Real Estate Trends for 2012 and Beyond

Today’s housing market is evolving, and many of the changes we are seeing now are unlikely to go away any time soon. Today, we examine six rising trends that are set to become the new “normal” in the majority of US housing markets in the months and years to come.


1. Distressed or foreclosed properties will continue in high numbers, keeping the supply of vacant homes at levels that will exceed end user demand in many local markets:

Areas with an over-supply of existing homes will continue to see prices flat or eroding, until the supply-demand ratio comes back into balance. In some parts of Florida, California, Georgia, Nevada, and Arizona, to name a few, it will take years for this ratio to balance out.

Any market seeing increasing foreclosures in 2012 will experience this imbalance in the future, to some extent. The larger the supply relative to the existing demand, the lower the prices will tend to be.

2. Conversion Of Single Family Homes To Rentals:
Home ownership has been shrinking. The housing market is undergoing a fundamental change to a much higher percentage of single family rentals. Rent rates will only go up in those areas that have a tight supply relative to local demand. This will be mostly near major employment centers in bigger cities.

That being said, we’ll see a much higher percentage of tenants in suburban “bedroom communities”. Those neighborhoods tend to have higher foreclosure rates, and are located farther from the best paying employment centers.

The Worst locations are neighborhoods near “dying” employment centers. A prime example is Detroit, Michigan. As the auto industry has lagged, and employment has fallen in a number of related sectors, jobs in the “rust belt” are still dwindling. “Industrial age” population centers are shrinking and this trend will continue have a negative impact locally.

For residential real estate brokers, the biggest growth opportunity at present is in property management. Some brokers have opened new property management companies to accomodate the growing demand caused by a local transition from owners to tenants.

3. A New Market Variable:
The development of “Big Box” rental property owners in the single family market Wall Street has entered the housing market in an attempt to buy up bulk reo packages of single family residences being offered by Fannie Mae or other entities holding a large inventory of foreclosed properties.

This has never been done before. The impact may be positive in the short term for the selling entity, but I believe that it is most likely that this development will have a negative impact locally. The increased supply could force rental rates lower. Mom and pop investors may have difficulty cash flowing against such competition. Managing a Single Family Rental project of this type and scale are unprecedented.

For existing homeowners, this event could lead to a higher percentage of tenants in many neighborhoods that used to be 90 to 100% owner occupied. The attempt to cash flow single family rental properties in unprecedented numbers, combined with high unemployment and lower incomes among the tenant population is leading to

4. Significant growth in the use of government subsidized housing programs commonly known as “Section 8″:
Today there are fewer people who can afford to pay full “market rent”, which is usually higher than a mortgage would be on the same property. And Government Subsidized housing has a reputation for paying above market rent rates for a variety of reasons.

I fully expect that “Big Box” landlords will want to utilize “section 8″ or similar programs, as this is a common strategy for boosting rental income to “above market” levels, thereby increasing positive cash flow. However, in cities where the number of available properties exceeds the local demand for subsidized rent, houses can go begging for tenants. This could upset the “Big Box” cash flow projections. It will be interesting to see how this plays out over the next few years.

5. Government Domination of The Mortgage Market:
Taxpayer “ownership” of the secondary mortgage market, in order to continue funding mortgages in a market that has lost most of it’s private investment capital. The financial burdens are already significant for both the taxpayers and the buyers who are using these loans. We’re stuck in a vicious cycle of more government programs and guarantees, with much less private sector involvement than ever before in the history of the secondary mortgage market.

6. Higher unemployment and lower wages:
Productivity is at record high levels, but new technology has limited the creation of new jobs for humans. Globalization and internet commerce have made Americans compete with workers in Pakistan or Indonesia, resulting in much lower incomes. This will have a direct impact on home prices, rental rates, and government intervention in the housing market.

These are not short term events, they are here to stay on some level. This is part of the new “normal” where today’s housing market is concerned

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Feds Shorten Short Sale Process

If you are one of the estimated 11 million homeowners burdened with an underwater mortgage, a new federal policy changed could be good news for you. Starting in June 2012, when you want to do a short sale to shed mortgage debt and avoid foreclosure, you may not have to wait months to hear back from your bank when you submit an offer fro a purchaser.

Instead, if your loan is owned by Fannie Mae or Freddie Mac-you can expect a response within 30 business days, with a final decision no later than 60 days. If you don't hear back during the first 30 days, the bank will be required to send you weekly updates telling you precisely where the holdups are and when they will likely to be resolved. None of this is typical short-sale procedure today. If banks do not comply they will face steep monetary fines and other penalties.

Though they can be complex and messy, and can take anywhere from several months to more than a year to complete, short sales are turning into a mainstay of the real estate market. According to a report from the foreclosure data firm RealtyTrac, short sales jumped by 33 percent in January compared with the same month the year before. In 12 states — including California, Arizona, Colorado, Florida, New York and New Jersey — there were more short sales recorded during January than sales of foreclosed properties.

This trend is welcome, say regulators, but the total time required to complete short sales is still far too long. The 30-day and 60-day mandates address just one of the key points of delay in the process, but regulators promise a series of additional steps during the coming months designed to speed transactions. They include clearer guidelines on borrower eligibility, property valuations, compensation for lenders holding second liens, and mortgage insurance issues. All of these are points of friction that can delay short-sales agreement for weeks or months.

Realty agents who specialize in short sales say setting mandatory timelines is a step in the right direction, but won’t solve all the problems. The new rules and promises of more “are great if they really happen,” said broker Erik Berry of Erik Berry and Associates in Sacramento, Calif. Short sales that his firm handles take an average of “about six months” from start to finish on Fannie-Freddie loans. But FHA transactions — which will not be affected by the new regulations — average much longer, and sometimes drag on for a year.

Berry also is skeptical that banks and servicers will be able to reform their staffing practices quickly enough to meet the timelines — even if penalties are imposed. In some cases, he said in an interview, banks switch personnel and negotiators five or six times over the course of a short sale. “You’re dealing with one person one day and they say, don’t worry, everything’s fine, then suddenly they’re gone and you never hear from them again,” leaving the deal stalled for weeks.

Matt Battiata, whose Battiata Real Estate Group in Del Mar, Calif., handles hundreds of short sales a year, said a reliable, 60-day decision deadline for responses to offers will be helpful — 30 days better than the 90-day average he now sees from banks — but the whole process will still take longer than traditional sales. For clients seeking to do short sales today, Battiata estimates five to six months from offer to closing. After June, assuming the new federal rules and penalties work, the estimate might only be cut by a month.

On top of this, some of the complications inherent in short sales are beyond the control of regulators or banks, he pointed out. For instance, buyers put in offers to purchase then change their minds, forcing the sellers and brokers to come up with replacement offers, and the bank to reset the clock to analyze the new package.
The takeaway for potential short sellers: Be aware of the new moves afoot to streamline the process but don’t expect miracles.

Zillow Reports "The Bottom is Near"

Home prices still may be down in many metro areas, but according to the latest report from online real estate hub Zillow, the majority of markets will hit bottom by later this year.


With the bottom near, an upswing is predicted and it may be as significant as 5%-plus in some areas.

“From an economic perspective, the latter part of the first quarter is full of positive news as the spring selling season gets underway,” said Zillow Chief Economist Stan Humphries. “While it is unlikely that national home values continue to rise at this rate through the rest of the spring and summer, it is undeniable that we are seeing sparks of life in the housing market.”

According to the Zillow findings, home values rose 0.5% from February to March, marking the largest monthly increase since May 2006. Of the 30 markets covered by Zillow, 19 are projected to reach a bottom in values during 2012, or already have reached bottom. For some, it will mean a substantial upswing—Zillow sees increases of 6.5% for Phoenix and Fort Lauderdale metro areas.

On a national basis, Zillow shows home values remaining flat over the coming 12 months, with a bottom in late 2012 and a very slight decline in early 2013.

“For people who have been waiting to time their home purchase close to market bottom, it’s time to start shopping,” Humphries said.

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Home Sales Up, Prices Down Slightly in SOCAL

More Southern California homes sold in March than did a year earlier, and price declines slowed as the spring selling season got underway and more traditional home buyers entered a market that has seen record numbers of investors.

The Southland's median home price of $280,000 was essentially flat, down just 0.2% from March 2011. Compared with February, the median price rose 5.8% for a second consecutive monthly increase, real estate research firm DataQuick reported Tuesday.

Recent home price data have shown a broad deceleration in price declines in California and the nation's biggest metro areas. While a slowing decline may not be the most comforting news for average buyers looking to plop down their savings on a fixer-upper, it has led several economists and other observers to make hopeful calls that a bottom is approaching.

DataQuick President John Walsh doesn't expect a sharp turnaround in the housing market soon, given the recent weak numbers. Although March's sales statistics improved, they remain well below the historical average for the month dating to 1988.

"The results from the first big sales month of 2012 suggest the market is stuck in low gear," Walsh said. "This remains a very gradual — not to mention fragile — recovery."

Sales increased 2.8% year over year to 19,953 homes in the six-county region, DataQuick reported. Sales improved the most in Orange, Ventura and San Diego counties.

As is normal with the start of the spring shopping season, home sales from February to March jumped, this time 28.1%. Historically, sales have surged 37% between those two months, DataQuick said.

Sales have shown improvement recently, increasing for the last three months and for seven of the last eight months. Foreclosed homes and short sales — in which a home is sold for less than the outstanding debt on the property — accounted for about half of all sales last month.

Whether the housing market will turn around this year remains a key question among economists and policymakers. Economists see several factors working in favor of a real estate turnaround. Rents are quickly rising as prices are falling, making homeownership potentially more attractive to tenants who have steady work, can afford a down payment and have retained good credit.

In addition, while prices have trended down, they aren't in the same free-fall that emerged after the subprime mortgage crisis and credit crunch of 2007, experts have said. The drop in prices is largely due to foreclosures, which continue to ravage certain hard-hit neighborhoods.

Other broad indicators that support a housing recovery include a growing number of households, low interest rates and a tighter supply of homes on the market. The California Assn. of Realtors reported Monday that the state's housing inventory in March shrank to just over four months' worth. Economists generally consider a six-month supply of homes for sale a healthy market.

"Inventory is low, and there is just a lot of stuff that is overpriced," said Syd Leibovitch, president of Rodeo Realty. "But the stuff that is priced right is selling for much more than it would in October and November."

Activity by speculators continued at a strong clip last month, boosting the low end of the market. Investor activity nearly hit a record for the month and cash purchases were double their historical average, DataQuick said. Absentee buyers bought 27.9% of all homes last month, while cash buyers accounted for 31.7% of homes sold.

But as long as the share of investors in the real estate market remains high, prices are likely to remain depressed, as many of these cash-rich bargain-hunters buy homes at a discount. Housing also remains stymied by persistent unemployment and the threat of more foreclosures. The difficulties buyers are having securing mortgages is also slowing down the market, real estate agents have said, and the large share of homes in the state that are underwater is keeping prospective sellers from listing their homes.

Richard Green, director of USC's Lusk Center for Real Estate, said he is most concerned about the weak job market.

The high number of investors buying discounted homes is probably masking a recovery in values for properties purchased by people who buy homes to live in them, said Richard Green, director of USC's Lusk Center for Real Estate. The real concern is the job weak job market, he said.

"Things are probably a little better than they appear," Green said. "The only downside is the job numbers for January and February. If it weren't for that, I think we would be on a verge of a turnaround."

Hot Trends in Home Improvement This Spring

Exterior painting is reported to be one of the top home improvement projects this spring that will boost curb appeal and property value. In fact, expert sources and realtors say that exterior painting and upkeep can increase current market value of a home by 200 percent. ProTect Painters, a national professional painting franchise, offers key tips to all homeowners whether they are looking to sell or stay in 2012.


"With the struggling real estate market, it's important for homeowners to know that most homebuyers make their decision -- subconsciously or consciously -- within seconds of viewing a home's exterior," said Chris Ring, Vice President of Operations and Training for ProTect Painters. "Homeowners who aren't selling also benefit greatly from a strategic, eye catching exterior paint job as it increases the home's value and can even help increase the value of the neighboring homes."

Potential sellers should also focus on the home's exterior simply because of the ROI. Seven of the top 10 home improvement projects for 2012 are exterior projects garnering anywhere from 69 to 78 percent return on investment -- the highest of any other projects this year.

ProTect Painters along with Behr, Benjamin Moore and Sherwin Williams, three of the nationwide leading paint companies that are the company's preferred vendors, share tips on color selection and the architectural elements to focus on:

Energize the Exterior: Bright, bold exterior colors are popular this

year, particularly shades of tangerine, yellow or deep purple. Behr
suggests their color popping yellow shade Desert Glow while Benjamin
Moore offers its deep purple hue Vintage Wine. Sherwin Williams
recommends their vibrant tangerine orange shade called Daredevil to give
a home a cheery look heading into spring.

Front Door: A new coat of paint on your front door creates a visually
pleasing focal point. It plants the seed of first impression that sets
the tone for the rest of the house.

Shutters: Whether blending to the body color or serving as a cosmetic
accent to the overall color scheme of the house, freshly-painted
shutters serve as instant exterior updates.

Trim: New trim paint beautifies the façade, highlights the design
of your house, and gives special emphasis to its attractive
architectural features.

Garage Doors: Another way to enhance curb appeal is to paint your garage
doors to coordinate with the house body color -- or make it standout by
using a complementary hue.

Fences: The right fence color can underscore the architecture of your
home and add character to your yard. Fences provide a color frame for
your property and give the house a distinct personality.

March 2012: Real Estate Inventories Drop, Prices Barely Budge

Movoto.com, this week released a report on the homes for sale market in California. As March 2012 closed, real estate inventory was broadly down across the state, with prices showing seasonal increases and small signs of strength.


Movoto tracks the major real estate trends in 15 local markets. As March 2012 ended, Movoto reports that real estate inventories in the areas covered were down 7.5% from February and down a whopping 35.3% from March of 2012. Looking more closely at the inventory, the largest drops were in inventories of homes priced below $500,000. In fact, inventory of homes priced over $1,000,000 was up in March versus February.

Major California counties with the biggest drops in homes for sale inventory from February included:

Counties in Northern California:
Alameda (-10%)

Contra Costa (-12%)

San Francisco (-37%)

In Southern California, Riverside County led the decline in homes for sale with an 11% drop in inventory from February to March.

While inventories dropped, median list prices showed small signs of strength with the statewide median price at $309,000 up 3.3% from February and up 3.3% from March 2011.

According to Mark Brandemuehl, VP of Marketing at Movoto: "We remain in an unusual market. Buyers who are ready to purchase are finding few suitable homes on the market and face competition when they make offers. On the other hand, sellers are reluctant to enter the market and asking prices are not escalating as we might expect with the low inventories. It's a stalemate and there's little hint that it's easing."

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Full Real Estate Recovery? Not Until 2015

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

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

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

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

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

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

Real Estate Crash Hit Lower-Priced Homes The Hardest

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

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