2015 Real Estate Market Predictions: Normal

As housing recovers, prices in many markets across the U.S. have shot up. In fact, RealtyTrac reported that the median sale price of U.S. single-family homes and condos in October had reached its highest level since September 2008. Price appreciation and the lure of foreclosures created a feeding frenzy for real estate investors willing to pay cash and made it harder for traditional buyers to compete.

But experts say that 2015 will be marked by a return to normalcy and balance for real estate markets across the country. Stan Humphries, chief economist for Zillow.com, predicts that home value growth will slow to around 3 percent per year instead of the 6 percent seen recently, and that will make real estate less attractive to many investors. “It's been a tough market for buyers," he says. "I think it's going to get easier in 2015. Negotiating power will move back to buyers and away from sellers. It will be a much more balanced market." (Too many buyers and too little inventory, or the opposite, contribute to an unbalanced market.)

Redfin.com's chief economist Nela Richardson agrees. "It's been a clear pattern that the investor activity has been shrinking over time," she says. "Investors like to go in where they can buy low and sell high. Price growth is starting to slow dramatically, so they can't sell much higher than what they buy. Investment property is less compelling in 2014 going into 2015."

More inventory and less competition from investors means even traditional buyers are becoming “more picky, and they're willing to let a home go if they don't think it's a good fit for them," Richardson adds. "Buyers are less worried that they'll miss out on something. Houses are more like buses now. If you miss one, another one will come along." Whereas buyers might waive contingencies in the recent past to make their offer more attractive to sellers, they're now more likely to insist on contingencies for financing and inspections.

That said, foreign investors may still find high-end American real estate appealing because of economic turbulence in their home countries. For instance, the U.K. is toying with a so-called "mansion tax" that would apply to those who own properties worth more than 2 million British pounds (or over $3 million), and China has placed restrictions on homebuying in large cities. Some foreign investors also worry about currency fluctuations devaluing money they hold in their home countries. "That section of the market is still all cash – people buying up these huge places because it's safer here than in their own countries," says Herman Chan, real estate broker with Bay Sotheby's International Realty in San Francisco.

Buyers from outside the U.S. may use their properties as a rental, a pied-à-terre (a secondary residence used for travel) or a residence for children studying at American colleges. But for buyers looking for more moderately priced homes, 2015 could offer a respite from bidding wars and all-cash offers. "People who've been on the fence about selling are finally going to pull the trigger, which is great for buyers [because it creates more inventory]," Chan says. "Now people with regular jobs and 20 percent down finally have a chance to get into the market."

For years, many millennials have postponed homeownership in favor of renting, but that may also change next year as a growing number of Gen Yers start families and seek more stability. "By the end of 2015, millennial buyers will represent the largest group of homebuyers, taking over from Generation X," Humphries says. "They prefer smaller units closer to the urban core, so it will be interesting to see whether they follow the time-honored path towards the periphery of the metro."
Baby boomers are also likely to make a move in 2015. Chan says he's "gotten so many calls from baby boomers recently saying, 'We’re downsizing, and we're moving to be closer to our grandkids or our son or daughter.'" With fewer homes underwater, they're finally in a position to sell.

While mortgage rates may not remain at the historic lows seen recently, more people may qualify for home loans as issues like foreclosures or short sales age out of their credit reports and Freddy Mac and Fannie Mae ease mortgage eligibility. Freddy and Fannie recently announced a new mortgage program for buyers with a down payment as low as 3 percent. "Freddy and Fannie have always been the industry leaders, and they're saying, 'It's OK to lend to people who don't have 5 percent down. It's OK to extend credit in a reasonable and safe manner," Richardson says.

9 Red Flags to Watch When Choosing a Real Estate Agent

The proliferation of online real estate information makes it easier than ever to be an informed consumer when buying or selling a home. Yet the digital revolution has done little to lessen the importance of choosing the right real estate agent to work with you.

The right agent can help you buy your dream house or sell your existing home quickly. The wrong agent can botch the transaction, leaving you with egg on your face and nowhere to call home.
Despite the high stakes, many buyers and sellers give little thought to choosing an agent, whether they’re buying or selling.

Get recommendations from friends and relatives, and see which agents are buying and selling the most homes in your neighborhood. Read online reviews, but realize they don’t tell the whole story, since most clients, satisfied or dissatisfied, don’t write reviews. Interview three or four agents to find the one who is the best fit for you.

Most real estate agents are independent contractors who are paid a commission based on the number of homes they sell. The commission, paid from the sales proceeds, is usually split equally between the listing agent and the selling agent. Once the deal is closed, each of those agents usually has to pay a share to the broker who owns the office where he or she is affiliated.

Here are nine red flags to watch for when choosing a real estate agent:

The agent suggests the highest price for your house. If you’re selling your house, get listing presentations from at least three agents, who will tell you what comparable homes have sold for and how long they take to sell. The agents are all looking at the same data, so the suggested listing price should be close. Pricing a home too high at the start often means it takes longer to sell and ultimately sells for less. “If you’re too high for the market, buyers will not even look at it because they know you’re not realistic,” says Lee, the author of eight books and a frequent speaker at real estate conferences. “The longer your property sits on the market, the more people are going to think there’s something wrong with it.”

The agent does real estate on the side, part time: Whether you’re a buyer or seller, you want to choose an agent who is actively following the market every day. If you’re buying, you want an agent who can jump on new listings and show them to you immediately. If you’re the seller, you want an agent who is always available to show your home to prospective buyers.

The agent is a relative: Unless your relative is a crackerjack full-time agent who specializes in your neighborhood, he or she is unlikely to do as good of a job as another agent. That can breed resentment, as well as derail your transaction.

The agent doesn’t know know the real estate market in your area:  Finding a neighborhood expert is especially important in areas where moving a block can raise or lower the value of a home by $100,000. An agent who specializes in a neighborhood may also be in touch with buyers who are looking for a home just like yours or sellers who haven’t put their home on the market yet. “It’s really a very local business,” Lee says.

The agent charges a lower commission: In most areas, commissions are traditionally 5 to 7 percent, split between the buying and selling agent. If the commission on your house is lower, fewer agents will show it. This doesn’t mean you can’t negotiate a slightly lower commission if one agent ends up both listing and selling the house. Some newer companies rebate part of the commission to the buyer or seller, but don’t use that as the sole reason to choose an agent. That’s only a bargain if the agent is otherwise a good fit.

The agent’s face shows up with online listings: The agents’ faces are there because they paid to be there. They may or may not be the best choice for you. Don’t accept the online portal’s assertion that the agent is a neighborhood expert. Interview him or her yourself and find out.

The agent doesn’t usually deal with your type of property: If you’re buying or selling a condominium, don’t pick an agent who rarely sells condos. If you’re looking for investment property, find an agent who traditionally works with investors. Many agents have multiple specialties, but you want to make sure the agent is well-versed in the type of transaction you’re doing.

The agent doesn’t usually work with buyers in your price range: Some agents specialize in homes of all types in a specific area. But if you’re a first-time buyer looking for a $200,000 entry-level home, you are unlikely to get much attention from an agent who mostly handles $10 million luxury listings.

The agent is a poor negotiator or fails to keep up with details of the transaction: In many cases, the most important work of an agent is not to find the home but to make sure the sale closes. That includes making sure the buyer is preapproved for a mortgage, the home is free of liens before it goes on the market, the appraisal is accurate and issues raised by the home inspection are resolved.

15 Questions You Should Ask Your Real Estate Agent Before Working With Them

Not all real estate agents can help you get the home you want. When it comes to finding a good agent, you need to ask the right questions upfront to save yourself the trouble later. Real estate brokerage Redfin recommends that you ask every potential agent the 15 questions below before committing yourself to an agent.

1. Is real estate your full-time job? How many clients have you had in the past year?

Okay, that's two questions, but they're actually the same. An active, full-time agent is much more likely to be up to date on the market and the local real estate laws than a part-time agent.

2. How many homes have you sold in my target neighborhoods? 

Don't expect every agent to have an in-depth knowledge of the places you want to live. You want someone who knows those precise markets, with a few recent deals in your target neighborhoods to ensure their expertise.

3. When clients are dissatisfied with your service, what went wrong?

There's not a single agent out there that hasn't dealt with an unhappy customer, but knowing why others were dissatisfied can help you anticipate and prepare for the bumps ahead, or whether or not they'll be a good fit for you.

4. Has a client ever filed a complaint against you?

If you're not comfortable asking this, you can always check with your state's licensing board. Some state boards will even list disciplinary actions and education credits associated with the agent.

5. What's your fee?

While you pay no fee at all as the buyer, the fee is built into the price of the home. When the house is sold, the seller pays the agent their fee using the money you paid for the house, typically 2 to 3 percent of the sales price. Since the commission amount is set by the seller and can vary from home to home, you should inquire what their share would be. After all, you don't want an agent who may pressure you into a home just because they'll land a bigger commission.

6. What are all the services you're willing to provide me?

Negotiations, escrow, paperwork and contingencies are the minimum additional services an agent can provide, though some are willing to go the extra mile. Make a list of what you'll be paying for so there are no surprises later.

7. When am I committed to working with you?

Buyer beware: If you start touring homes the agent sends you, this may obligate you to work with them despite not having signed a contract.

8. How many foreclosure or short-sale transactions have you handled in the past?

While you can buy distressed properties at a great price, the paperwork is complicated, and your liability is greater. If you choose to go down this road, you'll want an agent with experience closing deals with banks.

9. Who else will be working with me?

A real estate agent agent is often supported by a team, but the person you hire should being doing most of the work.

10. Am I obligated to work with the lender, inspector or other service providers you recommend?

If they answer "yes" here, it's a big red flag. Good agents may have solid recommendations for lenders or inspectors and other service providers, but you should never feel pressured to use their recommendations. In fact, it's illegal for an agent to force you to use their recommended providers.

11. How quickly can you get me into a home?

 Hot homes move fast, so how does your agent compete? Ask the agent how they handle tours on short notice.

12. Do you represent buyers and sellers on the same house?

This is not a good thing for a buyer. When one agent represents both the buyer and seller, this is known as dual agency. If the agent is trying to get the most money for the seller's home, how can he also be trying to get the best deal for the buyer? Redfin recommends to just avoid dual agency altogether.

13. What sets you apart from other agents?

Listen to how they answer this question. You're looking for expertise, not just enthusiasm. You want an agent who's experienced in your favorite neighborhoods, with a proven track record, and in-depth knowledge of any special requirements that you want in your next home.

14. What if I'm unhappy with your service?

If you have any complaints after you've purchased your new home, it may be too late to do anything about it. Most agents don't get paid until you buy a house, so there's incentive for them to close the deal even if you still have doubts. You want an agent that will guarantee your satisfaction, so ask about what recourse you'll have if you have a bad experience.

15. Can I see reviews of your past deals?

A good real estate agent should have nothing to hide; that's why Redfin posts reviews for all agents after every deal. While an agent may provide you their hand-picked endorsements of those clients they kept happy, you want to get the full list of reviews, especially those from the dissatisfied customers. A few success stories does not necessarily define a good agent, but only those who consistently deliver excellent service. Not every real estate agency will provide this list, but you can use sites like Yelp.com to see what feedback others had to give.

Bay Area Home Sales See More Upside in 2015

California overall

• Year-over-year sales of new and existing houses and condos increased year-over-year for the FIRST time in a year.
• This year delivered the strongest September in 5 years.
• September delivered the 31st straight month of a year-over-year increase in the median sales price. This is still 19.6% below the all-time peak in 2007.
• Indicators of distress continue to decline: "Foreclosure activity remains well below year-ago and peak levels reached in the last five years." A report released three days later declared: "Lending institutions initiated formal foreclosure proceedings last quarter on the lowest number of California homes in more than eight years."

SF Bay Area

• This year also delivered the highest sales of new and existing houses and condos for a September since 2009.
• The median price was up 14% year-over-year, 9.2% below the all-time peak in 2007.
• Absentee buyers and all-cash buyers - most likely investors - had a smaller share of sales from last September, 2013 levels. From 20.9% and 23.% respectively in September, 2013 to 19.1% and 20.9% this past September.

Even the amount spent on housing in California terms remains favorable compared to historic norms. In California: "Adjusted for inflation, last month's [average mortgage] payment was 36.0 percent below the typical payment in spring 1989, the peak of the prior real estate cycle. It was 48.1 percent below the current cycle's peak in June 2006. It was 60.5 percent above the January 2012 bottom of the current cycle."

Ditto for the SF Bay Area: "Adjusted for inflation, last month's payment was 19.4 percent below the typical payment in spring 1989, the peak of the prior real estate cycle. It was 39.1 percent below the current cycle's peak in July 2007. It was 82.4 percent above the February 2012 bottom of the current cycle."

Even with the encouraging numbers, California has a ways to go before reaching anything close to normal levels of sales. For example, September's "sales were 15.5 percent below the average of 42,996 sales for all the months of September since 1988…California sales haven't been above average for any particular month in more than eight years." So, there remains plenty of upside potential as the market continues to normalize. 

2015: Good News for Home Buyers in California

It may get easier to find the home of your dreams. A 2015 California housing market forecast out Tuesday points to more homes on sale and fewer investors competing with families. It also has some good news regarding home prices, at least for those looking to purchase.

“Next year, home price gains will slow, allowing would-be buyers who have been saving for a down payment to be in a better financial position to make a home purchase,” said Kevin Brown, president of the California Assn. of Realtors, which released the forecast.

The report follows a continued trend in the California housing market. After robust price gains in 2012 and 2013, prices increases tapered off this year. Even though more homes came on the market, sales dropped as would-be buyers struggled to afford a house.

But next year an improving economy and still-low interest rates will make affordability less of a problem, said Leslie Appleton-Young, chief economist for the Realtors group. The trade organization predicts sales of previously owned single-family homes will rise 5.8% next year after an 8.2% projected decline in 2014.

 The state median home price will rise 5.2% next year to $478,700, the Realtors group projects. That would be the smallest increase in four years and would follow an estimated 11.8% increase for 2014.

2015: Continued Upward Projections Seen for California Real Estate

The harder they fall, the higher they bounce. Local real estate markets in California were among those hit hardest by the national housing crisis and recession. Entire neighborhoods were emptied by foreclosure. House values dropped like a rock. Would-be home buyers retreated back to renting, sending the entire real estate market to a screeching halt.

But that was then, and this is now. In 2015, California housing markets could experience some of the biggest price gains in the country. This is according to an analysis and forecast by the economists at Zillow.

Earlier this year, the real estate information service Zillow published home-value predictions for hundreds of cities and metro areas across the U.S. It was meant to show where home prices “are headed over the next 12 months, from May 2014 through May 2015.”

The projections came in the form of an interactive (and highly addictive) tool that allows you to scale the projections up and down. In other words, you can “zoom in” to see which housing markets are predicted to appreciate the most in 2015. And guess what? They’re all in California and Nevada.

Mortgage Rates Hover At Their Lowest Levels Of The Year

Mortgage rates hovered at their lowest levels of the year for the third straight week this week, according to a survey published Thursday by Freddie Mac FMCC +1.14%.

The average 30-year fixed-rate mortgage stood at 4.1% for the week ending Wednesday, according to Freddie’s survey. To get that rate, borrowers had to pay fees equal to around 0.5% of the loan amount.

Mortgage rates have drifted down in recent weeks as bond yields on 10-year Treasury notes have fallen. Investors have bought government debt amid rising concerns over geopolitical instability.

Few expected rates would be this low at the beginning of the year. Indeed, one of the biggest surprises of 2013 came in the spring, when mortgage rates jumped suddenly as anxious investors sold off Treasury securities amid signs that the Federal Reserve was thinking about slowing down its bond-buying program.

By contrast, one of the bigger surprises of 2014 may be that mortgage rates might end the year lower than they began, at around 4.5%, even as the Federal Reserve has gradually pared back its purchases of mortgage-backed securities.

Home Price Appreciation is Slowing

Home-price appreciation is slowing, a welcome trend for potential buyers but a troubling one for homeowners still looking for relief from underwater mortgages.

Single-family housing prices rose 4.4% in the year that ended in the second quarter, the slowest annual pace since 2012, according to a report released Tuesday by National Association of Realtors.

The association found that median prices for existing single-family homes grew year-over-year in 122 of 173 metropolitan areas it tracked, while prices declined in 47 metro areas. Only 19 areas showed double-digit year-over-year price increases, a substantial drop from the 37 cities that showed such increases in the first quarter.

Economists said price appreciation is slowing in part because buyers, including investors, have become more cautious and are pulling back from the market amid the big price gains of the past year. At the same time, those higher prices persuaded more homeowners to put their homes up for sale, adding inventory and reducing the urgency to buy.

Those trends are good news for potential buyers, who have had to deal with heated competition for a relatively small number of homes on the market in many cities as well as a near percentage-point increase in 30-year mortgage rates since May 2013.

However, the trends serve as a warning to some owners who bought their homes near the peak of the market and still owe more on their mortgages than their homes are worth, said NAR chief economist Lawrence Yun. A report from real-estate research firm  CoreLogic  CLGX -0.44%     said that at the end of the first quarter, owners of 6.3 million homes were still underwater, or owed more than their homes were worth.

"With this price deceleration, it could be another three to five years for some people to go above water," Mr. Yun said.

Stan Humphries, chief economist of real-estate-information site  Zillow Inc.,  Z +0.38%     said that home values in many markets are likely to oscillate over the next few years, as the market tries to find stable ground after years of boom, bust and recovery.

"We're definitely at an inflection point. We see moderation [in price gains] continuing," he said, based on Zillow's own data on home values.

Overall, Mr. Yun said that the second quarter showed a significant divergence in price change between metro areas and regions. While the median existing single-family home price between the second quarters of 2013 and 2014 rose 7.3% in the West to $297,400, home prices in the Northeast fell 0.9% to $255,500, the report said.

Some of the most strongly rebounding housing markets, such as Phoenix and Las Vegas, are also showing signs of cooling, Mr. Yun said. The Phoenix area, which had been experiencing double-digit year-over-year price growth, saw prices rise 8.3% in the second quarter from the previous year to $198,600, the report said.

The NAR report said that prices dropped the most sharply in Elmira, N.Y. with a near 30% decline between the second quarters of 2013 and 2014 to $87,800.

To be sure, median home prices can be skewed as the kinds of homes being sold shift between the higher and lower ends of the market, a factor that can have an especially strong influence on statistics from small metropolitan areas.

Cathy Weil, president-elect of the Elmira-Corning Regional Association of Realtors, said that the Elmira median home price was skewed by the mix of homes sold in the second quarter. She said that her area has seen sales pick up significantly and some high-price homes have been receiving multiple offers.

According to the NAR report, the most expensive housing markets in the second quarter were San Jose, Calif., where the median price was $899,500; San Francisco, $769,600; Anaheim-Santa Ana, Calif., $691,900; Honolulu, $678,500; and San Diego, $504,200.

Some home buyers say that they've noticed the market cool somewhat. Trey Denton, a 31-year-old metals broker in Newburgh, Ind., bought an investment property for about $175,000 at the end of June, which he plans to list for sale this Friday. He said that he hopes to sell the home before the winter and that he feels there is an increased sense of urgency to sell so he won't have to wait until the spring home-buying season.

"There's definitely a risk with waiting," Mr. Denton said. "With interest rates looking to creep up next year, the market could fall."

Real-estate agent Kevin Eastridge, who is president of the Indiana Association of Realtors, said that his housing market around Evansville, Ind., "stopped dead" between November and February, and was "excellent" between March and May. In June, activity dropped off a bit, but things heated up again in July, he said.

"We are running into some multiple-offer situations but those are the exception rather than the rule," he said.

30 Year Mortgage Rates Up Slightly

Mortgage rates for 30-year fixed mortgages rose this week, with the current rate borrowers were quoted on Zillow Mortgages at 4.08 percent, up from 4.03 percent at this same time last week.

The 30-year fixed mortgage rate hovered around 4.10 percent for the majority of the week, peaking at 4.17 percent on Thursday before easing back down to the current rate today.

“Mortgage rates were subdued last week as ongoing geopolitical concerns and economic softness in Europe encouraged investors to buy U.S. mortgage-backed securities as a safe haven,” said Erin Lantz, vice president of mortgages at Zillow. “This week, we expect international headlines, rather than U.S. economic data, to drive any meaningful changes to mortgage rates.”

Additionally, the 15-year fixed mortgage rate this morning was 3.12 percent, and for 5/1 ARMs, the rate was 2.77 percent.

Home Appreciation Update: Moderate

The Case-Shiller data for May 2014 came out this morning, and based on this information and the June 2014 Zillow Home Value Index (ZHVI, released July 20th), we predict that next month’s Case-Shiller data (June 2014) will show that both the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased by 8.1 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from May to June will be flat for the 20-City Composite Index and 0.1 percent for the 10-City Composite Home Price Index (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for June will not be released until Tuesday, August 26.

This month’s Case-Shiller surprised a bit with May month-over-month home price depreciation and a downward revision to the April numbers. This is more pronounced slowing than we have been seeing in previous releases. We expect this slowdown to continue to be readily present in next month’s release both on a year-over-year basis, which we expect to be close to 8 percent for June, as well as for monthly appreciation numbers. The Zillow Home Value Index has been showing home value appreciation slowing for quite some time with June home value appreciation at 6.3 percent on a year-over-year basis.

The Case-Shiller indices are biased toward the large, coastal metros – some of which are still seeing substantial home value gains, and they include foreclosure re-sales. The inclusion of foreclosure re-sales disproportionately boosts the index when these properties sell again for much higher prices — not just because of market improvements, but also because the sales are no longer distressed. However, as the prevalence of foreclosures and foreclosure re-sales is declining, so is the impact they have on the Case-Shiller indices. Moreover, the fact that Case-Shiller uses a three-month average is strongly diluting the impact of the most recent numbers and with that the showing of a slowdown.

We expect home value appreciation to continue to moderate in 2014, rising 4.2 percent between June 2014 and June 2015, nationally. The main drivers of this moderation include rising mortgage rates, although these have been rising very slowly – and less investor participation – leading to decreased demand – and increasing for-sale inventory supply.

To forecast the Case-Shiller indices, we use the May Case-Shiller index level, as well as the June Zillow Home Value Index (ZHVI), which is available more than a month in advance of the Case-Shiller index, paired with June foreclosure resale numbers, which Zillow also publishes more than a month prior to the release of the Case-Shiller index. Together, these data points enable us to reliably forecast the Case-Shiller 10-City and 20-City Composite indices.

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The Growing Use of Social Media in Home Searches

Reflecting the proliferating use of social media in today’s society, more home buyers are turning to social media in the home-buying process than ever, according to the CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.) “2014 Survey of California Home Buyers.”

More than three-fourths of home buyers used social media in their home search, up from 52 percent who used it in 2011.  Buyers said they primarily used social media to obtain buying tips and suggestions from friends (44 percent), neighborhood information (44 percent), and to view their agents’ Facebook pages (42 percent).

Mobile technology and the Internet continued to be important tools in the home-buying process, with 91 percent saying they used a mobile device to access the Internet during the course of their home purchase.  Buyers used their mobile devices to look for comparable home prices (78 percent), search for homes (45 percent), and take photos of neighborhoods, homes, and amenities (43 percent).   Conversely, with the increased use of social media, fewer buyers “Googled” their agent (50 percent in 2014, down from 68 percent in 2013), turning to agents’ Facebook pages instead.

In another sign of recent market competitiveness, more than nine in 10 buyers (91 percent) made one or more other offer, with an average of 3.6 offers in 2014, up from three offers in 2013.  Additionally, buyers viewed a median of 20 homes in 2014, up from 10 last year.  Given the limited supply of homes available for sale, fewer buyers were satisfied with their home purchase than last year.  Only about half of the buyers were satisfied with their purchase in 2014, down from two-thirds (66 percent) in 2013.  Nearly half (46 percent) of buyers felt they “settled” on their home purchase in 2014, up from 34 percent.

Additional findings from C.A.R.’s “2014 Survey of California Home Buyers” include:

• Buyers cited price decreases (54 percent), receiving a promotion or raise (34 percent), low interest rates (29 percent), and favorable prices/financing (17 percent) as the top reasons for purchasing a home.

• Echoing a recovering housing market over recent years, buyer optimism of home prices also continued to improve, with the vast majority of buyers (81 percent) believing that home prices will rise in five years and 60 percent believing that prices will rise in one year.  This is an improvement since 2009, when only 35 percent of buyers believed that prices would rise in five years, and only 8 percent who believed prices would rise in one year.

• Higher down payments are still the norm in this market, with buyers putting an average of 28 percent down on their purchases.  The average down payment has been higher than the traditional 20 percent since 2009.

• More than nine in 10 buyers (92 percent) obtained a fixed-rate loan, a 23 percent increase from 2009, when only 69 percent obtained a fixed-rate loan, reflecting low rates and the desire for certainty as the market gets back to basics.

• Nearly all surveyed buyers (88 percent) used a real estate agent in 2014, down slightly from 91 percent in 2013. Reflecting a growing use of the Internet, nearly two-thirds (65 percent) of those who used an agent found their agent online, compared to only 38 percent who found their agent online in 2003.

Profits Return to California Home Owners

Rising home prices have hiked more California homes into positive equity and increased the percentage of home owners making a profit from home sales, according to California Association of Realtors' data.
The association reported 88.4% of home sellers left closing tables with money in their pockets in April. This is the highest percentage of money making sales on a monthly basis since 2007, CAR added.

The April percentage was slightly higher than the 87.4% of California real estate sales that made money in March and 13 points higher than April of last year, the association said. April was the tenth straight month that saw a rising percentage of home sales make money for sellers, CAR said.

The CAR figures put the most recent spotlight on a trend that has been percolating since the beginning of 2014.An April study conducted by economists for real estate website Trulia reported seven of the 10 fastest moving real estate markets – markets where a high percentage of homes for sale find buyers within 60 days – are located in California.

The association reported a corresponding shrinking number of foreclosed property sales by financial institutions or short sales by economically distressed homeowners. Trulia attributed the speed and rising demand in many California markets to a combination of stronger local economies that helped fuel demand, and a lack of new home construction that helped keep supply tight. For example, many of the fastest moving real estate markets have been ones where the locality has added only 10 new homes per year for every 1,000 existing homes, the organization said.

Underwater Mortgages Still Haunt US Households

Nearly 10 million U.S. households remain stuck in homes worth less than their mortgage and a similar number have so little equity they can't meet the expenses of selling a home, trends that help explain recent sluggishness in the housing recovery.

At the end of the first quarter, some 18.8% of U.S. homeowners with a mortgage—9.7 million households—were "underwater" on their mortgage, according to a report scheduled for release Tuesday by real-estate information site Zillow. While that is an improvement from 19.4% at the end of last year and a peak of 31.4% 2012, those figures understate the problem.

In addition to the homeowners who are underwater, roughly 10 million households have 20% or less equity in their homes, which makes it difficult for them to sell their homes without dipping into their savings. Most move-up homeowners typically use their home equity to cover broker fees, closing costs and a down payment for their next home. Without those funds, many homeowners can't sell.

It's a sobering appreciation that negative equity is going to be with us for a while to come," said Stan Humphries, Zillow's chief economist. "Negative equity is central to understanding a lot of the distortions in the marketplace right now."

Those distortions include the inventory of homes for sale, which, while rising, is low by historical standards. It also helps explain why first-time home buyers are having such a hard time cracking the market. Real estate is in some ways like a ladder, Mr. Humphries notes, so when underwater homeowners don't trade up it makes it harder for newcomers to get in.

At the same time, prices have risen about 11% over the past two years, and several times that in rebounding markets like Las Vegas, Phoenix and much of California. Rising prices, combined with higher mortgage rates, have given sticker shock to buyers looking for a deal. This has been particularly hard on first-time home buyers who are usually in the market for a lower-priced home.

In the report, Zillow notes that the least expensive homes—those in the lower third of the price spectrum, which first-time home buyers are most likely to be shopping for—are much more likely to be underwater than higher-priced homes. Nationwide, about 30% of homes in the bottom third of the price range were underwater in the first quarter, compared to 18% of homes in the middle third and 11% of homes in the top third. (Zillow derives its underwater data by matching its database of estimated home values with loan balances from TransUnion, the credit reporting agency.)

Regionally, underwater homes are concentrated in areas where the real-estate bust hit hardest. Among major metropolitan areas, Las Vegas had the nation's highest share of underwater mortgages, followed by Atlanta and Orlando, Fla.

Many underwater homeowners have gone into foreclosure or executed a short sale, where they sell the home for a loss. But many aren't budging. "There are people who still have their jobs and they're not late on their payment, but they can't move," said Vita Deveaux, a real-estate agent at Keller Williams Realty First Atlanta.

Take Patricia McCutcheon, 50 years old, who lives in the Clayton County area near Atlanta. Ms. McCutcheon and her husband owe $119,000 on their home, but figure it could sell for about $70,000 based on recent sales in the area. The debt hasn't kept them from moving up: In July, they are leaving their home for a new place in Paulding County. But instead of selling their underwater home, they are going to rent the place out. "It seems to be the only option that we have," she said.

Ms. McCutcheon, who is a full-time student working on a bachelor's in psychology, says she and her husband, who works in information technology, considered a short sale, but didn't want their credit rating to suffer.

China's Real Estate Bubble Begins to Bursts

Late yesterday China released its April economic data and here’s the tale it tells of the property sector is of concern. New starts contracted 15% year on year (vs. -21.9% in March), property sales fell 14.3% year on year (vs. -7.5% in March); and land sales (by area) fell 20.5% year on year (vs. -16.9% in March). This chart is from Society Generale:

The greater risk to China lies in the pervasive consequences of any property bust. Property investment has grown to account for about 13 per cent of gross domestic product, roughly double the US share at the height of the bubble in 2007. Add related sectors, such as steel, cement and other construction materials, and the figure is closer to 16 per cent. The broadly defined property sector accounts for about a third of fixed-asset investment, which Beijing is supposed to be subordinating to the target of economic rebalancing in favour of household consumption.

…The reason things look different today is the realisation of chronic oversupply. As the property slowdown has kicked in, housing starts, completions and sales have turned markedly lower, especially outside the principal cities. Inventories of unsold homes in Beijing are reported to have risen from seven to 12 months’ supply in the year to April. But when it comes to homes under construction and total sales, the bulk is in “tier two” cities, where the overhang of unsold homes has risen to about 15 months; and in tier three and four cities, where it is about 24 months.

…If activity levels and prices weaken further, Beijing’s resolve not to respond with traditional stimulus programmes is unlikely to hold. We should expect a potpourri that might include: extra spending on infrastructure and environment programmes; faster urbanisation in inland and western provinces; some relaxation on restraints on homebuying, such as mortgage deposits; and, ultimately, new monetary easing.

Cash Is King In Today's Real Estate Market

One in three buyers of U.S. homes is paying cash, a record high number, according to data made available to McClatchy. The trend is being driven by retiring baby boomers and rich investors, who unlike most first-time buyers can bypass tighter lending requirements to pay cash. They now rule the roost, composing record percentages of residential home sales.


It’s meant the field is closed off for conventional purchasers in some hot markets, but in others it’s meant forward momentum for the struggling housing sector. All-cash sales as a percentage of residential real estate sales stood at 33 percent from January to March this year. That’s up from 31 percent for all of 2013 and 2011 and 29 percent for 2012. These are the highest percentages since the National Association of Realtors started collecting the data in 2008. Before that, it estimated that cash buyers historically represented less than 10 percent of all sales.


The group analyzed state-level numbers on behalf of McClatchy, and it found that states such as Florida, South Carolina and Wyoming had outsized cash sales during the first quarter of 2014.
The rising cash sales come despite a drop in one of the main draws for cash purchases: financially distressed properties sold through foreclosures or at a loss to the banks.


“What is surprising is how cash continued to remain high even though distressed property sales are declining. Distress sales invited all the cash purchases,” said Lawrence Yun, the chief economist for the Realtors’ group. Distressed home sales declined from 26 percent of the national market in 2012 to 17 percent in 2013 to 15 percent over the first three months of 2014. It means that even as the housing market heals and conventional sales return, all-cash purchases remain a big chunk of residential sales.


Yun points to a couple of trends that are driving the boom in cash purchases, trends that fall into the broader debate about rising income inequality in the United States. One driver appears to be wealthy investors, foreign and domestic, diversifying into real estate. Another is baby boomers selling homes that were paid off and retiring elsewhere with the proceeds, purchasing homes.


“Trade-downs are certainly a reason,” Yun said. “The five-year bull run on the stock market is also helping the upper-end households,” he added, noting many are diversifying out of stocks after several years of big gains. That’s in line with what 41-year veteran Sandra Schede has been seeing.
“The rates (of return) are so low for putting their money into the bank or investments at this time that it makes much more sense to purchase real estate using cash,” said Schede, the incoming president of the Connecticut Association of Realtors.


“The rental market is really strong right now, so it gives them a better return over a short period of time.”Boomers are buying the higher-priced properties with cash, while investors tend to buy below the midpoint price.

Read more here: http://www.newsobserver.com/2014/05/08/3843062/now-more-than-ever-cash-is-king.html?sp=/99/104/#storylink=cpy

California Real Estate Bubble Watch on High Alert

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An influx of foreign buyers and Internet money could be creating conditions for another bubble in California's housing market, says one real estate expert.

Kathy Fettke, CEO and co-founder of The Real Wealth Network, told J.D. Hayworth and John Bachman on "America's Forum" on Newsmax TV that she is "concerned" by what she is seeing in California's real estate market.

"In California, for sure, Chinese buyers have been active," Fettke said. "We see that they have been looking for a safe place to put their money because they're seeing that they're in a bubble actually in China and are trying to get their money out.

"It's dangerous because this kind of 'I'll take it as is, top dollar, over asking price, bidding war,' is back in California full-on. We just saw people make an offer on a tear-down. Literally the foundation was completely rotted, the home was rotted, and the buyers came in as is, all cash.

"There is [also] massive job growth in California. We have bounced back, and as a result we've got these young Internet millionaires who are buying real estate and it looks cheap to them and they don't understand the investment," she said Tuesday.

Fettke said that with the exception of pockets like Modesto and Stockton, "the California market is now above the average population's ability to buy."

"It's very sad," she said.

Fettke added that the three factors to monitor when investing in real estate are the strength of the job market, the level of population growth, and affordability.

"More important than ever, you've got to know what you're doing," Fettke said. "I, of course, am a firm believer that you can build tremendous wealth in real estate if you do it right, if you buy right. We should have learned by now that you can also lose your fortune if you do it wrong."

Investing in Real Estate: Risks VS Rewards

With limited knowledge that the real estate market has tanked over the last several years, you might be hesitant to pull the trigger to make what should be an excellent investment today. With some fortitude and patience, today is likely the best opportunity you’ll have in your lifetime to make a hefty profit from a real estate investment.

Generally, your options are to either rent out your investment or flip it. This article focuses on flipping properties. Consider Your Risks Adjustable rate mortgages were a huge problem in the real estate melt down a few years ago. Still, today some investors are going back to adjustable mortgages as a less expensive source of finances for flipping properties. Adjustable rate mortgages are being advertised as low as 2.6%.

However, the national average for adjustable mortgages is hovering around 4.2% at this time. There are two general categories of adjustable mortgages. Each comes with its own risk and reward. Each adjustable mortgage is attached to a third party index that determines the current interest rate. Also, each adjustable mortgage has a margin above the index that must also be paid.

One general category is tied to an index that moves slowly, meaning your interest rate will go up or down slowly. However, the margin that you pay above the index will be higher. The other general category attaches the adjustable mortgage to an index that fluctuates much more often, commonly on a monthly basis. The reward is that the margin paid above the index is less. The risk is that your payment fluctuates much more.

Because your reward is reflected in the risk you take, be aware of some of the traps these adjustable rate mortgages come with:

·         Your payment could go up (a lot) even if interest rates don’t go up very much.

·         Your payment may not go down much even when interest rates go down.

·         There are several scenarios built into these loans where you end up owing more than you borrowed even when you make all of the payments on time.

·         Adjustable mortgages often have a built in penalty if you pay them off early – not good when you are flipping houses.

Consider a 15 Year Fixed I think you can be sure that the super low adjustable mortgage rate will have built in advantages for the lender. They will make their money one way or another. Your financing decision needs to be made based on how much you can afford to pay each month. Besides an adjustable mortgage, you want to consider a 30 year fixed mortgage and a 15 year fixed mortgage. The 30 year fixed mortgage will have lower payment because it is spread out over a longer time period.

However, 15 year fixed mortgages have a lower interest rate than both adjustable mortgage rates and 30 year mortgages. This makes the 15 year mortgage the most attractive if you can afford the higher monthly payment. Today’s 30 year mortgages are averaging around 4.85%. Your monthly payment will be around $528 (not including insurance and property tax). If you can complete the flip in six months, the total interest you’ll pay is $2,417.48. Today, the national average for 15 year fixed mortgages is about 3.98%. Going with this loan gives you a monthly payment of about $739 (not including insurance and property tax).

If you complete this flip in six months, the total interest you pay is $1,969.66. That’s a $ 447.82 savings over the 30 year mortgage. Flipping houses is a business and you should be looking to cut expenses anywhere you can. With average 15 year mortgages lower than the average adjustable mortgage and with a lower risk, the 15 year mortgage looks the most attractive today. However, read the fine print of any mortgage carefully so you understand the risk to reward equation. 

California Real Estate: Not So Distressed

Vastly improved home prices over the past five years have changed the landscape of California's distressed housing market, which is now just a fraction of what it was during the Great Recession, the California Association of Realtors said today.

In January 2009, 69.5 percent of all homes sold in California were distressed, which includes short sales and real estate-owned properties, REOs. Five years later, that figure has shrunk to 15.6 percent, CAR said in a statement.

REOs comprised 60 percent of all sales in January 2009, while short sales made up 9.1 percent of all sales but rose to as high as 25.6 percent in January 2012. Short sales currently make up 9.2 percent of all sales, according to CAR. During the same time period, California's median home price has soared more than 64 percent from $249,960 in January 2009 to $410,990 in January 2014.

"The dramatic drop in the share of distressed sales throughout the state reflects a market that is fully transitioning from the housing downturn," said CAR President Kevin Brown. "Significant home price appreciation over the past five years has lifted the market value of many underwater homes, and as a result, many homeowners have gained significant equity in their homes, resulting in fewer short sales and foreclosures." The statewide share of equity sales hit a high of 86.4 percent in November 2013 and has been above 80 percent for the past seven months.

In some of the hardest hit California counties, the distressed market in January 2009 was 93.6 percent in Stanislaus County, 93 percent in San Joaquin County, 89.5 percent in San Benito County, 86.1 percent in Kern County, 85.6 percent in Sacramento County, 84.2 percent in Fresno County, and 83.6 percent in Monterey County.

The distressed market now has shrunk to 24.8 percent in Stanislaus, 25.1 percent in San Joaquin, 17.5 percent in San Benito, 18.4 percent in Kern, 19.9 percent in Sacramento, 26.3 percent in Fresno, and 16.9 percent in Monterey counties, CAR said.

Rising Rents Hurting California's Affordability

A combination of rising rents and falling government aid for affordable housing has dealt a blow to California's lower-income residents, according to a new study.Nearly 1 million extremely-low-income California households lack affordable, habitable homes, a need most pronounced in Southern California, a report released Tuesday found.


The foreclosure crisis displaced many homeowners, driving up demand and prices in the rental market. As the crisis eased over the last year, the housing recovery sent home prices soaring.

Incomes have failed to keep pace. The state's median rent rose more than 20% from 2000 to 2012, while median incomes fell 8%, the report from the California Housing Partnership Corp. said.


Meanwhile, state and federal funding for below-market housing plunged 79% over the last five years, the study said. “It’s creating a rapid change in our housing stock -- away from providing affordable, low-income housing toward housing the rich,” said Matt Schwartz, president of the California Housing Partnership.


Diminished government funds have reduced the production of new affordable units, stalling projects, he said. "It has dramatically lowered the number of developments that can proceed," Schwartz said.
Particularly hurtful, the study said, was the loss of redevelopment funds after local redevelopment agencies shut down two years ago. The agencies, which kept a portion of local property taxes, generated about $1 billion annually for affordable housing across California, but the state shuttered them to help ease its budget crisis.


The nonprofit, created by state lawmakers to preserve affordable units, proposed several policy recommendations to ease housing burdens for Californians, including an immediate injection of dollars from the general fund to focus on housing those at-risk of homelessness because of rising rents.


The report also urged passage of a bill that would create a permanent state source for affordable housing funding. The bill, SB-391, would impose additional fees on recorded real estate documents, except for those involved in a sale. Last year, the state Senate passed the bill and it is currently in the Assembly. The bill has drawn opposition from the California Assn. of Realtors.


“In a state where housing affordability is low, the last thing government should do is to enact an arbitrary new real estate tax on real estate recordings,” the Realtors group said in a statement. “The call for renewed support for affordable housing is laudable, but Senate Bill 391 is the wrong approach.”


The shortage of affordable units for very low-income Californians is especially pronounced in Southern California, despite the region’s relative affordability compared to the tech-flush San Francisco Bay Area. Schwartz said he didn’t know the reasons behind the disparity, but said a greater number of lower-income residents in the Southland could play a role.


There were 19 affordable units available per every 100 extremely-low-income renter households in Los Angeles County, the study said, citing an analysis of five-year Census Bureau estimates from 2006 to 2010. In San Francisco, there were 37. Orange and San Diego counties each had 18 available affordable units for every 100 poor households.


If the current trends continue, Schwartz said it would be devastating for lower-income households and California as a whole."At some point we are going to run out of available, low-income workers because no one is going to have a place to live," he said.

Monterey County Real Estate Market Returns to the Fundamentals

While December data show home prices in Monterey County blew past 2012 levels, month-to-month figures show a definite slowing, bringing back some degree of normalcy in the real-estate market, according to area Realtors and data released Monday from CoreLogic prices were flat, even decreasing by 0.1 percent in December 2013 compared to November 2013. Some degree of braking is a positive trend, because hyperinflation in prices would be unsustainable over time and could lead to another home-price “bubble” similar to the one that burst in 2007-2008, economists and real-estate experts say.

“We simply couldn’t keep going at this rate,” said Sandy Haney, the chief executive officer of the Monterey County Association of Realtors. In fact, the number of home sales statewide fell for the fifth straight month in December, according to the California Association of Realtors.

The economics of real-estate trends are complex; there are many factors that influence both home prices and the number of home sales. Leading the pressure locally is the limited inventory of homes sales. Leading the pressure locally is the limited inventory of homes in Monterey County. A decreasing supply with a constant demand equals rising prices.


For example, at the end of November in Monterey County, the inventory stood at a little under 850 homes. A month later the inventory was down to 717 with the total number of sales remaining basically flat. The median price – half sold for more, half sold for less – stood at $469,900 at the end of December. A month earlier it was $422,000.


“Homes under $300,000 are flying off the shelf,” she said. “On one of these homes we had 11 offers.”
The reason sales in the higher end are slower and much more active in the lower range is the result of several influences, experts say. Interest rates have begun to edge back up, making larger mortgages more expensive. Also, a bevy of new laws that took effect Jan. 1 have collectively clamped down on loan requirements lenders must now follow. Qualifying for a larger mortgage is far more difficult today than in 2007.

In a normal market we are transitioning back into – a homeowner would build equity in her home and then sell it to move up to a more expensive property she’s been eyeing, Haney said. But when the market collapsed in 2008, so much equity was lost – trillions of dollars nationally – that prospective sellers either don’t have enough equity built back up or they are gun-shy about making the move.

“There is a lot of caution in the market,” Haney said. “The sellers that have been through the [2008] market and didn’t lose their homes are still uncertain if the time is right to move up.”
Exacerbating the inventory problem is the falling number of so-called distressed sales, including short sales and sales of foreclosed homes. After six years, the number of foreclosures is falling dramatically as they continue to work their way through and out of the market.

That’s also a reason area Realtors are forecasting a transition period in 2014 – moving from an unstable, irrational and unsustainable market to one that is governed by the basics and fundamentals.

2014 Will Be the Year to Sell Your Home!

Patience seems to have paid off for those who’ve postponed putting their homes on the market until this year, real estate analysts say. They stand to pocket the kind of profits not seen since the housing boom.

Prices surged more than 10% in many markets last year, bidding wars are once again common, and homes are routinely going for well over the asking price in some cities. These trends make it seem like a return to the go-go days of the housing boom.

Single-family homes were selling at an average price of $244,300 in November, up 7.2% from a year prior and the highest price since August 2008, according to the latest data from the National Association of Realtors. Homes in major cities are experiencing big jumps in prices: In the 20 largest metro areas, prices in October increased at the highest year-over-year rate since February 2006, according to data released last month by the S&P/Case-Shiller Home Price Indices. “All in all, it’s a good time for people to put their home up for sale,” says Celia Chen, senior director with Moody’s Analytics.

The turnaround comes roughly seven years after the housing bust and amid signs that the economic recovery is picking up. As the unemployment rate drops and consumer confidence increases, more buyers are entering the housing market and sellers are finding that they have more leverage in negotiating the going prices of their homes.

Fueling this seller’s market are several factors that have unexpectedly converged: For-sale listings are limited, which is pushing prices up at the same time that mortgage rates are rising. That’s created a sense of urgency among buyers, many of whom fear that the door to affordable real estate in their market may be closing.

Rachael DeRoche, a pilot in the U.S. Air Force, says she recently started looking for a two-bedroom, two-bath condo in Charleston, S.C. and is frustrated by the lack of for-sale properties. DeRoche, 28, says she has expanded her search beyond the city’s center in the hopes of finding the property she wants. “Rates are rising and with limited listings out there, it puts people in a position to kind of accept something that they may not truly want…I worry that may happen to me,” she says.

In fact, data suggests that buyers are snatching up properties faster now. Homes in November 2013 were selling 11% faster than they were a year prior, according to the latest data from Realtor.com, which tracks for-sale listings. In several cities, that rate is even higher: Homes were selling 20% faster in New York and Miami, for instance, and 18% faster in Chicago and Dallas.

To be sure, the recovery to date hasn’t been enough to get every homeowner out of the red. In the third quarter of 2013, according to real-estate analytics firm CoreLogic, nearly 6.4 million homes were underwater, meaning borrowers’ mortgages were greater than value of their homes. These homeowners for the most part cannot sell their home unless their lender agrees to a short sale, in which the home is sold for less than the debt owed on it.

Still, homeowners with enough equity can benefit from current housing conditions. Inventory remains limited, which allows sellers to ask for higher prices. There were just shy of 2.1 million existing homes for sale in November, which equals a 5.1-month supply, according to the latest data from the NAR, a figure indicative of a seller’s market. A balanced market, in contrast, would have about six to 6.5 months of supply.

Separately, the Federal Reserve’s announcement in December that it’s tapering its bond purchases (from $85 billion to $75 billion per month) suggests that the era of historically low mortgage rates is coming to an end. While rates were rising before the Fed’s tapering decision — for instance, average rates for 30-year fixed-rate mortgages increased by more than one percentage point from May until September 2013, according to mortgage-info website HSH.com — mortgage experts say they’re likely to rise further as the government unwinds its bond-buying program. The impact on buyers will be twofold: Some will likely pick up the pace of their home search so that they can lock in a mortgage before rates get too much higher.

Separately, as rates rise, they won’t be able to qualify for as large of a mortgage as they can now since higher rates will result in larger monthly payments that they may not be able to afford. “The expectation is that costs to buy later will be higher than they are now,” says Keith Gumbinger, vice president at HSH.com.
Of course, a buyer’s problem is often a seller’s upside, which might incline homeowners to hold off selling even longer for the possibility of even higher prices. While sales prices could rise, waiting comes with several risks, which could slow or even reverse recent price gains. Should the economic recovery — in particular, job growth — stall, home sales and prices could drop. And if mortgage rates spike suddenly by one full percentage point or more, demand could dampen.

But the biggest risk is from the supply side. It’s expected that the number of for-sale homes will rise this year, with much of the extra supply coming from home builders. Moody’s Analytics projects that construction will begin on 1.43 million new homes this year, up from slightly under 1 million that were expected for last year. This event alone could stall price gains. “Going forward this year, the level of price appreciation will likely be nowhere near what we witnessed in 2013,” says Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California, Los Angeles.

Beyond 2014, more homes are expected to hit the market. Since the recession, investment firms, including private-equity firms and hedge funds, have been purchasing large numbers of single-family homes and turning them into rentals. Some analysts say that the supply-demand imbalance that has helped create this seller’s market is largely due to this trend. Those companies will likely put a large number of those properties for sale at the same time in a few years — which would put downward price pressure on nearby listings, says Jack McCabe, an independent housing analyst in Deerfield Beach, Fla.