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Keeping you updated on the market! For the week of
June 18, 2012
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MARKET RECAP
Let's call it “the crisis that never was.” We are referring to the mother lode of foreclosures and distressed properties – the shadow inventory – that so many pundits predicted would swamp the real estate market in 2012 and return home prices to a downward trajectory.
That's hardly been the case. RealtyTrac reports that servicers started a few more foreclosures in May than in April, but filings were still 4 percent lower than in May 2011. RealtyTrac goes on to tell us that foreclosure activity has decreased 20-straight months based on year-over-year comparisons.
Yes, foreclosures are still elevated compared to five years ago, but the market continues to handle them in a rational and orderly manner. Short sales have been an attenuating variable. Banks realize they can make more money treating delinquent mortgages with short sales than repossessions. Better pricing is the key variable to making a short sale the superior option. Why take on a home you have to maintain, manage, and market when improved pricing will naturally draw in buyers?
The dearth of inventory (which we discussed last week) is the principal contributor to rising prices. Realtor.com reports that the national inventory of for-sale residential properties is down over 20 percent year-over-year, dropping in 144 of the 146 markets it covers. Over the same period, the median age of inventory has dropped nearly 10 percent, while the median list price has risen over 3 percent.
The recent spike in mortgage purchase applications points to even more inventory contraction and/or higher prices as we head into the su mmer months. After holding in lackluster territory for much of the spring season, weekly mortgage applications took a huge 13-percent jump, signaling that the su mmer-selling season might be more brisk than many analysts had expected.
What's more, the composition of those buying into the reduced inventory also points to a healthier market. The more owner-occupied buyers who jump into the pool, the better. The data show that many more owner-occupied buyers have jumped into the pool in recent months.
Buyers of all stripes continue to benefit from an ultra-low lending rate environment. In past issues, we've discussed at length the benefits of financing real estate in a low-rate, low-price environment. In short, the opportunity costs of cash buying is high when mortgage lending rates are low (and vice versa), because the money allocated to the house could have been allocated to other cash-generating investments.
That opportunity cost got a little higher this past week, with rates on most lending products dropping a couple basis points. We don't expect them to move meaningfully higher over the next few weeks. Greece and Spain are still a mess, and now it appears Italy is set to join the fray. That means investors remain risk averse, which means more money flowing into haven securities, including the influential 10-year U.S. Treasury note.
That said, it's important to keep in mind that we have a supply-and-demand issue at work. Demand for mortgage products have spiked in recent weeks, which means processing times could rise. Therefore, it's still prudent for borrowers to get their applications in ASAP. The benefit of waiting for a lending rate five or 10 basis points lower than today's market rate can easily be offset by a home whose price rises or is snapped up by another buyer.
What's more, even though we expect rates to remain low, rates can (and have) turned on a dime. |
Economic
Indicator
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Release
Date and Time
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Consensus
Estimate
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Analysis
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Home Builder Index
(June)
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Mon., June 18,
10:00 am, et
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28 Index
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Important. Increased demand is lifting home-builder optimism.
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Housing Starts
(May)
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Tues., June 19,
8:30 am, et
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725,000 (Annualized)
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Important. Starts continue to rise off a base that itself has risen over the past six months.
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Mortgage Applications
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Wed., June 20,
7:00 am, et
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None
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Important. A 13% increase in purchase applications points to pivotal underlying strength in home sales.
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Existing Home Sales
(May)
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Thurs., June 21,
10:00 am, et
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4.6 Million (Annualized)
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Important. The trend of rising purchase applications suggests the consensus estimate is too low.
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The Perfect Investment?
To be honest, we can't say any investment is the perfect investment (then again, no one can). Personal circumstances and goals determine what investment is most appropriate to any individual investor.
Nevertheless, there is a heckuva lot to like about residential real estate these days: prices rising off a bottom, low financing rates, rising rental rates, shrinking inventory. This is almost the opposite of what the market was like six years ago. Back then, most everyone would have been better off selling rather than buying, as hindsight has clearly proven.
Of course, there are no guarantees when it comes to investing or price appreciation, but for investors or occupiers who plan to own their property for at least five years, we see little downside risk and a lot of upside potential at this stage in the market. |
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EQUAL HOUSING LENDER
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This Newsletter is for informational purposes only. The information contained herein may not be applicable to every situation or jurisdiction and we urge you to consult your professional advisor prior to acting on information contained herein. The content, accuracy and opinions expressed herein are not verified or endorsed by the sponsor hereof.
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