percentage points higher than it would have been sans sequestration.

According to Freddie Mac, this should be the healthiest spring homebuying season since 2007.

“History shows us not all economic recoveries are created equal and consumer confidence mirrors this fact. With the spring homebuying season upon us, the recent highs in the stock market are a welcome signal of better times ahead,” said Frank Nothaft, vice president and chief economist of Freddie Mac.

“But it will be the gradually declining unemployment rate and steadily improving housing market that will deliver broad-based economic benefits for Americans and, in turn, support the overall recovery,” Nothaft added.