Thursday, May 17, 2012
Thursday, May 10, 2012
The long, discontented winter for the U.S. home market might be easing. Home prices are inching up in some markets, and it might be a good time to invest.
That doesn't mean that every place makes sense for homebuying. Nationally, new-home sales fell by the largest amount in more than a year in March--7.1%--so there's no widespread rebound under way, according to the U.S. Commerce Department.
You'll still have to be incredibly careful and look at several factors such as local job growth, housing inventories, and price trends. Whether you're looking to relocate, eyeing a retirement locale, or scouting investment properties, caution is still essential.
Foreclosures and excess inventory will continue to hurt key markets. "I think we'll see a strange housing market for the next couple of years, where foreclosures and vacancies continue at the same time as new construction grows rapidly," said Ingo Winzer, president of real estate information service Local Market Monitor.
With the exception of Washington and perhaps Boise, markets in Arizona, California, and Florida were pummeled in the downturn, with some areas suffering 50% markdowns from the peak of the bubble.
Although good news is in short supply, there's a tinge of optimism surfacing on U.S. real estate. Local Market Monitor reported recently that its housing demand index is in expansion status, compared with 64 months of contraction that began in 2006. The strongest markets generally are experiencing robust job growth, which typically is one of the linchpins of any strong housing market. Rebounding regional industries are boosting some areas such as Austin, Texas; Bakersfield, Calif.; Boise, Idaho; Ogden, Utah; Dallas; and Grand Rapids, Mich., according to the Metro Monitor from the Brookings Institution. These were among the strongest-performing metropolitan markets Brookings surveyed.
Clusters of strong industries make a huge difference in real estate recoveries. Information technology businesses in Austin; Boise; Ogden; Portland, Ore.; Provo, Utah; and San Jose, Calif., (Silicon Valley) are seeing growth. Other industries in recovery mode are manufacturing--particularly auto production--and high technology. Meanwhile, areas once supported by old-line industries--such as Allentown, Pa.; Little Rock, Ark.; Atlanta; Fresno, Calif.; and Philadelphia--aren't faring as well.
Indeed, those areas hardest-hit by the bubble bursting and the Great Recession are struggling. While you're seeing some evidence that the downturn might be bottoming out, places like Las Vegas; Los Angeles/Central California; Tucson, Ariz.; and Tampa, Fla., are among the worst performers.
In terms of price increases, however, it appears that the most devastated areas are slowly coming back. They've not recovered to 2006 levels--and may never--but there's strong evidence that they've turned the corner. Here's a short list of areas from Realtor.com with the best year-over-year price increases (through March 2012):
Rooting Out Real Bargains
Prices alone, however, aren't necessarily a green light to buy. In cities where housing inventories are high and foreclosures are ongoing, you'll continue to see downward pressure on prices. List prices are still falling in Chicago; Knoxville, Tenn.; Southern California; Sacramento, Calif.; and several cities in Pennsylvania, including Philadelphia. That means even though some areas appear to be recovering, it might be some time before prices stabilize.
For absolute bargains, the best prices are found where the price-to-rent ratio--a gauge that shows where buying makes the most sense--is still favoring homeownership, according to Trulia.com. These cities include Detroit; Oklahoma City; Dayton, Ohio; Toledo, Ohio; Grand Rapids, Mich.; Cleveland; Atlanta; and Memphis, Tenn. Of course, many, if not most, of these areas have been hurting from massive job losses from older industries, so they might not be the best places to buy if you're expecting quick price appreciation.
Ultimately, if you're interested in a long-term investment, you'll need to look at areas that have the greatest chance of sustaining job growth well into the future. These markets are not to be confused with those offering the best values now, though some might offer some bargains relative to cities that have traditionally been the highest-priced, such as those in Silicon Valley.
Using Local Market Monitor's 24-month forecasting model, San Jose/Santa Clara, Calif.; Houston; Austin; McAllen, Texas; Fort Worth, Texas; Rochester, N.Y.; Pittsburgh; Louisville, Ky.; Oklahoma City; and Knoxville, Tenn., might offer the best opportunities for price appreciation, which ranges from 1% to 4% during the next two years.
Much of the new optimism hinges on foreclosures leveling off and job growth continuing. Another boost might come from proposed changes that may allow homeowners whose mortgages are owned by Freddie Mac (FMCC) and Fannie Mae (FNMA) to stay in their homes through refinancing or writing down principal.
Because this is an election year, it's probably a safe bet that Washington will do everything it can to show some progress on housing. In the interim, keep your eye on places where home inventories are falling, jobs are being created, and prices are stabilizing. You could find some excellent values if you do your homework.
To see hot properties in Santa Cruz click: http://www.authenticre.com/Hot-Properties
Thursday, May 3, 2012
1. Distressed or foreclosed properties will continue in high numbers, keeping the supply of vacant homes at levels that will exceed end user demand in many local markets:
Areas with an over-supply of existing homes will continue to see prices flat or eroding, until the supply-demand ratio comes back into balance. In some parts of Florida, California, Georgia, Nevada, and Arizona, to name a few, it will take years for this ratio to balance out.
Any market seeing increasing foreclosures in 2012 will experience this imbalance in the future, to some extent. The larger the supply relative to the existing demand, the lower the prices will tend to be.
2. Conversion Of Single Family Homes To Rentals:
Home ownership has been shrinking. The housing market is undergoing a fundamental change to a much higher percentage of single family rentals. Rent rates will only go up in those areas that have a tight supply relative to local demand. This will be mostly near major employment centers in bigger cities.
That being said, we’ll see a much higher percentage of tenants in suburban “bedroom communities”. Those neighborhoods tend to have higher foreclosure rates, and are located farther from the best paying employment centers.
The Worst locations are neighborhoods near “dying” employment centers. A prime example is Detroit, Michigan. As the auto industry has lagged, and employment has fallen in a number of related sectors, jobs in the “rust belt” are still dwindling. “Industrial age” population centers are shrinking and this trend will continue have a negative impact locally.
For residential real estate brokers, the biggest growth opportunity at present is in property management. Some brokers have opened new property management companies to accomodate the growing demand caused by a local transition from owners to tenants.
3. A New Market Variable:
The development of “Big Box” rental property owners in the single family market Wall Street has entered the housing market in an attempt to buy up bulk reo packages of single family residences being offered by Fannie Mae or other entities holding a large inventory of foreclosed properties.
This has never been done before. The impact may be positive in the short term for the selling entity, but I believe that it is most likely that this development will have a negative impact locally. The increased supply could force rental rates lower. Mom and pop investors may have difficulty cash flowing against such competition. Managing a Single Family Rental project of this type and scale are unprecedented.
For existing homeowners, this event could lead to a higher percentage of tenants in many neighborhoods that used to be 90 to 100% owner occupied. The attempt to cash flow single family rental properties in unprecedented numbers, combined with high unemployment and lower incomes among the tenant population is leading to
4. Significant growth in the use of government subsidized housing programs commonly known as “Section 8″:
Today there are fewer people who can afford to pay full “market rent”, which is usually higher than a mortgage would be on the same property. And Government Subsidized housing has a reputation for paying above market rent rates for a variety of reasons.
I fully expect that “Big Box” landlords will want to utilize “section 8″ or similar programs, as this is a common strategy for boosting rental income to “above market” levels, thereby increasing positive cash flow. However, in cities where the number of available properties exceeds the local demand for subsidized rent, houses can go begging for tenants. This could upset the “Big Box” cash flow projections. It will be interesting to see how this plays out over the next few years.
5. Government Domination of The Mortgage Market:
Taxpayer “ownership” of the secondary mortgage market, in order to continue funding mortgages in a market that has lost most of it’s private investment capital. The financial burdens are already significant for both the taxpayers and the buyers who are using these loans. We’re stuck in a vicious cycle of more government programs and guarantees, with much less private sector involvement than ever before in the history of the secondary mortgage market.
6. Higher unemployment and lower wages:
Productivity is at record high levels, but new technology has limited the creation of new jobs for humans. Globalization and internet commerce have made Americans compete with workers in Pakistan or Indonesia, resulting in much lower incomes. This will have a direct impact on home prices, rental rates, and government intervention in the housing market.
These are not short term events, they are here to stay on some level. This is part of the new “normal” where today’s housing market is concerned
To view Hot Properties in Santa Cruz click here: http://www.authenticre.com/Hot-Properties