California Housing Market Leads the Way to Recovery in the Wake of Subprime Mortgage Loan Crisi

In the days leading up to the great recession, California led the country in subprime mortgage loans — reckless transactions that played a major role in the housing market bust, both here and throughout the rest of the country. However, a new RealtyTrac data report published in the San Francisco Chronicle shows the California housing market now leading the way to real estate recovery through a combination of reduced defaults, increased demand in move-up markets and lively activity on the part of investors.

After being buried in the aftermath of countless foreclosures following the implosion of the housing bubble, California has finally succeeded in stabilizing the housing market. The latest RealtyTrac data shows U.S. foreclosure filings at their lowest in nearly five years – thanks in large part to a dramatic reduction in defaults throughout California. Initial statewide default filings fell to their lowest point in 69 months, signifying a decrease of 45% compared to this time last year. Meanwhile, home sales in the state’s most populous regions jumped to highest rates since 2006 as of August 2012. Across the nation, housing market trends are mirroring California’s advances” defaults fell by 34% in Arizona, 22% in Michigan and 21% in Georgia, while overall U.S. home values rose by 1.2% relative to last year’s figures.

In addition to reduced defaults, California has also enjoyed a brisk uptake in market activity from investors and move-up buyers, with the bulk of real estate purchase power centered in the coastal markets and moving steadily inland into the autumn months.

From reckless lending to smart investing: the future of California real estate
With California moving swiftly ahead in the direction of real estate recovery, now is the time for move-up buyers to capitalize on comparatively low home prices and historically low interest rates while they still can. Here in Santa Cruz, the time is ripe for qualified buyers in desirable coastal markets.

To learn more contact Authentic Real Estate and find out about the current trend in South Bay Area real estate: http://www.authenticre.com or (831) 426 0294

California Homes Prices Predicted to Rise in 2013

California home sales and prices will likely rise this year and in 2013, though low inventory and restricted lending will continue to curb housing market growth, according to a forecast from the California Association of Realtors.

Sales of existing, single-family homes are up 6.5 percent through August compared to the same period last year. After a slight 1.1 percent increase in 2011, CAR expects sales to jump for the second year in a row this year to 530,300 homes, up 5.1 percent from 2011. CAR anticipates a further 1.3 percent increase in 2013, to 530,000 homes.

"The market has improved moderately over the past year, and we expect that to continue into 2013," said CAR President LeFrancis Arnold in a statement.

Arnold said sales would be even higher if inventory were less constrained in markets dominated by sales of bank-owned properties, particularly in the Central Valley and Inland Empire, "where there is an extreme shortage of available homes. Sales will be stronger in higher-priced areas, where there are more equity properties and a somewhat greater availability of homes for sale."

 Leslie Appleton-Young, CAR's vice president and chief economist, said in a conference call that low inventory and "defensive lending" by lenders were "the speed bumps in the California housing highway."
Lenders "are not lending to hold the mortgage. They're lending to sell the mortgage on the secondary mortgage market and they want to avoid having to buy that back," she said.

California Foreclosure Inventory Continues to Fall

In another positive sign for the housing market, the nation's so-called shadow inventory of properties in the foreclosure pipeline fell by more than 10 percent in July from the same period a year before, CoreLogic reported Tuesday. The tracking firm in Irvine, Calif., said the number of housing units in jeopardy of foreclosure -- or that lenders have repossessed but not yet listed for sale -- dropped to 2.3 million this July from 2.6 million a year earlier.

"This is yet another hopeful sign that the housing market is slowly healing," said Anand Nallathambi, president and CEO of CoreLogic. The report should be welcome news for homeowners worried that a wave of foreclosure sales might further depress housing values.

The real estate market generally has been on the path toward recovery this year, with home prices pressed upward by the low inventory of homes for sale and by record-low 30-year mortgage rates, now below 4 percent. Experts have pointed to the shadow inventory as a potential threat to the fledgling upturn. Large numbers of foreclosed homes hitting the market could drive prices down.

The improving economy and alternatives to foreclosure, including short sales and loan modifications, have helped prevent homes from becoming part of the shadow inventory. CoreLogic s calculates the shadow inventory by adding the number of homes in foreclosure and those that are bank-owned but not yet for sale. Homes where owners are 90 days or more past due on their payments also are included.


All told, the shadow inventory in the United States was worth about $382 billion as of July, the firm estimated. That's down from $397 billion a year ago, it said. Forty-five percent of all distressed properties are in five states: California, Florida, Illinois, New York and New Jersey, CoreLogic reported

The Foreclosure Flood That May Never Come

Pro Teck Valuation Services’ September Home Value Forecast Update examines why there will not be a flood of foreclosure housing stock across the U.S. market and how metro areas in Southern California, Texas and Maryland are experiencing positive real estate trends.

“With regard to the U.S. foreclosure inventory, there has been a misperception that it is a problem for the entire market. In fact, it is quite concentrated in specific cities and neighborhoods,” said Tom O’Grady, CEO of Pro Teck Valuation Services. “For this reason, potential buyers who have been waiting for bargain prices in desirable neighborhoods may be disappointed.”

This month’s Home Value Forecast update lists San Diego as one of four Southern California real estate markets in the Top 10 and also examines a 20-year history of the months of remaining housing inventory trends for homes listed for sale in the San Diego, Orange County, and Los Angeles metro areas.

“The current overall months of remaining housing inventory for San Diego, Orange and Los Angeles is below five months, which is the lowest they have been since the market peak in 2005-2006,” added O’Grady. “This is significant because in the Los Angeles market over the past 25 years, whenever this indicator was below five months, the median price increased by close to 19 percent the following year. Of course, it remains to be seen if the same appreciation happens again.”

Home Value Forecast’s September update shows that while all three counties exhibit low overall inventory remaining, there is a fairly wide dispersion when viewed by home value on a price per square foot of living area basis. In areas, where the price per square foot is less than $550, there is less than six months of remaining inventory. However, there are greater months of remaining inventory of homes with higher prices, especially in San Diego.

This month’s Home Value Forecast update also includes a listing of the 10 best and 10 worst performing metros as ranked by its market condition ranking model.

“The top ranked metros this month represent an interesting mix of U.S. real estate markets. In addition to the Southern California markets, there are four metros top ranked in Texas and one in Maryland,” said Michael Sklarz, Principal of Collateral Analytics and contributing author to Home Value Forecast. “It is interesting to note that all of the metros in the top 10 are exhibiting positive trends and that all have experienced significant declines in active listing counts over the past year, resulting in fewer months of remaining inventory and tighter markets.”

September’s top CBSAs include:

• Oxnard-Thousand Oaks-Ventura, CA
• Seattle-Bellevue-Everett, WA
• San Diego-Carlsbad-San Marcos, CA
• Los Angeles-Long Beach-Glendale, CA
• Santa Ana-Anaheim-Irvine, CA
• Houston-Sugar Land-Baytown, TX
• Baltimore-Towson, MD
• Fort Worth-Arlington, TX
• Austin-Round Rock-San Marcos, TX
• San Antonio-New Braunfels, TX

“This month, some of the bottom CBSAs are in the Northeast again and continue to have double digit months of remaining inventory. However, a number of the metro areas have a fair percentage of trends moving in a positive direction, which is quite a difference from a year ago,” added Sklarz.

The bottom CBSAs for September were:

• New Haven-Milford, CT
• Bridgeport, Stamford, Norwalk, CT
• Augusta-Richmond County, GA-SC
• Rochester, NY
• Spokane, WA
• Portland-Vancouver-Hillsborough, OR-WA
• New York-White Plains-Wayne, NY-NJ
• Edison, NJ
• Nassau-Suffolk, NY
• Newark-Union, NJ-PA

Homeowners Now In Control of Housing Market

Radar Logic and other people are still cranky about the housing market. They opine that the recent strength in national housing price figures won't last because of something latent lurking out there on the supply side. In statistics, latent variables can be perfectly legitimate -- but if it results in perennially brushing aside contradicting observable data, it begins having a legitimacy problem.

There are clearly two trends in the housing market that can be observed directly. One is the significant decline of what some people call transactional inventory and the market share of distressed sales. The other is that home prices are actually rising lately in many areas. I dare to infer that those two trends are highly correlated. I have been seeing things lately about this -- like strong statistical correlations between home price trends and low unsold inventory and declining distressed
sales shares

                                      


In this context, recent home price stats by Clear Capital, is telling. Not only did they observe the “fourth consecutive month of home price gains” in August 2012, but non-investor home buyers made up an increasing chunk of the sales mix and non-distressed price gains outpaced REO prices. According to Dr. Alex Villacorta, Clear Capital’s research guru, the shift from the investor to the owner-occupied sector “could have a far reaching effect, even in smaller markets." Nationally, home prices advanced 1.9% over the quarter in August, essentially unchanged from 2.0% in July.

Yearly home price growth also rose to 2.9% in August from a 0.7% annual increase in July 2012. Clear Capital finds that major California areas experienced quarterly and annual home price appreciation in August, that the home price recovery continues to move inland, and that the REO market share in transactions is dropping. I can’t wait to see what the seemingly infinite inference chains of the conspiracy theorist will have to say about that. Ah, I know, it has to do with foreclosure disposition bottlenecks … yawn! Meanwhile, let’s enjoy the rise of the owner-occupied market as the potentially significant event it might be, I dare to infer (until observable facts say otherwise.)

The Rise in Real Estate Is Sustainable

The cover story for the September 10th weekly magazine Barron's is on the recent surge in real estate and how the rise in property prices is no fluke. In the article by Jonathan R. Laing titled "Happy at Last," readers are given a cautiously optimistic assessment of what has already been a well established trend in the real estate market. A distinction in this article is the confidence with which many professionals believe that the current rise in real estate is sustainable for the foreseeable future.

We agree that real estate will have a sustainable trajectory upward as we outlined in our December 10, 2010 article titled "Real Estate: The Verdict is In". We believe that the clear reversal of the indicators that we discussed at the end of 2010 has proven that the real estate market has bottomed. The following is a review of the indicators that we track that have definitively shown that the direction is up.

As can be seen in the chart below, U.S. housing starts bottomed in January 2009 and started to base over the next 2 years. Two months after our December 2010 article, housing starts began to increase at a healthy pace.

                

The broad basing pattern in U.S. housing starts and the relatively mild increase, as compared to the 1991 bottom, seems to indicate a more realistic view on expectations for real estate going forward.

The next chart that we find useful for determining the direction of the real estate market is the real estate loans at all commercial banks. When we published our December 2010 article, we said that the bottom had occurred in April 2010. In fact, the actual bottom took place in April 2011 as shown below.

                 

The real estate market cannot thrive in an environment where lenders are unwilling to lend. Tracking the real estate loans by banks is instructive as to what the direction might be. Our assessment of this indication suggested that on a relative basis, the declining trend was at, or near, an end. The dramatic increase in lending since early 2011 has helped push select real estate markets higher.

Much of the research analysis that we do on the topic of real estate is based on the work of Roy Wenzlick. If there ever was a scientifically accurate approach to analyzing the real estate market, Roy Wenzlick perfected it. Anyone who read his newsletter, The Real Estate Analyst (published from 1932-1974), would have thought that Wenzlick was strictly a statistician. However, while Wenzlick was a compiler of significant amounts of data on real estate, he also believed that the market price for properties ran on a clearly defined cycle. On each chart, we have indicated Wenzlick's last estimated low for real estate based on that cycle.

The chart below illustrates the importance of considering Wenzlick's estimate of the real estate cycle because it isn't the rise that we're interested in as much as when the next decline begins and when the bottom might occur.

                 

The real estate cycle that Roy Wenzlick adheres to pointed to a low in 1991 and a low in late 2009. In the Federal Housing Finance Agency's House Price Index for the nation, we can seen that 2009 was not quite the end of the decline for real estate. Knowing that all cycle analysis is a rough estimate, at best, we hedged our view to include the possibility that the bottom would occur as late as the end of 2010.

What The Future Holds for Home Prices

U.S. home prices rose in June from a year earlier for the first time in nearly two years, according to data released Tuesday. Is this the start of a bounce back for housing, or is it just a cheerful blip in the numbers before prices resume their fall?

Bet on neither. Instead, assume for planning purposes that U.S. house prices will rise by an average of 2.3% a year over the next decade. Here's why: House pricestend to track the rate of inflation over long time periods (see chart). After all, inflation is the gradual rise in the cost of ordinary goods and services, and houses are boxes made from ordinary goods and services -- lumber, copper, carpentry and so on.

If house prices either outpaced or lagged behind the inflation rate over long time periods, houseswould become either infinitely unaffordable or cheap. Of course, that doesn't happen. Booms and busts tend to offset each other, leaving house prices in sync with other prices. That's what has happened over the past dozen years or so.

Predicting the inflation rate is difficult, but the work is already done. That's because of a special kind of bond called Treasury inflation-protected securities, or TIPS. These give investors both a stated interest rate and an ongoing principal adjustment based on the consumer price index, the main measure of inflation. Regular Treasurys give investors only the stated yield.

The difference between TIPS yields and regular Treasury yields, then, is equal to investors' collective bet on the rate of inflation. Right now, that spread is 2.3 percentage points on 10-year issues.

Investors should assume that rate for the next 10 years of annual inflation -- and house price gains.

Housing bears will point out that the recent year-over-year price gain is just 0.5%. All of it may be due to a recent drop in mortgage rates luring buyers, which isn't likely to repeat. And last year made for an easy price comparison, because prices dropped following the expiration of housing stimulus programs. Indeed, house prices may already be falling again. The latest Case-Shiller reading is for June, and really, it reflects purchases that were inked a few months prior.

Housing bulls counter that mortgage delinquencies are down, new home sales are up and affordability has been restored.

They each make good points -- and their views are already reflected in market prices for houses, which is why prospective buyers should ignore them. They should also ignore broker claims about a particular area being an up-and-coming one or a deep value. Those sentiments are priced in too.
Buyers should instead use their 2.3% house gain forecast in one of those renting-versus-buying calculators available. Good ones typically ask the user to plug in forecasts for their annual rent increases, annual house price increases and the rate of inflation. Use the same number for each (2.3% or whatever the current spread between TIPS and regular Treasury yields suggests).

Of course, house prices may not exactly track inflation over the next 10 years. They could rise more or less, and history suggests price gains will vary sharply by market. Even in the same market, some buyers will get better deals than others. But the point of the forecast is to base housing decisions on a sober look at likely outcomes rather than hope or hype.

Homeownership still looks like a good deal in most markets, but that has little to do with June's price rise or the possibility of timing the market.