Thursday, April 30, 2020

First Quarter 2020 GDP/Home Sales Numbers Released and Yes...It's Bad

The U.S. economy shrank in the first quarter, and it will almost certainly get worse. A weak read on pending home sales is a bad omen for April sales data. 

The initial read on Q1 GDP confirms what many already knew: Large parts of the economy came to a crashing halt in March, the economic expansion has ended and a recession is almost certainly underway. The negative quarter – the first since a 1.1% decline in the first quarter of 2014, and largest since the Great Recession – was driven by a severe pullback in consumer spending and trade-related metrics. Consumer spending, which comprises about 2/3 of the overall economy, fell 7.6% in the three-month span ending in March, with spending on services falling 10.2%. But as bad as these numbers appear, the second quarter’s figures are poised to be far, far worse. 
Today’s release predominantly covers a period that preceded the coronavirus outbreak and includes data from just the few weeks of the economic shutdown that largely began in March. Businesses in some states weren’t forced to shut their doors until late March or even early April, and subsequent slowdowns – including a sharp reduction in spending and an unprecedented surge in layoffs — barely register in today’s report, if at all. It’s also common for initial GDP readings to be revised downward, sometimes sharply, in times of economic volatility. The initial reading of annualized GDP growth in Q4 2008 – the middle of the financial crisis – was -3.8%, a level that was later restated to -8.9%. 
Taken together, it’s likely that today’s numbers will be revised downward when they’re restated next month, and that economic growth in the current quarter will plunge to levels not seen since the Great Depression. Even so, the housing market was a surprisingly positive note in today’s GDP release. The seasonally-adjusted annual rate of residential fixed investment, which includes spending on home construction, grew 21% from last quarter. 
The monthly decline in March pending home sales — to their lowest level since 2011 — was disappointing in some ways, but not unexpected. Overall, today’s reading was in line with other housing indicators that have emerged in the last few weeks. Pending sales typically lead the official reading of existing home sales by 4-6 weeks, and most experts already expect April’s existing sales figures to decline sharply. Pending sales figures are often viewed as a forward-looking indicator of the housing market, but in today’s fast-moving, unprecedented times, today’s release in some ways already feels like old news.
But other, faster indicators tell a somewhat more optimistic housing story. One of these is the weekly read of for-purchase mortgage application activity, which showed purchase applications rebounding over the week ending April 24 after falling in early April to their lowest level in almost five years. 
And these gains may be starting to accelerate. For-purchase applications still sit 19.8% below their levels from a year ago, but they were down 35% year-over-year just two weeks ago – a strong improvement in a short period of time. According to the Mortgage Bankers Association, the nation’s ten largest states saw an increase in purchase activity this week from last, with Washington, California and New York among those that saw a double-digit percent increase over that span. 
Low rates and changing lending criteria appear to be playing a role. Rates last week hit the lowest point ever recorded by the Mortgage Bankers Association, while strict lending criteria and preferences are making for more attractive rates for those looking to purchase a home rather than refinance. All told, it is an encouraging sign for the housing market, and may suggest that a possible upturn in the market is indeed underway.

Monday, April 6, 2020

First Signs of Slowing Housing Market Due to Economic Shutdown

In the weeks ending March 21 and March 28, the number of newly-listed properties fell by 13.1% and 34% respectively when compared with the same period a year ago, found. This is an indication that home sellers may be holding off on listing their properties right now.

The pace of home-price growth also slowed notably in the latter half of the month, according to the report. Home list prices were only up 3.3% year-over-year for the week ending March 21, and 2.5% for the following week. This represented the slowest pace of listing price growth since started tracking this data in 2013
“Our inventory and listing data can provide some early insight into how housing markets may be impacted by COVID-19, but the situation and reactions to it are still rapidly evolving,” chief economist Danielle Hale wrote in the report. 

“The U.S. housing market had a good start to the year. Despite still-limited homes for sale, buyers were buying and builders were building,” she wrote. “The pandemic and virus-fighting measures appear to be disrupting that initial momentum as both buyers and sellers adopt a more cautious posture.”
Real-estate firms have taken steps to brace for the impact of the coronavirus pandemic. So-called iBuyers including Zillow (ZG) and Redfin (RDFN) that purchase homes from sellers and then sell them for a profit had wound down their home-buying operations in anticipation of an economic downturn. Real-estate brokers, including Redfin and Re/Max (RMAX) , had also shifted toward virtual home tours as open houses became verboten in the wake of social-distancing recommendations.
And other recent reports have shown additional signs of a slowdown in the housing market. LendingTree (TREE) released a report of Google (GOOG)  search data analyzing the popularity of the search term “homes for sale” across the country’s 50 largest metro areas. Searches for “homes for sale” have fallen across all 50 cities in the study from their peak levels in 2020 thus far.
Another sign that home sales will slump this spring: Mortgage applications. The volume of mortgage applications for loans used to purchase homes was down 24% compared with a year ago for the week ending March 27, according to data from the Mortgage Bankers Association. That’s in spite of mortgage rates being near historic lows. Comparatively, the volume of refinance applications was 168% higher than a year ago.
Before the coronavirus pandemic flared up, the U.S. housing market was on relatively solid footing. While the number of homes for sale remained low — constraining sales activity to an extent — demand among buyers was still quite high. Low mortgage rates had fueled an early start to the spring home-buying season, with homes selling four days faster in March when compared with 2019 levels, found.
The jump in jobless claims has stoked concerns of a repeat of the Great Recession and the foreclosure crisis that preceded it. But housing economists argue that this is unlikely to be the case.
“While housing led the recession in 2008-2009, this time it may be poised to bring us out of it,” Mark Fleming, chief economist for title insurance company First American Financial Corporation (FAF) , wrote in a report this week. Unlike in the 2000s, the housing market in the U.S. is not overbuilt, Fleming argued, making it less likely that a large swath of vacant properties will crater the home values for homeowners. Rising home values and stricter lending standards have also meant that homeowners are sitting on historically high amounts of home equity.
“The housing market will not go unscathed, as consumer confidence and a strong labor market are essential in the decision to purchase a home,” Fleming wrote. “Yet, this time, housing is a casualty of a public health crisis turned economic, not the cause of an economic crisis.”

Monday, February 3, 2020

Bay Area Rent Cost Acceleration Forecast to Slow in 2020

After years of rapid growth, Bay Area rents continue to increase but are finally showing signs of a slowdown. That said, the region remains among the priciest in the country, and renting a one-bedroom is likely to cost over $2,000 in cities where jobs are plentiful, such as San Francisco, Oakland and San Jose.
Trends in the rental market are tricky to track, because a single clearing house of price data doesn't exist as it does with home sales that are entered into county recorders' offices. But at the start of a new decade, industry experts are noting the decline in the rate of growth in 2020.
Overall rent in the greater Bay Area in 2019 increased 1.2 percent year-over-year, marking the slowest rate of growth in more than two and a half years, according to Rent Cafe. This number was also under the 3 percent bump rents saw nationally.

Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, is noticing the slow growth, noting the breakdown of regional data from Yardi Matrix with a 2.6 percent year-over-year increase in San Francisco, 2.3 percent in the East Bay and 0.5 percent in San Jose.
"Several years ago, we had year-over-year growth exceeding 10 percent, so [this is] a sharp deceleration," Rosen said.
Rosen cites three main factors impacting prices. First, new supply is flooding the market, especially in Oakland and the Silicon Valley. Second, skyrocketing rents in the last decade mean the region has finally "reached a rent level that pushes against affordability ceiling for many households," he said.
Finally, a substantial increase in "out-migration," with people and jobs leaving the region, is making the market less competitive. "This is caused by high cost of housing, much higher effective tax rates, because of the new tax law limiting state and local income tax deductions, and the general deterioration of quality of life," Rosen explained.
Chris Salviati, housing economist with Apartment List, agrees that the 2019 data reveals the Bay Area market has flattened and noted that the region's allure as the best place in the country for jobs may be fading.
"Even though the economy remains hot in the Bay Area, a lot of other cities in other areas of the country have started to thrive," Salviati said. "There are burgeoning tech scenes in other cities. If you wanted that high-salary tech job, the Bay Area was once the only place to come. Now, other places can offer similar opportunities at a lower cost of living. It has become less attractive. That inbound demand is cooling."
But while the nine-county region and surrounding counties may finally be leveling off, there are still some areas where rents are seeing significant growth.
"When you look at the aggregated numbers, they all say there’s been a slight pull-down," said Doug Ressler, a business intelligence manager with Yardi Matrix. "What’s really happening is the suburban areas are pulling down the numbers. The central core is going like gangbusters."
The average San Francisco rent at the close of 2019 came in at $3,688, which was 2.1 percent higher than the same time last year. Oakland, with a median rent of $2,908, saw a 5.4 percent jump. Meanwhile, outside the core urban area, Richmond ($2,151) and Petaluma ($2,292) showed the most significant rent drops in the Bay Area — 7.8 and 2.7 percent year-over-year, respectively, according to Yard Matrix.
Despite the leveling off, Ressler said he expects the market to remain "very robust," especially in Bay Area cities.
"The Bay Area is landlocked," he said. "That core is a magnet for a workforce and a magnet for upper-median income. The supply has been limited, which has been allowing the rents to go up."

Tuesday, January 21, 2020

Good Advise If You Are Thinking of Selling Your Home in 2020

As 2020 gets going, it’s worth looking back at another year in which home sellers did well in some markets, but often at the expense of home buyers.
First, in much of the country, home prices rose again in 2019. According to the November Zillow Real Estate Market Report, home values grew an average of 3.8 percent, and the median home value in the United States is $243,225. The median list price per square foot in the United States is $154. The median price of homes currently listed in the United States is $284,999, while the median price of homes that sold is $236,900. The median rent price in the United States is $1,650.
In terms of inventory, homeowners continue to live in their homes and pay off their cheap mortgages. Why aren't they moving? That's still the big, unanswered question, and there doesn't seem to be consensus on the answer.
On a fundamental level, people move because they need something: more or less space, a yard, a particular school district, special services or proximity to work, family, friends or a house of worship. If a job is lost or won, and family income is affected, that could push a family to buy or sell property. If someone dies or is born, the change in the size of the family could do the same.
What seems to be happening is that people are working longer, so there’s no need to move for a job or retirement. And if your children haven’t settled down, married or partnered up and started having children of their own, you might decide to wait a few more years to see where they settle before deciding where you’ll settle in retirement.

If you’re thinking about selling in 2020, you should keep an eye on location and national trends. Millennials are starting to marry and have children. Where they decide to move could influence home values dramatically. Companies in the suburbs see more of their millennial and Gen Z employees staying in more diverse, urban areas and are either finding ways to make the commute by public transportation palatable (since these generations don’t love driving) or are moving back to the city.

Despite what’s going on in Northern California, the overall real estate market is slowing. In 2020, Zillow and the National Association of Realtors expect home price appreciation to slow down to around 2.2 percent. That’s a median number, so in places like Northern California, where millionaires are minted every time a tech company goes public and there aren’t nearly enough homes for everyone who wants them, you can expect to see home prices rise dramatically. In places like the North Shore of Chicago, in suburbs like Glencoe, Winnetka and Kenilworth, home values may shrink by 1 to 3 percent, or more.

In a presidential year, you would expect real estate to slow down a little bit. This, however, is the first presidential election year with full employment, almost historically low interest rates and a strong economy. It's possible that we'll look back in a year and say that 2020 was another strong seller's market.

Sunday, December 29, 2019

California’s 2020 Housing Market Forecast

California real estate market retreated slightly during November. Our updated report covers important stats including home prices, sales, and recent home sales trends from CAR, NAR,  Zillow and more. And we’ll take a look at the forecast for 2020.
CAR reports a slight decrease in the home prices and sales during November. However, we are moving deep into the off season, and buyers simply aren’t as active despite low mortgage rates and the recent plateau in home prices.
This is the 5th straight month of sales above 400,000 units (seasonally adjusted). November’s sales totals fell 0.3% from the October sales numbers (404,240), yet this is up 5.6% from last November’s total sales of 381,690. Realtors feel it was a good second half of 2019.
The median home selling price was $589,770, a drop of 2.6 % from October yet it that is still up 6.4% from November 2018.
Year to date sales are down 1.9% in November.
California Home Sales
In the San Francisco Bay Area, home sales grew 4.6%. Sales in the Bay Area itself saw sales drop 4.8%. Tehama saw the biggest growth in sales at 69.2%.
Year over year, median home prices have risen significantly during a troubled economic period. Southern California had a 7.5% rise, the Central Valley up 6.3%, Central Coast up 3.3%, while the Bay Area had only a 2.2% rise. The Bay Area housing market’s lower yield reflects the uncertainty in the tech sector.
Los Angeles County has seen prices rise 7.4% over the last 12 months, yet home prices fell $52,000 from October. San Diego county home prices rose 1.1% or $7000.
San Francisco saw it’s hot sales numbers cool significantly in November, dropping 20%. Home prices there dropped $31,000 or 1.9% in November. Marin and Napa counties saw price reductions of 9% or more from October. Sales in NAPA plunged 39%.
The Real Story of California Real Estate

The real story of California’s housing market is a persistent lack of supply, something that may never be remedied. That means overall home prices and perhaps rent prices might persist high as well.

Active listings fell for the 5th straight month, down 22.5% from last November. This was the 3rd consecutive double-digit drop and the largest since April 2013. Unsold inventory index dropped from 3.7 last year to this November’s rate of 3.0.
The sales to price ratio stands at 98.4%, up.5% from last November. Days to sell dropped to 25 days (-3 days).
A Paradox of Good and Bad
Given the low interest rates and corporate withdrawal of capital expenditures, it’s not surprising to see low job growth in tech, manufacturing and banking & finance.  Construction and administrative job growth was strong. Unemployment has fallen now to a record low 4.0%.
Yet homelessness and extreme housing costs are making life tougher for most Californians, particularly rental tenants.  Housing construction restrictions and other regulations are weighing very heavily on the quality of life in the Golden State and raising rent prices.
In what some expert economists forecast to be bearish times out west, it seems it’s going okay though.  If some projections of a growing US economy from 2020 onward come true, home prices may roar higher in 2020.
November Employment Numbers Were Excellent

Nationally, the jobless rate remained at a very low 3.6% while wages climbed 3%.  The California job market is still very good. Wells Fargo reports a gain of 23,000 jobs during October (up 1.8%) , and up 320,000 jobs over the past year.

California Association of Realtors believes low mortgage rates are the cause for this 3rd consecutive month of sales YoY, although prices over the last few months have remained the same.
The California Association of Realtors reports that sales of home priced between $500k and $1 Million rose about 15.5% on average. Sales under $300k dropped strongly (-14.7%) and homes above $2 million dropped 3.2%. Condos prices rose to $473,000.

The California Association of Realtors reports that sales of home priced between $500k and $1 Million rose about 15.5% on average. Sales under $300k dropped strongly (-14.7%) and homes above $2 million dropped 3.2%. Condos prices rose to $473,000.
Will California Recover in 2020?

Zillow says September’s median prices in California came in at $554,000 (which is up $4000 from October).  They had forecasted prices would only rise another $9k by next August.  If the economy should heat up, as some economists are now suggesting, it would create price growth of much more than $9,000.

Tight Conditions and a Rising Rent Environment

Despite lower mortgage rates, and flat home prices, it is likely California rents will rise. Unlike those in the national housing picture, Californians have solved the buy VS rent dilemma, by continuing with renting.  This is fueling a surge in build to rent developments.
Given the ultra-high real estate prices, first time buyers simply can’t come up with the downpayment or manage the lofty mortgage payments.  The rental market seems secure for landlords and investors. Rent grew slightly overall in the state.

Friday, November 8, 2019

Bay Area Real Estate: Where Are We Heading?

The national real estate market has been strong for over a decade. Although there have been some concerns about a real estate bubble, current real estate trends show that market fundamentals remain solid.
Low unemployment, a steady economy, and low interest rates are good signs for buyers and sellers. However, high home prices and a lack of available inventory have kept some entry-level buyers out of the market. Housing affordability is a major concern, and states are starting to address it through a variety of rent reforms.
Where are we in the real estate cycle?
Traditionally, real estate follows a cyclical pattern -- but the current period has been hard for economists to predict. This has led some people to wonder if we're facing another housing crash.
Fortunately, the fundamentals this time around are different from those in the mid-2000s. The economy still shows signs of steady growth. The gross domestic product (GDP) is increasing slowly but maintaining its upward trajectory. In the second quarter of 2019, GDP grew 2%. The unemployment rate remains at historic lows and, while wages have been slow to catch up, they've started to rise. That has increased consumer confidence and spending. 
Builders also remain optimistic about the current state of growth. The National Association of Home Builders' monthly survey of builder confidence continues to show that builders see steady traffic for new homes and that their concerns are centered on labor shortages and the price of materials. However, one real estate trend to keep an eye on is that some major homebuilders, such as Lennar (NYSE: LEN), are reducing the amount of land they own. 
Recessions tend to occur regularly, and statistically, another one could happen soon. A Sept. 2019 survey from YouGov showed that 46% of Americans think a recession will happen in the next two years -- that prediction could certainly shape real estate trends into the future. In that same survey, respondents indicated that they see real estate as one of the safest investments when compared to the stock market. 
Fears of a recession may have also led to a dampening of the Fannie Mae Home Purchase Sentiment Index, which rose through most of 2019 but has started to drop. This is partly due to concerns over the ongoing trade discussions with China. Housing activity also tends to fall in election years.

Where real estate prices are rising the fastest

Prices have outpaced sales in most markets. In a recent forecast, CoreLogic projected that prices will rise by 5.8% annually until August 2020. While this indicates a strong upward trend, it's still lower than the double-digit growth seen across many markets in previous years. This may provide some relief for buyers looking for an entry point. It may also prompt some owners to stop waiting for the market peak and consider selling. 
Lawrence Yun, chief economist of the National Association of Realtors (NAR) has predicted that home sales will rise in 2020. The NAR forecasts that home sales will rise by 3.4% in 2020. Inventory of homes for sale has remained below statistical averages. Traditionally, a six-month supply of inventory represents a balanced level of supply and demand. In the past several years, overall inventory has remained low and is particularly strained at the entry-level end of the market. 
Certain markets where prices hit new highs, such as Seattle and San Francisco, have seen prices recalibrate over the past year. These markets have seen a population uptick due to the growth of the tech employment market as large companies such as Amazon and Facebook take up more commercial space and increase hiring. Overall prices were up most dramatically in top-tier coastal markets over the past five years. Las Vegas, Phoenix, and Tampa have been the top three growers for most of 2019, according to the S&P CoreLogic Case-Shiller Home Price Indices. Top market rankings shift often as people seek opportunities in secondary markets. 
The 2020 report from the Urban Land Institute pegged Austin, Texas as the best market for real estate investment. Raleigh-Durham, N.C., and Nashville rounded out the top markets. While home prices are rising in these cities, they're lower than those in top-tier coastal markets. 
High prices have also led real estate investors to seek new opportunities in smaller markets. With foreclosures and short sales at very low rates in many areas, there are fewer chances for real estate investors to find solid fix-and-flip real estate inventory in large cities.

The forecast for home building

While building has mostly bounced back from the Great Recession, it hasn't reached the highs seen in 2007. This is good news on one hand, because it means there's not an issue with oversupply. On the other hand, this lack of building activity has contributed to the lack of inventory and the steady increase in prices. 
Construction has increased across the Sun Belt. High prices for land in California have led some homebuilders, including Toll Brothers, to concentrate on growing markets in Texas, Florida, Nevada, and Virginia.
Builders are struggling with construction concerns like the lack of skilled labor and high lumber prices. 
Looking to the future
While it's impossible to know the exact direction the market will take, demographic trends show that millennials are poised to be the dominant force in housing for the next decade. Just as baby boomers changed housing, leading to the growth of suburbs, millennials have created their own real estate trends, spurring the development of walkable communities with good public transit that the Urban Land Institute dubbed "hipsturbias." 
While the trade war, economic uncertainty, and an election year may put a damper on some growth in 2020, overall real estate trends are showing that demand for housing is still strong.

Sunday, July 21, 2019

California June Home Prices Up Marginally, Sales Down Significantly

- Existing, single-family home sales totaled 389,690 in June on a seasonally adjusted annualized rate, down 4.2 percent from May and down 5.1 percent from June 2018.
- June's statewide median home price was $611,420, virtually unchanged from May and up 1.4 percent from June 2018.
- Year-to-date statewide home sales were down 5.9 percent in June.
- C.A.R.'s 2019 California housing market forecast was revised upward to 385,460 single-family home sales and a median price of $593,000.

After rebounding in May, California home sales fell below the benchmark 400,000 level in June as sales declined from both the previous month and year, the California Association of Realtors said today. 
Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 389,690 units in June, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide annualized sales figure represents what would be the total number of homes sold during 2019 if sales maintained the June pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.
June's sales figure was down 4.2 percent from the 406,960 level in May and down 5.1 percent from home sales in June 2018 of 410,800. Sales fell below the 400,000 benchmark again after rebounding in May. Sales have been under the benchmark for 10 of the past 11 months.
"With softer price growth and interest rates at the lowest levels in nearly three years, monthly mortgage payments on a median-priced home have fallen for four straight months. This allows homebuyers to save hundreds of dollars a month on the same home or to potentially consider a slightly more expensive home for the same monthly cost," said C.A.R. President Jared Martin. "Combined with the long-term benefits of homeownership on personal wealth and quality of life, 2019 is a good time to purchase a home for the long haul." 
While the median price set another record in June, the increase was tempered. June's median price was $611,420, essentially unchanged from $611,190 in May and up 1.4 percent from $602,770 in June 2018.
"With low rates supporting sales and elevating home prices in the last few months, the market outlook has shown some improvement since the first quarter," said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young. "As such, we have revised our 2019 forecast upward for home sales to reach 385,460 and for the median price to hit $593,000, from the previous forecast of 375,100 and $568,800, respectively."