Wednesday, March 28, 2012

Full Real Estate Recovery? Not Until 2015

First, the good news: The real estate market has clawed its way back from the brink and is about a third of the way to a normal, pre-bubble market. The bad news: It’s going to take until the end of 2015 to get us the rest of the way, and recovery could take even longer if the economy loses steam again.

Real estate website Trulia’s new housing barometer shows that real estate is starting to recover from the battering it sustained during the recession. Chief economist Jed Kolko looked at construction starts, existing home sales and the rate of delinquencies and foreclosures, then combined these indicators to create the barometer. Kolko says housing starts are a good indicator of homebuilder confidence, while the number of sales and the foreclosure rate illustrate consumers’ financial stability as well as their confidence level.

No Bottoming Out for Real Estate Market as Home Values Keep Falling

The barometer shows that we’re about 34% higher than the market trough on these metrics, compared to 16% a year ago. This is definitely movement in the right direction, but if the recovery continues at this pace, we won’t be at 100% — that is, full recovery — until the end of 2015.

Kolko says it’s important to remember the “new normal,” when it arrives, might not look just like the market before the bubble and subsequent crash. For instance, he says, “The homeownership rate probably won’t go all the way back up to what it was before the bubble and that’s both because of people being more risk averse about homeownership and it’s also demographic.” More baby boomers downsizing their living accommodations might opt for renting instead of buying, he says.

“Also, environmental regulations and gas prices might make big houses in outlying areas less appealing than they used to be,” he says.

Real Estate Crash Hit Lower-Priced Homes The Hardest

Kolko says if the economy recovers more quickly, that would raise housing demand and accelerate the pace of the recovery. On the other hand, if a crisis in Europe or other factors drive the U.S. back into recession, that 2015 estimate could turn out to be overly optimistic.

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Thursday, March 22, 2012

Economists See 10% Home-Price Gain by 2016

I'm trying real hard to keep a long-term perspective when it comes to statistical real estate trends. So my pledge to ignore short-term moves — read it here — was tested when the folks at Zillow releases their periodic survey of economists across the nation to see their outlook for housing values.

I found some interesting data within a Zillow report entitled "Economists Temper Housing Recovery Expectations" where these real estate trackers chose to look at a three-month dip in economists' housing expectations. Zillow's poll of 104 economists found these projected house gains vs. what was the concensus projection in the same survey methodology back in December:

•2012 — March projected drop of 0.72% vs. decline of 0.18% seen three months ago.

•2013 — Now see 1.39% gain vs. 1.75% three months ago.

•2014 — Now up 2.55% vs. 2.71% three months ago.

•2015 — Now up 3.18% vs. 3.23% three months ago.

•2016 — Up 3.32%, same as three months ago.

Zillow Chief Economist Stan Humphries: "The fourth quarter drop in the national Case-Shiller Index was sharper than some expected and is the likely reason so many of the economists in the survey revised their forecasts downward … Looking at the longer history of these forecasts by top economists, the bottom in home prices always seems just around the corner but never quite here. Conditions across the country vary considerably. Some markets have already hit bottom and are experiencing tight inventory and multiple offers, while foreclosures and negative equity continue to pull down the housing market in many other parts of the country."

OK, Zillow chose to note the economists' modestly declining hopes for this year's pricing. I decided to look longer term … and saw these same economists projecting a total 5-year gain of 10 percent.

Few will get rich off real estate if home prices only gain 10 percent in five years. But when I ponder that price gain — vs. a long history of pricing from the S&P/Case-Shiller indices — I found the last time the S&P 10-city composite was gaining 10 percent over a five year period was June 2007. So, in relative terms, Zillow's flock of prognosticators are comparatively upbeat.

Also, one must look at the economist panel's projected 10 percent gain through 2016 in other historical perspectices:

•It would still leave the S&P 10-city inde 27 percent below its 2006 peak.

•It's 1.9 percent annual growth rate is roughly half the 3.5 percent annualized gain in the U.S. 10-city indexes enjoyed from 1987 through 2011.

•And, short-term speaking, 10 percent projected gain is down from 11 percent forecast in December.

Bottom line: Short term, no progress. Long term, meager gains.

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Tuesday, March 13, 2012

Is The Real Estate Downturn Really Over?

Potential homebuyers and sellers are growing more confident that the U.S. real estate market will begin to recover as soon as next year, according to a Prudential Real Estate survey.

Sixty percent of people surveyed last month had positive views about the housing market and 70 percent expected property values to improve over the next two years, according to the survey released today. About 63 percent of respondents said they considered real estate a good investment, up from 52 percent last year, the Irvine, California-based broker reported.

This is the second consecutive year consumer confidence in housing has improved, signaling the property market may “finally be climbing out of its deep hole,” Stephen Van Anden, chief marketing officer for Prudential Real Estate, said in a telephone interview.

 This is the second consecutive year consumer confidence in housing has improved, signaling the property market may “finally be climbing out of its deep hole,” Stephen Van Anden, chief marketing officer for Prudential Real Estate, said in a telephone interview.

While foreclosures and declining home prices have contributed to a six-year real estate slump, rising employment and low mortgage rates may be bolstering buyer confidence. The Federal Reserve, in its regional Beige Book business survey issued Feb. 29, said the housing market “has improved somewhat in most districts” with Boston, Cleveland, Atlanta and Dallas among cities reporting increases in home sales.

More than 90 percent of respondents in the Prudential survey said the housing crisis is a reminder they must be more cautious in buying and selling property. About 80 percent of people polled said homeownership is important to them, while 15 percent said the economic downturn made owning a home less important.

“There is still a desire for homeownership, and as we see continued improvement in the job market, there is going to be an unleashing of pent-up demand,” Van Anden said.

Survey respondents were 25 to 64 years old with a household income of at least $50,000, and either recently bought or sold a home or are considering a purchase or sale. Prudential Real Estate collected responses from 1,251 people.

Wednesday, March 7, 2012

Home Prices Weaker, But Putting Up a Good Fight

"Home prices across the nation saw light levels of depreciation in February, consistent with the trend we have seen over the last several months," said Dr. Alex Villacorta, Director of Research and Analytics at Clear Capital. "However, the Northeast, Midwest, and West improved performance against last month's quarterly declines in light of increases in REO saturation, which is unusual and encouraging."

"With this uptick in REO activity, we'll be keeping a very close eye on the effects of the Attorneys General settlement with servicers, as it could dramatically change the flow of REO properties moving through the foreclosure process and significant impact values in the near future.

"The good news is the improvements in the job market, stronger consumer confidence, and the heightened activity of investors -- often with cash -- in the lower price tiers. These effects put upward pressure on prices, and could be in play with the resiliency we're seeing in prices against increasing REO this month," Villacorta added.

Regional Market Overview:

Prices Weaker, But Putting Up a Good Fight
*The nation's housing market lost less than -2% of its value year-over-year, showing an increased stability.

*The West and Midwest are still losing ground in year-over-year performance, with losses significantly above the other regions and the nation's average.

*Quarterly numbers across all regions and nation showing softer losses (all under -2%) as compared to previous months.

*All values for all regions are improved over last month, despite mostly higher levels of REO saturation.

The chart below shows the change in quarter-over-quarter prices, against the change in REO saturation since last month's report and the total REO saturation for the region.

Region Prices REO Saturation Saturation
West -0.4% 0.8% 32.1%
Midwest -1.8% 2.1% 32.2%
Northeast -0.1% 1.0% 8.8%
South -0.2% -0.6% 23.7%
Nation -0.6% 0.2% 25.8%

The chart shows the relationship between prices and REO saturation with the Midwest showing the largest increase in REO saturation and the largest drop in short term prices. The rest of the numbers line up expectedly, with notable exception of the South which is showing a small decrease in REO saturation along with a small decrease in prices. This could be a red flag for the region, but as both numbers show less than 1% change, further observation will be needed to see if these trends continue.

With the exception of this quarter, national REO saturation declined over the last year, providing evidence to suggest banks might have put the brakes on processing foreclosures as they waited for further clarity on regulatory guidelines, and in particular, the Attorneys General settlement with servicers.

15 Highest and Lowest Performing Metro Markets

Highest Performing
1. Providence, RI - New Bedford, MA - Fall River, MA 7.3% 7.6% 15.1%
2. Phoenix, AZ - Mesa, AZ - Scottsdale, AZ 5.8% 7.3% 31.8%
3. Columbus, OH 3.6% -0.8% 31.5%
4. Washington, DC - Arlington, VA -Alexandria, VA 2.9% 2.7% 11.9%
5. Pittsburgh, PA 2.7% 6.0% 7.7%
6. Miami, FL - Ft. Lauderdale, FL - Miami Beach, FL 2.2% 7.2% 30.0%
7. Richmond, VA 1.7% -1.9% 21.3%
8. Houston, TX - Baytown, TX - Sugar Land, TX 1.6% 0.9% 26.6%
9. Orlando, FL 1.4% 8.0% 26.0%
10. New York, NY - No. New Jersey, NJ - Long Island, NY 1.3% 2.4% 6.7%
11. Oxnard, CA - Thousand Oaks, CA -Ventura, CA 1.2% -3.8% 32.3%
12. Bakersfield, CA 1.1% 1.7% 43.6%
13. Minneapolis, MN - St. Paul, MN -Bloomington, WI 1.1% -2.4% 42.2%
14. Sacramento, CA - Arden, CA - Roseville, CA 0.9% -4.3% 33.2%
15. Las Vegas, NV - Paradise, NV 0.8% -6.7% 49.4%

Highest Performing: Average Gains Going Up:
*All MSAs in positive quarterly territory but with very mixed year-over-year performance.

*REO saturation for this group averages higher than national levels.

*Hard hit Las Vegas makes the Top 15 list for the first time in 10 months.

Each metro on the list held onto quarterly gains, but with just six of the Top 15 showing price growth of greater than 2%. However, the quarterly gains for this group averaged 2.4% against the 1.5% average quarterly gain posted for the Top 15 group last month.

Surprising for this month was that the Top 15 group had an average REO saturation level at 27.3%, which is 1.5 percentage points above the national level of 25.8%. While Las Vegas made its way into the Top 15 performing markets with a small quarterly gain of 0.8% against an annual loss totaling -6.7%, there are indications this market is not yet heading in the right direction.

Underlying the small growth for this month are substantial declines in the low tier segment of that market, or those homes selling for $65,000 or less. This goes squarely against the trend seen in other hard hit areas such as Orlando, Miami, and Phoenix where prices are going up in the lower price tiers as investors are paying cash to take advantage of the rental markets. More information is available on this recovery dynamic in Dr. Alex Villacorta's Forbes blog called "Flooring in Florida: Is This the Start of Something Good for the Housing Market?

Lowest Performing
 1. Cleveland, OH - Elyria, OH -Mentor, OH -9.4% -7.3% 36.9%
2. Milwaukee, WI - Waukesha, WI Allis, WI -9.0% -2.8% 25.3%
3. Birmingham, AL - Hoover, AL -6.2% -10.6% 37.7%
4. Seattle, WA - Tacoma, WA - Bellevue, WA -5.2% -16.5% 21.1%
5. Atlanta, GA -Sandy Springs, GA -Marietta, GA -4.8% -18.7% 44.5%
6. Wilmington, DE -4.7% -9.3% 10.9%
7. Detroit, MI - Warren, MI - Livonia, MI -4.5% -3.8% 49.1%
8. Memphis, TN -3.1% -4.8% 37.3% Nashville, TN - Davidson, TN -
9. Murfreesboro, TN -3.1% -3.7% 18.2
10 Chicago, IL -2.2% -3.9% 33.4%
11. New Orleans, LA - Metairie, LA - Kenner,
12. 12 Los Angeles, CA - Long Beach, CA-2.1% -3.7% 23.0%
13. Jacksonville, FL -2.0% 0.1% 30.0%
14. Santa Ana, CA -1.9% -3.3% 32.1%
15. Dayton, OH -1.7% 0.6% 30.1%
16. St. Louis, MO -1.5% -7.3% 34.1%

Lowest Performing: Losses Lighter and Higher REO:
*Quarterly losses eased this month, averaging -4.1% against an average loss of -4.7% last month.

*Average REO saturation rates also up for this group, averaging 30.9%, up from last month's 28.5%.

*Cleveland is the worst performing MSA with quarterly and yearly losses over -7%.

The lowest performing 15 markets are clearly not as resilient to the seasonal slowdown and increased REO saturation as compared to the other MSAs tracked. While all metros in this group posted negative numbers for the quarter, all but two also showed price declines year-over-year as well. Additionally, six out of 15 markets saw prices shrink by more than five percentage points over this time last year.

Cleveland was the hardest hit market in the nation this month, losing -9.4% of its value quarter-over-quarter. It was also hit hard with REO saturation, jumping a dramatic 3.8 percentage points over last quarter, putting it well above the national average of 25.8%.

Even with the poor performance of Cleveland there may be some good news. It is another example of a metro market where lower priced home sales ($28,000 and less in this case) are gaining in value while higher priced home values are dropping. Cleveland tacked on 3.4% in the low price tier, indicating there may be increased demand from investors taking advantage of low prices and building a value base in this market.