Wednesday, June 29, 2011

Pending real estate sales rise in May

SOUTH SAN FRANCISCO, CA - MAY 04:  A sold sign...Image by Getty Images via @daylife

After an April dip, pending home sales rose sharply in May, for the first annual increase in over a year, according to a report from the National Association of Realtors.

NAR's Pending Home Sales Index rose 8.2 percent month-to-month and 13.4 percent year-over-year in May, to 88.8. An index score of 100 is the average level of contract activity in 2001, the first year that index data was collected. May saw the first year-over-year index increase since April 2010, NAR said.

The index, which tracks homes under contract, is a leading indicator, and the latest data suggest home sales will jump in June and July.
"Absorption of inventory is the key to price improvement," said Lawrence Yun, NAR's chief economist.

He cautioned, however, that "the job market has sputtered recently, and because variations in local job creation impact housing demand, markets will recover unevenly around the country."

Pending sales jumped in all regions last month. The Midwest saw the biggest year-over-year increase, 17.2 percent, and the second-biggest month-to-month increase, 10.5 percent, to 82.8.

In the South, the index rose 14.6 percent year-over-year and 4.1 percent month-to-month, to 95. The West saw the biggest month-to-month increase, 12.9 percent, and a 13.5 percent year-over-year increase, to 100.6.

The Northeast was the only region that did not experience double-digit increases. Pending sales in the region rose 4.4 percent year-over-year and 7.3 percent month-to-month, to 69.2.

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Thursday, June 23, 2011

A Sliver of Hope for California Housing Market

PASADENA, CA - SEPTEMBER 24:  A 'for sale' sig...Image by Getty Images via @daylife

California's mangled real estate market saw a sliver of promise Tuesday, despite a downward national trend in home sales. The California Association of Realtors said pending home sales statewide rose in May, the first year-over-year increase in 18 months.CAR said its Pending Home Sales Index in May was 118.3, up 1.6% from April's revised index of 116.4 and a 12% gain over May 2010.

The index is based on contracts signed in May. CAR considers pending home sales an indicator of future sales activity."May marked the first year-over-year increase in pending sales since November 2009 and the largest annual increase since August 2009," said Beth L. Peerce, CAR president. "And as a result, annual sales for all of 2011 should match or exceed last year's annual pace."

Nationwide, however, the picture was not so rosy. Fewer people bought previously occupied homes in May, lowering sales to their weakest point of the year.
Home sales sank 3.8% last month to a seasonally adjusted annual rate of 4.81 million homes, the National Association of Realtors said Tuesday. That is far below the roughly 6 million annual sales rate typical in healthy housing markets.

Since the housing boom went bust in 2006, sales have fallen in four of the past five years. Analysts say they expect sales to level off at about 5 million a year. That's not much better than the 4.91 million homes sold last year, the worst showing in 13 years.
The depressed housing market has weighed on the broader economy. Declining home prices have kept people from selling their houses and moving to find jobs in growing areas. They also have made people feel less wealthy. That has reduced consumer spending, which drives about 70% of economic activity.

One sign of the housing industry's struggles is that fewer first-time buyers are entering the market. The number of first-timers ticked down to 35% of sales last month. In healthy times, they drive about half of sales.

First-time buyers are critical because they tend to improve their properties and invest in their communities, a combination that raises home values. And their purchases allow sellers to move up to pricier homes.Instead, the market has been saturated with foreclosures, which force prices down. Sales of homes at risk of foreclosure fell in May. But they still made up 31% of all purchases.

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Monday, June 20, 2011

Silicon Valley Home Prices Exploding Amid IPO MIllionaires

Image representing Facebook as depicted in Cru...Image via CrunchBase

A surge in wealth from technology stock sales and initial public offerings is spilling into the Silicon Valley real estate market as newly rich workers bid up home values in suburban cities south of San Francisco.

The median price of single-family houses sold in Palo Alto, home of Facebook Inc., climbed 20 percent in May from a year earlier to $1.63 million, the biggest jump since 2008, according to preliminary figures from research company DataQuick. In Mountain View, the base of LinkedIn Corp., prices rose 3.1 percent to $957,500, the ninth year-over-year gain in 12 months.
The advances are defying a U.S. housing slump that has sent national values to an eight-year low. Share sales such as the IPO of LinkedIn -- which doubled on its first day of trading -- and an expected offering from Facebook will fuel a boom in some Silicon Valley cities into 2013, said Kenneth Rosen, an economist at the University of California, Berkeley.

“It’s just the beginning of the story and I suspect we’ll see an explosion in the next couple years,” Rosen, chairman of the school’s Fisher Center for Real Estate and Urban Economics, said in a telephone interview. “You’ve got young people with real money, and it’s not surprising they want to have a house.”

IPO Filings
Almost 300 companies have filed for IPOs in 2011, the most for any year during the same period since 2000, and more than 10 percent of those are in California, according to data compiled by Bloomberg. Silicon Valley is the U.S. hub for early-stage companies, receiving almost 40 percent of the $23.3 billion in venture-firm investments last year, estimates from the National Venture Capital Association show.

Pandora Media Inc. climbed 8.9 percent today as shares began trading on the New York Stock Exchange. The online radio company, based about 35 miles (56 kilometers) north of Silicon Valley in Oakland, raised $234.9 million in its IPO. Shares were priced at $16, above the expected $10 to $12 range.

The real estate gains in Silicon Valley, located primarily in the San Jose metropolitan area, are mostly occurring in towns where million-dollar values are already the norm. The median price in Cupertino gained 12 percent last month from May 2010 to $1.08 million, and values in Saratoga rose 4.7 percent to $1.62 million, according to San Diego-based DataQuick.

U.S. Price Declines
Housing in much of the rest of the nation is struggling as foreclosures and unemployment of more than 9 percent weigh on consumer sentiment. Home prices in 20 U.S. cities dropped 3.6 percent in March from a year earlier to the lowest since 2003, according to the S&P/Case-Shiller index of property values. The measure has declined 33 percent from its 2006 peak.

In Palo Alto, traffic at home showings has tripled in the last three weeks, with the average age of potential buyers dropping from about 50 to the mid-30s, said Daniel Siciliano, an associate dean at Stanford Law School who attends the tours because he’s in the market for a bigger house.
“People at startups have a lot of pent-up demand and tend to spend a portion of their new liquidity pretty quickly,” Siciliano said of his newfound competition for residential real estate. “They want to manifest their wealth.”

Past Silicon Valley property booms started in Palo Alto, adjacent to the Stanford campus, and Cupertino, home of Apple Inc. (AAPL), because of those institutional links and their coveted public schools, said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. Buyers from China have also been drawn by education resources in prestige valley locations and pushed up demand.

‘Happening Place’
“We’re a happening place because of the university and a lot of the folks that have been buying are relatively young,” said Levy, who has viewed downtown condominiums selling for double what he paid in 2005. “We have the best train service to San Francisco. I can be downtown in 35 minutes.”
Sean Scott, head of sales for Redwood City-based software firm Ingenuity Systems Inc., looked at a four-bedroom, two-bath home in Palo Alto last month priced at $1.8 million. The house has “soaring ceilings and generous living spaces,” two patios and a “lush backyard garden,” according to a marketing flyer.

A sale is pending for more than 20 percent above the asking price, or at least $2.2 million, after five bids were received, said Denise Simons, the listing agent at Alain Pinel Realtors.
“The market seems to be returning to the crazy days and the question is whether or not it is a false recovery or a sustained recovery,” Scott said in an e-mail after viewing two more homes at $1.25 million or more, and declining to make any offers. “I suspect that it is a sustained recovery, given the planned liquidity events with social-networking companies.”

Facebook IPO
Speculation that Facebook will go public in the next year is mounting even as the world’s largest social-media site remains silent about its plans. The company may have an IPO in the first quarter of 2012 with a valuation as high as $100 billion, cable channel CNBC reported June 13, citing people familiar with the matter.

Some investors have already cashed in equity in their companies through private share sales, boosting Silicon Valley housing demand and contributing to price gains, Rosen said. Stakes in closely held firms can be sold on secondary exchanges such as SharesPost Inc., which connects buyers and sellers. The exchange values Facebook at almost $53 billion.
Shares granted to employees of public companies can’t be sold until 180 days after the IPO, under U.S. securities rules.

New Millionaires
“You will probably see hundreds, if not thousands, of newly minted millionaires in the next two or three years,” said Steve Eskenazi, a tech investor in Hillsborough, north of Palo Alto, where the minimum lot size is a half acre (0.2 hectare). He sold his portion of an online advertising network to Sunnyvale-based Yahoo! Inc. in 2007.

“Most people in their 20s who find themselves millionaires feel it’s their inalienable right to buy real estate, and they’re typically not price sensitive,” Eskenazi said.
Facebook founder Mark Zuckerberg, 27, bought a house this year in Palo Alto, said Larry Yu, a company spokesman. He declined to disclose details. Zuckerberg paid $7 million for a 5,000-square-foot (465-square-meter), seven-bedroom home in a “leafy and affluent” neighborhood, the San Jose Mercury News reported May 5, without saying where it got the information.
The purchase was made before Facebook’s scheduled move to Menlo Park, just north of Palo Alto.

15 Miles
As more firms go public and workers cash in shares, real estate within 15 miles of the office will climb, said Rosen, who gave a presentation at Google Inc. (GOOG)’s Mountain View headquarters before the company’s 2004 IPO to educate employees on housing. Sales are usually concentrated in the “middle to upper end,” he said.

In Cupertino, about 12 miles from Palo Alto, a three- bedroom home listed for $908,000 got more than a dozen offers and sold for $950,000 on June 8, said Albert Kao, an agent at Giant Realty Inc. in the city. The prior owner, who bought the property in 2002, decided to sell after her children graduated from the public schools. She made a $290,000 profit before commissions, Kao said.

Lower-priced areas are still struggling with weak demand. In all of Santa Clara County, which encompasses some Silicon Valley cities, prices decreased 5.1 percent in May from a year earlier to $498,000 as distressed sales pulled values down in the broader market, DataQuick said in a report today. The drop was smaller than in the rest of the San Francisco Bay area, with the nine-county median in the region tumbling 9.3 percent.

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Tuesday, June 14, 2011

Underwater Mortgage: Is It OK to Walk Away?

In spite of the mild economic recovery we’re experiencing, the percentage of homeowners who are underwater on their mortgages — that is, they owe more than their homes are worth — has barely budged.

According to new data from CoreLogic, 22.7 percent of homes with mortgages were underwater in the first quarter of this, versus 23.1 percent in the fourth quarter last year. Nevada is by far the worst off, with 63 percent of mortgaged homes underwater; Arizona, Florida, Michigan, and California round out the top five.

So the question is this: If you owe $500,000 on a home that is only worth $150,000, is it OK to toss your keys back to the bank and move into a cheaper rental, instead of diligently paying down a mortgage that is completely out of whack with the value of the house?

CNNMoney recently highlighted a few companies that walk “homeowners” through the process of walking away from their mortgages, and there are a number of practical considerations that might make it a bad idea. If you live in a recourse state, the lender might sue you for the amount of the mortgage that the sale of the property you give back to them doesn’t cover. So if you owe $500,000 on the mortgage and the bank only recoups $150,000, they might come after you for $350,000 in a lawsuit if you have that money available in non-retirement assets. So walking away in a recourse-state is probably not a good idea if you have a lot of money.
(Everything you need to know about your mortgage on one page)

But in non-recourse states — Alaska, Arizona, California, Connecticut, Florida, Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington — the bank has no recourse beyond the repossession of the property.

There are, however, ethical considerations. George Brenkert, a professor of business ethics at Georgetown University, told The Wall Street Journal a couple years ago that people have a moral responsibility to pay their mortgages, and the Mortgage Bankers Association’s CEO made the same case: “What about the message they will send to their family and their kids and their friends by defaulting?” Then, in the ultimate act of hypocrisy, the MBA walked away from its own mortgage on its corporate headquarters for exactly the same reason.

Here’s why I think it’s perfectly fine to walk away from your mortgage if, after evaluating all the factors, it’s the best financial decision for your family: You are acting within the bounds of the contract in a situation that no one had predicted. No one put a gun to the mortgage industry’s head and ordered them to make loans in non-recourse states in the midst of a housing bubble. If the situation you’re in means that it makes sense to walk away from the mortgage, that’s not illegal or even immoral: It’s the predictable outcome of the way these loans were written. No need to make yourself a martyr out of obligation to your family, or your bank
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Thursday, June 9, 2011

Is Now the Time to Buy a Home?

Back in June 2006, when the housing market peaked, the prospect of a five-year national housing bust seemed unimaginable to most people. And yet here we are, with the latest Standard & Poor's Case-Shiller index showing that prices hit new bear-market lows, falling back to 2002 levels nationally and to 1990s levels in some battered regions.

Despite all the gloom, however, there are growing indications that it is a good time to buy. Mortgage rates, which fell to 4.55% for the week ending June 2, according to Freddie Mac, are near 50-year lows. Homes have become more affordable than they have been in years: According to Moody's

Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average. A historic glut of homes, meanwhile, has created a buyer's market: There were about 15 million vacant homes in the U.S. last year, according to John Burns Real Estate Consulting Inc. some 3.1 million more than normal.

Such conditions might not last long. Moody's Analytics predicts that the number of distressed sales will begin to fall in 2013, and that prices will begin to edge upward then. Home building is at a virtual standstill, so the supply overhang isn't likely to get much worse. Meanwhile, demographic indicators such as "household formation" the number of new households each year are on the rise, and promise to take a bite out of the glut in coming years.

Household formation fell during the economic downturn as a weak economy led some people to stay in school, double up with roommates or move in with family members. According to Moody's Analytics, the number of new households renting or owning a home dropped to 578,000 in 2008 from nearly 2 million in 2005, just before the peak of the housing boom.

But household formation increased to nearly 950,000 last year, says Moody's, and should average 1.2 million over the next decade.

That, combined with increased obsolescence and higher demand for second homes, should begin sopping up excess inventory in much of the country over the next two years, Moody's says.

"Whatever the excess supply of housing is, it is shrinking pretty fast," says Thomas Lawler, an independent housing economist.
The upshot: "While we might not see rapid growth in the next couple of years, there are a tremendous number of positive signs that could lead to a rebound," says Anthony Sanders, a real-estate finance professor at George Mason University.

The short-term outlook isn't encouraging. Job growth remains weak, foreclosure sales are making up more of the market, and economists are predicting that home prices will fall more in the coming months.

But the long-term benefits of homeownership remain very much intact. For now, at least, you can deduct the mortgage interest on your taxes a big perk for people in higher tax brackets. You get to paint your walls any color you wish, without having to clear it with a landlord. And assuming you can buy a home for about the same price as you can rent one, buying will give you the ability one day to live rent-free. Come retirement time, a paid-off mortgage means your monthly expenses are significantly reduced, and you have a chunk of equity to play with.

So what might the next five years look like? Once the foreclosure mess begins to clear up, say housing economists, the traditional drivers of the housing market demographics, affordability, loan availability, employment and psychology should take over.

Here is a glimmer of what the future may hold: While overall home prices fell by 7.5% in April over the same period a year earlier, according to CoreLogic, a Santa Ana, Calif., provider of real-estate data and analytics, if you exclude distressed sales, prices were off just 0.5%. So if you are in a market that isn't battered by foreclosures, you may be close to a bottom already.

Here is a look at five key factors that will govern local markets over the next several years:

Some of the uptick in household formation is likely to come from the leading edge of the echo baby boomers, who have been waiting for the economy to recover before striking out on their own, says William Frey, a demographer with the Brookings Institution. That is likely to fuel an increase in demand for both rental apartments and starter homes.

"When things do pick up, there will be this pent-up demand for everything involved with starting a household," Mr. Frey says.
Of course, when prices in healthier regions begin to rise, many would-be sellers who have sat on the sidelines could begin putting homes on the market, muting the price gains at first, says Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School. Even so, she expects home prices to stabilize and begin to strengthen over the next two or three years.

Rising home prices made renting cheaper than buying in many parts of the country. But that dynamic has begun to change: Housing affordability, as measured by the ratio of median home prices to median household incomes, has fallen below pre-housing bubble levels in just over two-thirds of the country, according to an analysis of more than 380 metro areas by Moody's Analytics.

Renting is still cheaper than buying in most markets, but rising rents and falling house prices mean that, in some areas, this won't be the case for long. Buying a home is already cheaper than renting in Chicago, Cleveland, Detroit and Orlando, Fla., according to Moody's Analytics. In other markets, including Dallas, Las Vegas and Sacramento, Cailf., the equation is likely to soon turn in favor of homeownership if current trends persist, the firm says.

The strength of the housing market depends largely on the economy. Rising incomes and increased employment tend to give more would-be buyers confidence and buying power. For now, job growth remains sluggish: On Friday the Labor Department reported that just 54,000 jobs were created in May, far below expectations.

But signs of how a stronger job market could fuel housing demand are evident in the Dallas metro area, which added 83,100 new jobs in the 12 months ending in April the largest gain in the nation, according to the Bureau of Labor Statistics. Dallas never had a big housing boom or bust and has benefited from trade with Mexico, a strong telecommunications sector and a central location.

Mortgage financing remains plentiful for borrowers with good credit scores and solid employment histories. But for borrowers who don't fit traditional lending standards, getting a loan can still be nearly impossible. In the first quarter, about 10% of banks tightened standards for nontraditional loans, according to the Federal Reserve. Meanwhile, higher down-payment standards are locking some would-be buyers out of the market. Just 35% of renters have the minimum 3.5% down payment needed for an FHA loan on the median-priced home in their market, according to a recent survey by Zelman Associates.

The long-term case for buying over renting remains in force. Yet nowadays, "People are simply scared," says Aaron Galvin, chief executive of Luxury Living Chicago, which finds rental apartments for wealthy clients.

Mr. Galvin says he has seen a 30% increase in business in the last year, driven by would-be home buyers who can afford to purchase a property but are choosing not to do so.

The portion of Americans who believe homeownership is a safe investment dropped to 66% in the first quarter from 83% in 2006, according to Fannie Mae, the government-controlled mortgage company.

But it isn't clear whether the fear will result in a prolonged change in attitudes, as during the Great Depression, or have little long-term impact, as was the case for the housing bust that shook California and the Northeast in the late 1980s and early 1990s. Eighty-seven percent of people surveyed by Fannie Mae said they preferred owning to renting, though access to schools, control over one's environment and other quality-of-life issues now are seen as the key benefits of homeownership, with building wealth and other financial factors viewed as less important. In addition, 67% of renters surveyed by Zelman Associates said they planned to buy a home in the next five years.

Friday, June 3, 2011

California Short Sale Times Improving

Short sales comprise a significant portion of the home sales conducted in California, due to the large number of distressed property owners in that state. In 2009, 18.5% of all transactions in Southern California were short sales. By January 2011, this number increased to 27.3% of all transactions.

A short sale is when a homeowner who has negative equity sells their home for less than what they owe on the mortgage (this requires approval from the lender). The lender then forgives the remainder of the debt. For example, a homeowner could owe $200,000 on their mortgage while their home value has declined to $150,000. In a short sale scenario, they may sell the house for $150,000 and the lender forgives $50,000 worth of debt. Although the borrower’s credit will be impacted, the severity is less than if the home was foreclosed upon (in addition, the borrower may owe taxes on the forgiven debt). Typically lenders lose less money on short sales than on foreclosures, which is why they allow them to proceed.

According to data from the California Association of Realtors from March, a whopping 43% of California short sales under contract fall through. A lot of this is due to the extended length of time that it takes to conduct a short sale. Much of this is a result of the large number of short sale requests, and the limited amount of staff that banks have to respond to these requests. For this reason, it can often take 30-6o days before the lender even responds to a short sale request, frustrating both buyers and sellers. Completing a short sale may take six months or more.

A report from the Contra Costa Times suggests that the response time may be improving, which will hopefully facilitate short sales. The speedier short sales are due to increased staffing levels at banks and the Home Affordable Foreclosure Alternatives program (HAFA). HAFA incentivizes lenders and servicers to commit to short sales, and requires them to reply to requests within 45 days. Lender participation in HAFA is increasing, along with response times.

Increasing the efficiency of the short sale process would be hugely beneficial in California (as well as many other states). The HAFA program, which has been relatively ineffective up until now, could be very helpful. We will see what happens.