Are Real Estate Bellwethers Ringing?

In case you’re still a nonbeliever that housing has finally crawled its way into recovery mode, ask yourself: What are the bellwether indicators of the early stages of a rebound? You can probably rattle them off.

• Rising home prices in the vast majority of the country’s major markets.
• Tightening of the supply of houses listed for sale.
• Quickening rates of turnover of the available housing inventory – how fast houses listed for sale are put under contract

You could also add sustained periods of rising single-family housing starts (they were up in June for the fourth straight month), increased number of applications for home mortgages and more pending home sale contracts. All positive.

But let’s stick with the three key indicators bulleted above – prices, inventory and time on the market – because at the moment they are eye-openers. Though there are regional and local pockets where prices haven’t stabilized – notably in Pennsylvania, portions of New Jersey and the 

Midwest –  the vast majority of  U.S. markets are now seeing at least modestly rising prices compared with year-ago levels, and thus far fewer houses available to buy, according to the Realtor.com Real Estate Data Trends for June 2012.

In 99 percent (144) of the 146 major markets tracked by Realtor.com, which has access to listing and sales data from hundreds of Multiple Listing Services around the country, median prices rose during the month of June by 2.7 percent over year-earlier levels. Twelve months ago, by contrast, the same survey found prices  declined by more than 1 percent in the majority (54 percent) of markets – 79 out of 146.

What’s  more significant, however, is what’s happening to local inventories of houses for sale.  They are plunging, and what’s on the market is generally moving quickly. On a national basis, the available stock of listings, i.e. what’s available for shoppers to buy, is down by 19.4 percent compared with the year before. But in 17 large metropolitan areas, inventory is down by more than 30 percent. In Oakland, California, for instance, there are 58 percent fewer homes listed for sale than 12 months ago. In Seattle, inventory is 43 percent lower.  In San Francisco and Phoenix, the drop has been just under 40 percent.  The median age of the national inventory – 84 days – is the lowest it’s been since early 2007, which means what’s getting listed isn’t sticking around nearly as long as it did a few years back.

These are extraordinary numbers, and in some cases they are helping to fuel multiple bidding situations on the remaining stock of houses available for sale. A handful of metropolitan areas that were badly battered during the bust are now reporting double digit listing price increases. Phoenix’s median list price is  up 32 percent year-over-year. Miami is up 14 percent. Detroit – yesDetroit – is up 10 percent.

But big rebounds in median prices aren’t limited just to localities with low home costs and lots of foreclosures. Three of the highest costing markets in the U.S. have experienced robust increases from June of last year through this June: San Francisco’s median is back up to $725,000, a 15 percent-plus gain.Washington, D.C.’s median of $425,000 is up 13.6 percent. And Santa Barbara, California, is simply off the charts, with prices one-third higher than they were 12 months ago.

Boom is a bad word in real estate these days, so let’s not apply it to any of these situations. But rebound or modest recovery? Those terms are hard to dispute.

Brace Yourself: Home Prices Back on the Rise

House prices, after falling for more than five years, are rising again. All the major sales-price indexes show that there have been modest national increases in recent months, even after adjusting for seasonal patterns.

When foreclosures and distressed sales are excluded from the data, prices are up even more. And we should expect further gains: The asking-price index, a leading indicator of sales prices, published by Trulia Inc. (where I work), climbed at an annualized rate of 3.3 percent in the second quarter of this year, adjusted for mix and seasonality, and rose in 84 of the 100 largest U.S. metropolitan areas.

Of course, if the U.S. economy falters, due to a deepening of the economic crisis in Europe or a wave of foreclosures, prices may reverse. For now, though, the increases are widespread. For the real-estate market and housing policy, this is cause for relief, but also for some concern.

One immediate effect of the price turnaround is that inventory tightens. In the past year, beginning even before prices rose, the inventory of listed homes shrank 20 percent, due to fewer foreclosures for sale and little new construction. Smaller inventory contributes to price increases; when there are fewer homes available, sellers can ask more. In some local markets, bidding wars have returned. Now, rising prices could even accelerate the decrease in inventory in the short term, as buyers act quickly in hopes of paying as little as possible, and sellers hold off listing their homes in anticipation of further price increases. In fact, 61 percent of people do expect prices in their local market to rise in the next year, according to a recent Trulia survey.

Sales Effect

In the longer term, if rising prices last, inventory will grow. Higher prices will encourage more owners to sell, including some who have been “underwater” on their mortgages, as well as banks holding portfolios of foreclosed homes.

Rising prices will also cue housing developers to accelerate construction. After overbuilding during the real- estate bubble, the construction industry has been very slow to recover. New-home starts are still less than half of normal levels, and construction jobs now account for a smaller share of economy-wide employment -- 4.1 percent -- than at any time since 1946. If rising prices nudge construction closer to normal, the housing market might finally contribute to, rather than hold back, the general economic recovery.

Rising prices should also take some pressure off policy makers to “fix” the housing market, and make some mortgage- modification programs more feasible. In particular, shared- appreciation loan modifications -- in which a lender or government agency reduces the amount of principal a borrower owes in exchange for a share of any future price appreciation -- become possible when there is a reasonable chance that prices will go up. Crucially, underwater borrowers -- those owing more on their mortgages than the property is worth -- who expect prices to rise have less incentive to default on their loans and abandon their homes.

Yet along with rising prices come two serious concerns.

First, higher prices make homes harder to afford again. When prices plummeted post-bubble, concerns about affordability faded. Even now rents are gaining faster than home prices, according to the Trulia Rent Monitor, which makes owning a better bargain than renting. Still, rising prices make it harder for renters to buy. And, in markets such as coastal California andNew York City, where new construction is limited by geography and regulations, high prices put homeownership out of reach for many residents.

Building Rules

While San Francisco is too beautiful and Manhattan too productive ever to become cheap places to live, local policy makers could make homes in expensive cities easier to afford by loosening restrictions on new construction. They could allow higher densities, as California is attempting to do near transit stations. In Washington, they could relax the height limit. And everywhere they could simplify and clarify the rules for approving projects. More construction in cities would mean less of it pushed out to sprawling exurban areas, where overbuilding during the bubble led to some of the nation’s most widespread foreclosures.

The second reason for concern over rising prices is that they fuel optimism. Some optimism is desirable, but unchecked optimism creates bubbles. In a recent Trulia survey, 58 percent of people said they expect prices in their local market to return to their previous peak in the next 10 years. In Pittsburgh, Houston and other markets where prices slipped only slightly during the recession, it’s plausible that they will again reach their previous peak. But even in the hardest-hit markets, such as Las Vegas and Sacramento, where prices rose to unsustainable levels and then fell by half or more, 56 percent of people still expect them to rise to their previous peak in the next 10 years. Such optimism can lead to a bubble if people pay more for homes that they expect to appreciate.

To ensure that rising prices and renewed optimism don’t inflate a new bubble, we must not encourage homeownership and housing construction beyond what our income and demographics can support.

Although full recovery in housing is still years off, rising prices will start reshaping the market right away -- for better and for worse.

Top 3 Issues Holding Back Real Estate Buyers

Fewer Buyer Challenges with Financing and Selling Existing Homes

REBAC members identified the top issues currently preventing buyers in their local market from completing a purchase. While difficulties obtaining financing were cited as the leading challenge among buyers in 2010 (61 percent) and 2011 (65 percent), in 2012, the percentage noting this challenge dipped to 49 percent. Problems selling their current homes, similarly, declined in 2012 to 43 percent, down from 59 percent in 2011 and 57 percent in 2010.

Top Three Issues Preventing Buyers from Completing Purchases

6 Reasons California Real Estate is in Recovery

California has served as a remarkable barometer for nationwide real estate trends over the past decade. This fact is in large part due to the widespread publicity and concentrated marketing efforts that come from the region, which tend to not only set the stage for public opinion, but also tend to exaggerate the peaks and troughs. This lead to the Southern California real estate market seeing some of the most stunning gains throughout the inflationary period of the housing bubble, as well as some of the most painful losses following the bubble's burst in 2007. However, the following 6 real estate market metricsare clear indicators that we have entered the light at the end of the tunnel.

1. No More Easy Money 
The single biggest factor that contributed fuel to the fire that eventually burned the nation in 2008, was easy money loans to under-qualified borrowers. Countless 3-5 year adjustable rate home equity loans were taken out by borrowers seeking to live above their means between 2001-2006. Then when those loan rates began to balloon in 2006 and borrowers could no longer afford the payments, the foreclosure market swelled to a Tsunami. Since then, numerous precautionary measures have made their way into legislation and bank policy, ensuring that easy money loans will not be a part of the equation in the foreseeable future.

2. Housing Market Inventory At 4 year Low 
As with any market, the laws of supply and demand are among the most fundamental factors effecting price. According to a CA Market Statistics and Real Estate Trends report on MontezumaProperties.com, the San Diego Real Estate market currently has only 1,742 homes on the market which is the lowest since 2008.

3. 67% Reduction in Distressed Properties On Market 
It was the tsunami of distressed properties flooding the market in 2007 that was one of the biggest contributors to the steep decline in home value. Today, distressed homes make up only 5% of the properties on the market in San Diego compared to 15% two years ago.

4. Median Home Listing Price At 2 Year High 
Currently the median home listing price in San Diego is $545,000 compared to $449,000 just two years ago according to the regional MLS. This rise in home value is telling potential home sellers that the waters are a bit warmer compared to the icy, foreclosure filled seas of the recent past. For buyers this means that now is the time to act while overall home prices remain a good value.

5. Pending Home Sales at 2 Year High 
Numerous reports have recently surfaced that an estimated 41,790 new and resale houses and condos sold statewide last month. This represents the highest number of home sales in May since 2006.

6. Days On Market At 2 Year Low 
In San Diego the median number of days on the market over the past month is 37, compared to a high of 73 over the past two years. One of San Diego's most successful real estate agents, Carlos Gutierrez of Prudential California Realty helped one client sell one home for the exact listing price and purchase another home all within 17 days. Within two weeks Mr. Gutierrez also found buyers for a $2,700,000 Luxury Property in Del Mar. "Of course a lot of people have had a difficult time over the past few years" said Gutierrez, "but luckily my team and I have really fine tuned a winning formula and have proven throughout this that we can perform for both buyers and sellers in any market. Now that the market is showing clear signs of life and health, things are really moving. But the most important thing remains that I take the time to understand and work with each and every person who reaches out to me. I make sure that they understand the current market conditions and their place in it. That's the foundation, and once we're on the same page we can make things happen quickly and confidently. That is the key."

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