2012 is Here...Will the Real Estate Market Recover?

HAPPY NEW YEAR!!!!


2012 opens with lots of optimism.  As you read, Jim Belote's "Mortgage Matters", you will note varied view from different banks as to the health/potential recovery of the housing market in 2012.   


You should not be surprise that Bank of America provides a negative assessment due to their heavy inventory of foreclosed homes.  If you or I owned "widgets" that were not selling and look to be worth less in the coming year, we both would be a bit negative when asked.  The other banks noted are less impacted by foreclosed/short sales and see a rosier picture.


Jim's note on the math of home availability is good but he fails to note it applies to resale homes(previously owned).
When you add constrained demand for three years, we have the formula for a significant trend change in 2012.


So with rates now below 4%(3.75% FHA and VA loans!!) and plenty of great home values, why are you waiting around if you need a home.  


     YES!  I AM PART OF THE CHORUS OF REALTORS, MORTGAGE OFFICERS, FINANCIAL ADVISORS, ECT THAT KEEP SAYING:

            LOW HOME PRICES WITH LOW INTEREST
                 RATES IN AN ANOMOLY 


Historically, home prices are high with low interest rates
                   home prices depressed with high interest rates


WE HAVE LOW RATES AND SHARP HOME PRICING!!


              Do read all of Jim's notes below!!!

Keeping you updated on the market! For the week of  January 2 , 2012 MARKET RECAP The news is understandably slow the week between Christmas and New Year's Day. The most notable release was last Friday's news on new home sales, which rose to an annualized rate of 315,000 units in November, a 1.6-percent gain over October. To be sure, we have a long way to go until we reach the normalized construction rate of 1.5-million units per year. Nevertheless, we expect the new-home market to gain pace in 2012. After all, there are only 158,000 units in inventory. Even at the current slow sales pace, this equates to a record low six-month supply Over the past three years, new-home construction has fallen far below historical norms and also below the level needed to keep pace with population growth. The fact is our country gains roughly 2.7 million people and one million new households annually. You might not see supply as a problem. We are all familiar with the glut of distressed properties. Indeed, Bank of America expects eight million distressed homes to come to market over the next four years. These homes, we've so often heard, will continue to depress new home construction. We view B-of-A's outlook with a skeptical eye. There is a likely prospect that many of these distressed properties will simply go away. Destruction is too frequently overlooked in many supply projections. A house is not a permanent structure. Many are destroyed by fire, wind and flood each year. Many more are lost through simple decay and abandonment. Based on U.S. Census data, 300,000 homes are lost annually. That number will surely rise in years to come. In short, the math – low inventory plus more households minus more home destruction – suggests to us a rebound in new-home construction. We are not alone in this contention, either. Wells Fargo projects that housing starts will continue to rise each year for the next five years before reaching once again the normalized construction rate of 1.5-million units annually by 2017. Of course, projections are one thing, betting on those projections is another. Here, we see an encouraging trend. Big money is starting to wager on housing. The Wall Street Journalreports that many large hedge funds are investing billions in housing-related investments. Other investors have followed suit. Shares of homebuilders are up 30 percent over the past three months, making them one of the best performing investments in the market. Economic Indicator Release Date and Time Consensus Estimate Analysis Construction Spending (November) Tues., Jan. 3, 10:00 am, et No Change Important. Residential spending is accelerating and contributing more to economic growth. Mortgage Applications Wed., Jan. 4, 7:00 am, et None Important. Markets are anticipating increased purchase activity to start 2012. Factory Orders (November) Wed., Jan. 4, 10:00 am, et 2.5% (Increase) Important. Growing order momentum is indicative of increased economic activity. Employment Situation (December) Fri., Jan. 6, 8:30 am , et Unemployment Rate: 8.7% Payrolls: 150,000 (Increase) Very Important. Job growth is accelerating, which is encouraging for housing, but less so for low interest rates Up For A New Year As we approach the end of the old year nearly all of us stop to ask, “How will the new year unfold?” Of course, none of us know with any certainty the answer to that question, but it can be insightful (and fun) to ponder. So, how will 2012 unfold, at least as it pertains to the housing and mortgage markets? Both markets will obviously be influenced by economic growth, which, in turn, will spur job growth. We see a pick up in economic growth and job growth in 2012. The economy has been growing at a sluggish rate for too long now. The United States is unique in that Americans tire of pessimism quicker than most other cultures, and then we do something about it. In our opinion, rising consumer confidence points to a lot of pent-up demand that is waiting to bust loose, and will bust loose in 2012. A pick up in demand, in turn, necessitates new hires. In fact, a recent survey by CareerBuilder.com found that nearly one in four employers is keen to add new permanent full-time employees. These employers are simply waiting for a clear sign the coast is clear. We think they will get that sign in the first quarter of 2012. Greater economic activity will obviously impact the housing market. We see accelerated sales volume in both the new and existing home markets. We also expect to see prices stabilize in the first half of the year, and then appreciate perceptibly in the second half. As for the mortgage market? This is much more difficult to call. The Federal Reserve has stated it intends to hold rates low through 2012. However, all it takes are a few persuasive signs that the economy is back on track, and the Fed could easily backtrack from its stated goals. All we can say is that we would be much less surprised to see mortgage rates 50 basis points higher six months from today than 50 basis points lower.

Be Positive!!! You Just Got to Believe!!

Every day, we hear some comment on the real estate market.  Most it is negative.


Jim Belote, Union Mortgage, has a great update on part of the commentary...that related to homeowners "underwater".  As he notes, it could be overstated and the "dramatic" element of people walking away is simply an irrational response to a given dilemna.


You have to read to the end. As he states so well, the fear of today is ridiculous. In three to five years, buyers are going to be doing hand springs for buying a house at this time with these rates.

MARKET RECAP

Negative equity pushed aside home price trends as the hot topic this past week. CoreLogic, which had a lot to say the previous week on prices, also had a lot to say about negative equity.


CoreLogic reports that 22.7 percent of all U.S. homeowners owed more than what they owned at the end of the first quarter of 2011 (which is actually an improvement from the 23.1 percent posted in the first quarter of 2010). CoreLogic states that 10.9 million borrowers are underwater and another 2.5 million borrowers are in a near-negative equity position, defined as having less than 5-percent positive equity.


We are obviously on the inflated end of the negative-equity scale, considering that CoreLogic was reporting 7.5 million borrowers were in a negative-equity position in 2008. However, do elevated negative-equity levels mean we are looking at another surge in foreclosures? Not according to the Federal Reserve Bank of Boston , which studied the relationship between the two. Based on data from the 1990s, the Boston Fed found that fewer than 10 percent of homeowners underwater lost their homes to foreclosure.


Self-interest, not surprisingly, was the deciding factor. Fed economists found that borrowers with negative equity who had ample liquid wealth would usually find it in their economic interest to stay in their homes. Economic interest is usually tied to the job market and regional economic growth. The good news is that job and economic growth for the country as a whole continue to trend higher. The bad news is that they haven't been trending quite as high in the past month.


As for mortgage rates, they continue to trend lower. Rates dropped again this past week to hit their lows for the year. We've obviously been on the wrong side of this bet over the past couple months. Given the Federal Reserve's massive injection of money into the banking system, the rising costs of many consumer staples, and the expectations for economic growth, we thought we would be looking at rates a quarter to a half percentage point higher than what we had at the start of the year.


The economic variables noted above have been overpowered by debt worries in Europe and the various crises in the Middle East , which have many investors flocking to the haven of U.S. government debt. The influx of money into U.S. debt markets coupled with slack aggregate mortgage demand has pushed mortgage rates lower. That said, high money levels, rising prices, and economic growth remain, which is to say that they are capable of moving to the foreground and pressuring interest rates higher in coming months.




Economic  IndicatorRelease


Date and TimeConsensus


EstimateAnalysis


Producer


Price Index


(May)Tues., June 14,


8:30 am, etAll Goods: 0.2% (Increase)


Core: 0.2%


(Increase)Important. Productivity gains have kept price inflation in check, but rising energy costs could move prices higher.


Retail Sales


(May)Tues., June 14,


8:30 am, et0.3%


(Decrease)Moderately Important. Rising prices are reducing overall consumer demand.


Mortgage Applications Wed., June 15,


7:00 am, etNone Important. Purchase applications ended flat for May, but the monthly trend remains up.


Consumer


Price Index


(May)Wed., June 15,


8:30 am, etAll Goods: 0.0%


Core: 0.2%


(Increase)Important. Retail prices suggest inflation is running higher than the CPI estimates.


House Builders Index


(June)Wed., June 15,


10:00 am, et16 Index Important. Low inventory levels and price stability should boost future demand.


Housing Starts


(May) Thurs., June 16,


8:30 am, et 535,000 (Annualized) Important. Starts remain volatile and unable to establish a trend.


Leading Indicators


(May) Fri., June 17,


10:00 am, et 0.2%


(Increase) Moderately Important. The indicators point to slowing near-term economic growth.

Still Sold on Real Estate

Over the past six months, we've proselytized frequently on why we think real estate is today's best investment. The Wall Street Journal, in an article titled "Why It's Time To Buy," encapsulates and expounds many of the reasons we've previously stated on why we think real estate is such a wonderful opportunity.


For one, the ratio of home prices to income is now 20-percent lower than the 15-year average through 2010, and 12-percent lower than the 1989-2004 average, according to Moody's Analytics. Moody's data also show that household formation increased to nearly 950,000 last year, and should average 1.2 million over the next decade. Greater demand leads to higher prices, and, eventually, to greater new-home supply.


The short-term outlook looks discouraging, though: job growth has slowed and foreclosures and inventory still weigh on pricing. However, longer-term - three-to-five years out - job growth won't be sluggish and inventory will have returned to more normal levels. In other words, buyers today will likely be looking at positive equity in the not-to-distant future. This is an important message to convey to our buy-side clients, many of whom remain hesitant to make what will likely be a very profitable investment.





Agree?? Disagree??? No matter what the reports say in the next week, long term is positive.







Bryan Cerny, Associate Broker, GRI, ABR, SRES, SFR



Rose &Womble Realty, Chesapeake, VA



Licensed in VA & NC

Price it Right

Market is popping!!! (edit/delete)

Wow!!! Has life been busy in the last 30 days.   Buyers and Sellers alike have been contacting me to leverage the low rates on the new home they wish to buy.  The sellers have understand the data I have provided illustrating the need for a "compelling price" for a well-appointed home.

RESULTS:  Two listings sold within 7 days of being listed!!!  

So what is a "Compelling Price"????   

              If you read this blog in the past week, you read this chart:

The Compelling Price is a price that recognizes the modest price depreciation from 2008 and the ratio that my be present to a home originally purchased in 2004 or 2005 for example.  It notest that the value of the house may be down from "its high" but remains well-above what was paid.  In addition, this understanding provide "room" to price the home to sell yet at a profit.    One final item to address:  Foreclosure and Short Sale activity in a home's neighborhood.   

A Well Appointed Home is defined as an older home updated in key are

Home Values are Better Than You Think

A Wonderful Investment: A Home (edit/delete)

A Home continues to be your best investment!!!  And that doesn't count a home's"priceless" value as a place to raise your kids, share time with friends or just escape after a long day of work.

Yet with all the news on home values and foreclosures, buyers and sellers alike have sat on the sidelines as they were uncertain if it made sense to buy a home.  in the past month, an AP article even stated that real estate may never be the value to Americans that it once was.

Recently, Van Rose, a principle with Rose & Womble Realty, shared with the company a topic that I have brought up to buyers and sellers over the past couple of years.   The topic:  HOME VALUES OVER THE PAST 10 YEARS CONTINUE TO OUTPACE HISTIORICAL RESULTS.

In the graph below, the Blue line notes the actual appreciation experienced in Hampton Roads since 2000. The Yellow line notes the historical 4% rate of increase that has been the 50 year average.

Not hard to see the "hot years" strong appreciation or the tough depreciation of the past two years.  Yet look at the delta(difference) after 2010.   A $50,000 positive variance!!!!   What investment would you shun that over a 10 year period beat the last 50 years average.

Also note the flattening trend....and the solid expectation that we will resume price appreciation in late 2011/2012.  

                                   AND WHAT DO YOU GET???

             A clear sign that any one needs a new home for any of the many reasons that cause an individual or family to need to make a change:                       

                                    CALL A REALTOR AND GET GOING!!!

Homes are so affordable!

Housing Remains Highly Affordable for Seventh Consecutive Quarter

RISMEDIA, December 13, 2010—Housing affordability remained near its highest level nationwide for the seventh consecutive quarter as interest rates dipped below 5% for the first time since the series was first compiled nearly two decades ago, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI).

The HOI indicated that 72.1% of all new and existing homes sold in the third quarter of 2010 were affordable to families earning the national median income of $64,400. The index for the third quarter almost equaled the record-high 72.5% set during the first quarter of 2009 and marked the seventh consecutive quarter that the index rose above 70%. Until 2009, the HOI rarely topped 65% and never reached 70%.

“With interest rates remaining at historically low levels, and house prices starting to stabilize, homeownership is within reach of more households than it has been for almost 20 years,” said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. “While these favorable conditions are beginning to draw home buyers back into the market, builders continue to have major problems in obtaining credit for new-home construction, and this obstacle must be overcome if builders are to respond to improving demand moving forward.”

Indianapolis-Carmel, Ind., was the most affordable major housing market in the country, regaining the top ranking it held for nearly five years after being edged out by Syracuse, N.Y., last quarter. In Indianapolis, 93.3% of all homes sold were affordable to households earning the area’s median family income of $68,700.

Also near the top of the list of the most affordable major metro housing markets were Youngstown-Warren-Boardman, Ohio-Pa.; Grand Rapids-Wyoming, Mich.; and Dayton, Ohio, and Wichita, Kan.

Among smaller housing markets, the most affordable was Kokomo, Ind., where 96.1% of homes sold during the third quarter of 2010 were affordable to families earning a median-income of $61,400. Other smaller housing markets near the top of the index included Mansfield, Ohio; Lima, Ohio; Monroe, Mich.; and Bay City, Mich., respectively.

New York-White Plains-Wayne, N.Y.-N.J., continued to lead the nation as the least affordable major housing market during the third quarter of 2010. In New York, 22.6% of all homes sold during the quarter were affordable to those earning the area’s median income of $65,600. This was the 10th consecutive quarter that the New York metropolitan division has occupied this position.

The other major metro areas near the bottom of the affordability scale included San Francisco; Bridgeport-Stamford-Norwalk, Conn.; Los Angeles-Long Beach-Glendale, Calif.; and Santa Ana-Anaheim-Irvine, Calif., respectively.

Santa Cruz-Watsonville, Calif. was the least affordable of the smaller metro housing markets in the country during the third quarter. Other small metro areas ranking near the bottom included San Luis Obispo-Paso Robles, Calif.; Santa Barbara-Santa Maria-Goleta, Calif.; Ocean City, N.J; and Napa, Calif.

For more information, visit www.nahb.org.

Latest on Market

Have You Heard????

The latest and greatest on the market: 8% down in September vs 2006 on Resale
4% up in September vs 2006 for New Homes

In the local Hampton Roads market, the sales reduction is more modest(2% range) with median sales price reported down $20,000. Unfortunately the press fails to clarify that a median price is the mid-point of the prices homes have sold. With high end homes(over $600,000) being very slow and homes in the $500,000 to $300,000 also being selling slower(6 to 8 month inventory), it is no surprise that the lower price homes are selling faster and thus driving both average and median prices lower.

As the pent up demand for housing, the psychological impact of continue Fed reductions in short term interest rates and the eventual change in the media's "angle" on the real estate market take affect, we will see the sales of higher price homes in the Hampton Roads area. We are way ahead of many markets, not seeing the depressing sales trends and like.

Yet, improvement in homes sales appears to be on the horizon. With home ownership declining as a percentage, we know there are potential homeowners waiting out a market that couldn't be more favorable for them with historically low interest rates, a great inventory of homes and the opportunity to own today.

Perhaps you are a buyer wondering when the right time to buy is....I will say in more clearly:

Markets always are changing. Now is a great time to buy a home!!!

Got questions???? Post them here and get your answer!!!