Bank's Shadow Inventory Continues to Shrink

Where did the shadow go — and why does that bother hedge fund managers?


Shadow inventory is thought to be the pending supply of distressed homes, which can create uncertainty in U.S. housing markets. CoreLogic reports that by its math the nation's shadow inventory tumbled 15% year-over-year in April to a four-month supply. Since peaking in January 2010 at 2.1 million units, the shadow inventory has fallen by 28 percent to 1.5 million units.


The trend and the size of these shadow supply numbers must be greeted with some trepidation by Wall Street hedge funds. They found it easy to raise over $6 billion for plans to buy and rent foreclosures. But these money managers may have difficulty spending it as the supply of troubled properties shrinks.

The Calculated Risk blog pointed out that there are numerous measures of shadow inventory. Some estimates are larger — and more soothing to hedge funds — than CoreLogic's data. CoreLogic counts seriously delinquent properties; properties in the bureaucratic foreclosure process (notices of default); and properties that are already owned by lenders. But CoreLogic adds a twist to their estimate by trying to eliminate distressed homes already listed for sale or already sold in the short sale process. Obviously, those properties have already come out of the shadows into the light of day.

Many people, myself included, appreciate CoreLogic's approach. It separates "better visible" from "invisible" supply than other estimates. It also avoids making the idiotic assumption that anything that looks distressed — such as 30-day delinquencies — inevitably will become visible foreclosure supply at some future date.

But even if one adds up everything that crawls and breathes in the distressed mortgage space, one cannot but notice that these shadow supply estimates are a moving target – a downwardly mobile target actually. This might mean that the foreclosure-happy hedge funds may be coming a little late to a party that already has been well-tilled successfully by smaller investors.

Take California as an example. If you add up all the housing distress data for California by the Mortgage Bankers Association (MBA), such as 30-day, 60-day, and 90-day delinquencies, and homes in foreclosure, you get 542,252 properties. Furthermore, if you make an adjustment to reflect that not all mortgages are captured by the MBA you end up with 637,944 distressed properties, a big and some might say bogus shadow supply number.

Still, this number is down 43% from its peak of 1.12 million homes. Father time apparently may not be able to help much with the "under-accumulating" problems mentioned above.

Shrinking supply is good news for all but hedge funds, who have other challenegs to profiting from foreclsoures.

Gaining access to bulk sales from government mortgage handlers or banks may be stymied by political oposition from Realtors, for whom distressed sales are a life blood.

Furthermore, home prices are recovering in distressed geographies like Phoenix. That makes bulk sales less necessary.

Why auction off bulk to Wall Street for a discount, when you can take advantage of the auctioning process for the masses?

The $6 billion that hedge funds want to be on foreclosures smacks like a questionable business model, at best. And at its worst, it's a potentially unproductive market distortion.

SOCAL Real Estate Market Posts Solid Gains in May

Southern California's real estate market got its buying season bump in May with home sales increasing more than 20 percent and the median price hitting a 20-month high, a market tracker said Wednesday.

Sales increased in all six Southern California counties, according to San Diego-based DataQuick.

"The market is being slowly nursed back to health by low interest rates, a modestly improved economy and, we suspect, a widening sense that the housing sector is at or near bottom," DataQuick President John Walsh said in a statement.

Last month home sales increased 20.6 percent to 22,192 properties from 18,394 a year ago. DataQuick's count includes new and previously owned houses and condominiums. Los Angeles County did even better, with sales jumping 25.3 percent to 7,496 properties from 5,983 a year ago.

Sales have now increased on a year-over-year basis for five consecutive months with last month's gain the biggest, DataQuick said.

May's regional median price increased 5.4 percent to $295,000 from $280,000 a year ago. It was up 1.7 percent from $290,000 in April, DataQuick said. Last month's median was the highest since $295,500 in September 2010. The year-over-year gain in the May followed a 3.6 percent annual increase in April. Before then, the median had fallen year-over-year for 13 straight months.

DataQuick attributed the price increase to higher demand, a drop in the number of distressed property sales and more sales in the higher-cost coastal markets.

Last month sales in San Diego, Orange, Los Angeles and Ventura counties represented about 70 percent of all sales, up from 67.6 percent a year ago.

The higher end is finally getting some action, too. Last month sales between $300,000 and $800,000 - a range that would include many move-up buyers - jumped 23.1 percent year-over-year. And sales over $800,000 rose 11.8 percent from May 2011.

The report showed that in May:

The median price in Los Angeles slipped 1.6 percent to $315,000 from $320,000 a year earlier

Sales in Ventura County soared 43.3 percent to 993 from 693 a year ago. The median price fell slightly to $360,000 from $360,500.

In San Bernardino County, sales increased 16.3 percent to 2,702 from 2,323 a year ago. The median price rose 5.7 percent to $158,500 from $150,000 a year earlier.

Distressed sales - the combination of foreclosure resales and short sales - made up 44.8 percent of last month's resale market. That was the lowest level since the figure was 44.4 percent in March 2008.

Investor and cash-only home purchases remain near record levels.

Absentee buyers - mostly investors and some second-home purchasers - bought 27 percent of the homes sold in May. That's down from 28.4 percent in April but up from 25.1 percent a year earlier.

Buyers paying with cash accounted for 31.3 percent of May home sales, down from 32.2 percent the month before and up from 29.2 percent a year earlier.

Indicators of market distress continue to move in different directions. Foreclosure activity remains high by historical standards but is much lower than peak levels reached in recent years. Financing with multiple mortgages is very low, and down payment sizes are stable, DataQuick said.

It all adds up to a market still on the mend.

"There's still plenty of uncertainty swirling around out there," Walsh said

Santa Clara County Real Estate Market Heating Up

The Santa Clara County housing market continues to show signs of a rising market: more closed sales and shorter days-on-the-market when compared with a year ago.

In May, the average price for a single family home stood at $832, 078, a 7.54 percent increase from the $773,722 of May 2011, according to data compiled by MLSListings. The average price of a condo stood at $410,778, a 12 percent jump from the $366,773 of May 2011.

From May 2011 to May 2012, the number of days a single family home stayed on the market before being sold shrank from 66 to 53, and it decreased from 82 to 55 for condos. At the same time, the number of closed sales went up from 967 to 1,215 for single family homes and from 379 to 418 for condos.

Inventory was still low, but slightly more new listings came on the market than in the previous months. Sellers listed 1,498 single family homes and 482 condos for sale in May, 227 and 71 more than in April.

"The slight increase in the number of new listings is a hopeful sign," said Barbara Lymberis, president of the Santa Clara County Association of REALTORS®. "With record low interest rates and a bit more inventory, buyers who have gotten pretty beat up in the last few months may have a small breathing space over the summer to prevail."

To see hot properties in Santa Cruz click here: http://authenticre.com/Hot-Properties

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West Coast Leads US Real Estate Prices Out of Slump

"National real estate prices in May have finally moved past the continued losses of the last few years. The subsequent stabilization pattern seen in recent months has progressed into the start of moderate growth," said Dr. Alex Villacorta, Director of Research and Analytics at Clear Capital.

"While gains in national home prices over the quarter and year were minimal in May, there are encouraging trends continuing to play out and gaining momentum beneath the surface," Villacorta added. "Strength in REO-only price trends as well as some early indications of price gains spreading from low tier sectors to the mid-, and higher-priced homes is helping confirm that the country continues to make progress on its recovery, and we are expecting to see improvements extend over the next several months."

Rolling Quarter Results: Prices are Gaining Ground

Short-term quarterly price trends picked up slightly at the national level, with appreciation of 0.4% turning into the first quarterly gain since November of 2011. The positive move at the broader market level is a reflection of the increasing strength at the regional level.

Helping to support growth at the national level, the West saw a notable jump in prices over the quarter, taking the lead over all the regions with growth of 2.7% (shown in Chart 1 below). The 2.2 percentage point gain over last month's report not only put the West out in front of the other regions tracked, but it marks the first time in five months it saw a quarterly change in any direction greater than 1.0%.

Fueling the growth in the West appears to be a shift in demand. Over the past year, the real strength in the West was seen in the lower priced home segment (those selling for $140,000 and less), likely indicating increasing investor demand for the lower priced units. While this trend isn't unique to the West, recent growth in the mid and top-tier sectors of the market is. Over the last rolling quarter, mid and top tier segments not only saw growth (top tier is a price point over $347,000), but started catching up to the gains in the lower tier. This new dynamic is encouraging, as it shows a broadening demand and a stronger base for growth.

Meanwhile, the South recorded home price appreciation of 1.2% quarter-over-quarter, doubling the small gains of 0.6% reported on last month. Similarly, the Northeast matched the national level gains of 0.4% over the quarter, showing a modest uptick over the gains of 0.2% reported last month.

At the same time, the Midwest continued to absorb price declines. With prices declining only 2.0% over the quarter the magnitude of the declines are subsiding, as compared to last month's quarterly losses of 2.7%. More on what's driving the Midwest price declines below in the "Turning the Corner" section.

Chart 1: Observed Results

        
                             Qtr/Qtr       6 mo/6
                               % +/-       mo              Yr/Yr
        --------------------------------------------------------
        West                   2.7%              3.8%      1.9%
        --------------------------------------------------------
        Midwest                -2.0%            -4.4%      -3.1%
        --------------------------------------------------------
        Northeast              0.4%              0.8%      1.6%
        --------------------------------------------------------
        South                  1.2%              0.9%      0.9%
        --------------------------------------------------------
        National               0.4%              0.1%      0.1%
        --------------------------------------------------------
        
        

Year-over-Year Results: Long Term Trends Turning Positive

Mirroring the quarter-over-quarter results, the longer-term yearly price changes at the national and regional levels also showed improvement. The national results show a mild 0.1% gain, which is the first time the U.S. has seen yearly gains since September of 2010, when price growth was fueled by the first-time home buyer tax credit in place at the time.

The West, Northeast and Southern regions all recorded more substantial gains over the past year, of 1.9%, 1.6% and 0.9%, respectively. This appreciation in prices over last year was in part furnished by a stronger than typical winter home buying season, where mild weather got homebuyers out on the hunt and motivated earlier than usual.

The Midwest has clearly not seen the same strength of the other regions, with price declines of 3.1% over the last year. However, this month's annual declines are softer than last month's reported losses of 4.0%, which aligns with the moderating losses in quarterly trends as well.

The Highest Performing 15 MSAs

Overall, the top 15 MSAs extended improvements. The average quarterly gain of this group was 4.5%, more than a full percentage point above last month's average. Each top metro also recorded quarterly gains in excess of 2%, making May's top 15 metros the strongest since September of 2011. This group is represented by a variety of regions, with the majority (40%) coming from the West.

        
        Highest Performing Metro Markets
        
          Qtr/Qtr                                     Qtr/Qtr
           Rank   Metropolitan Statistical Area        % +/-    Yr/Yr REO Saturation
        ----------------------------------------------------------------------------
             1    Phoenix, AZ - Mesa, AZ -
                  Scottsdale, AZ                          9.4%   17.0%         25.6%
        ----------------------------------------------------------------------------
             2    Seattle, WA - Tacoma, WA -
                  Bellevue, WA                            9.0%   -1.1%         19.5%
        ----------------------------------------------------------------------------
             3    Dayton, OH                              8.3%    9.0%         30.3%
        ----------------------------------------------------------------------------
             4    Washington, DC - Arlington, VA -
                  Alexandria, VA                          5.1%    7.5%         13.9%
        ----------------------------------------------------------------------------
             5    San Jose, CA - Sunnyvale, CA -
                  Santa Clara, CA                         5.1%    3.3%         20.1%
        ----------------------------------------------------------------------------
             6    Miami, FL - Ft. Lauderdale, FL -
                  Miami Beach, FL                         4.7%   10.6%         28.8%
        ----------------------------------------------------------------------------
             7    Minneapolis, MN - St. Paul, MN -
                  Bloomington, WI                         4.7%    9.0%         40.5%
        ----------------------------------------------------------------------------
             8    Denver, CO - Aurora, CO                 2.9%    9.0%         22.5%
        ----------------------------------------------------------------------------
             9    Pittsburgh, PA                          2.9%    9.4%          7.6%
        ----------------------------------------------------------------------------
            10    San Francisco, CA - Oakland, CA -
                  Fremont, CA                             2.7%    2.4%         27.6%
        ----------------------------------------------------------------------------
            11    Virginia Beach, VA - Norfolk, VA -
                  Newport News, VA                        2.7%    2.8%         17.9%
        ----------------------------------------------------------------------------
            12    Tucson, AZ                              2.7%   -1.8%         38.5%
        ----------------------------------------------------------------------------
            13    Tampa, FL - St. Petersburg, FL -
                  Clearwater, FL                          2.5%    9.0%         26.0%
        ----------------------------------------------------------------------------
            14    Richmond, VA                            2.5%    3.0%         23.0%
        ----------------------------------------------------------------------------
            15    Hartford, CT - West Hartford, CT -
                  East Hartford, CT                       2.4%    9.4%          8.0%
        ----------------------------------------------------------------------------
        
        

The Lowest Performing 15 MSAs

The lowest performing MSAs averaged quarterly losses of 2.8%, but these declines tapered slightly over the average losses posted in last month's report. Additionally, a third of the markets saw less than a 1.0% quarterly loss, which is another indication that losses are becoming less severe overall.

It's worth noting that Orlando has made an appearance on the lowest performing market list, with quarterly declines of only 0.2%. The region continues to show year-over-year price gains of 8.9%, however the slight cooling of short term price performance is far from confirmation that the metro's progress has subsided.

        
        Lowest Performing Major Markets
        
          Qtr/Qtr                                     Qtr/Qtr
           Rank   Metropolitan Statistical Area        % +/-    Yr/Yr REO Saturation
        ----------------------------------------------------------------------------
             1    Detroit, MI - Warren, MI -
                  Livonia, MI                           -10.4%   -5.4%         53.8%
        ----------------------------------------------------------------------------
             2    Houston, TX - Baytown, TX - Sugar
                  Land, TX                               -5.9%    5.7%         22.5%
        ----------------------------------------------------------------------------
             3    Milwaukee, WI - Waukesha, WI -
                  West Allis, WI                         -5.2%   -8.1%         35.1%
        ----------------------------------------------------------------------------
             4    Memphis, TN                            -4.3%   -8.6%         45.4%
        ----------------------------------------------------------------------------
             5    Honolulu, HI                           -3.8%    0.3%          9.0%
        ----------------------------------------------------------------------------
             6    Dallas, TX - Fort Worth, TX -
                  Arlington, TX                          -3.4%    4.5%         21.5%
        ----------------------------------------------------------------------------
             7    Columbus, OH                           -2.9%   -0.1%         34.8%
        ----------------------------------------------------------------------------
             8    Providence, RI - New Bedford, MA -
                  Fall River, MA                         -2.4%   -8.2%         14.7%
        ----------------------------------------------------------------------------
             9    Raleigh, NC - Cary, NC                 -1.2%   -4.6%         19.2%
        ----------------------------------------------------------------------------
            10    Nashville, TN - Davidson, TN -
                  Murfreesboro, TN                       -1.0%   -2.0%         21.4%
        ----------------------------------------------------------------------------
            11    New Orleans, LA - Metairie, LA -
                  Kenner, LA                             -0.8%   -1.2%         22.1%
        ----------------------------------------------------------------------------
            12    Philadelphia, PA - Camden, NJ -
                  Wilmington, DE                         -0.5%   -8.3%         13.8%
        ----------------------------------------------------------------------------
            13    Oxnard, CA - Thousand Oaks, CA -
                  Ventura, CA                            -0.2%   -4.0%         32.8%
        ----------------------------------------------------------------------------
            14    Cincinnati, OH - Middletown, OH        -0.2%   -2.2%         28.9%
        ----------------------------------------------------------------------------
            15    Orlando, FL                            -0.2%    8.9%         30.2%
        ----------------------------------------------------------------------------
        
        

Turning the Corner

The price gains seen at the national, regional and metro levels are being driven in part by the significant increases in REO-only prices. In fact, national REO-only gains of 8.1% over the last year on a median price-per-square-foot basis have outpaced non-REO price declines of -0.7% by 8.8 percentage points. Looking at REO-only prices on a year-over-year basis helps highlight why the Midwest lags the other regions in overall growth.

Chart 2: Regional REO-Only Prices (see image 2 for reference)

While growth in REO-only prices is driving broader market gains for most of the regions, the impact on overall prices depends on the level of REO saturation. For example, the Northeast has seen incredible growth in the REO-only sector shown above, yet has only recorded 1.6% gains year-over-year in overall prices. Because the Northeast has a mere 10% REO saturation, the lowest level across all regions, even substantial growth in the REO-only price segment hasn't swayed overall prices significantly. Additionally, the Northeast's REO-only prices are more sensitive to shifting demand, fueling the seemly high annual gains.

Clearly the Midwest is the only region that continues to see REO-only price declines on a year over year basis. While REO-only price growth has led the other regions into broader based growth, the Midwest has yet to receive assistance from this sector on overall progress. It's worth noting that the Midwest's REO saturation levels are still the highest of all the regions. As such, price weakness in the REO-only segment has been harder for the market to shake off, resulting in sustained declines at the broader level, as seen in overall yearly declines of 3.1%.

However, each of the three regions now seeing gains in REO-only prices, first saw long term reductions in REO saturation rates. And while the Midwest continues to face declines, it has achieved a reduction in its REO saturation rate over the last several years, from a high of 45% in 2009, down to 37% in May.

So while the West, South, and Northeastern regions have been able to find their way into positive territory, the embattled Midwest also appears to be on the path to recovery, but just running a bit behind schedule.

Buying Now Cheaper Than Renting in Most Major US Cities

Home prices have taken such a beating and demand for rental units has increased so much that it's now cheaper to buy a two-bedroom home than to rent one in most major U.S. cities.

According to real estate web site Trulia, buying was cheaper than renting in 74% of the country's 50 largest cities in July. In just 12% of the cities, including New York, Seattle and San Francisco, renting was cheaper. In the remaining 14% of cities, renting was less expensive but close to the cost of buying.

In addition to a continuing decline in home prices, rock-bottom interest rates have added a lot of weight to the buy side of the scale. The overnight average rate for a 30-year fixed was just 4.19% on Monday, according to Bankrate.com. A 15-year fixed averaged just 3.43%. Add in the tax perks of home ownership and for those who can afford it (and who can actually qualify for a loan), it certainly is a buyer's market.

"It's a personal decision, of course. But if you have a steady job and you are planning to stay for seven years or more and have enough cash to put 20% down and enough left over for seven or eight months of expenses, you're better off buying in most places," said Daisy Kong, a spokeswoman for Trulia.

Top buyer's markets

Las Vegas offered the most compelling buy-side math, Trulia's survey found. Prices there have plunged more than 59% from their August 2006 peak, according to the S&P/Case-Shiller home price index.

The median price of a two-bedroom, two-bath condo or townhouse is about $60,000, according to Trulia, a ratio of only six times the median annual rent of a similar rental apartment, which is $9,700.

Monthly mortgage payments on a median-priced Vegas condo would come to only $256 on a 30-year, 5% interest loan. Even factoring in property taxes and common charges of roughly $300 a month, the monthly amount is still much lower than the $810 in monthly rent they would pay on a similar place.

Detroit, according to Trulia, is another metro area where buying is better. The median price for a condo or townhouse is about seven times annual rent. Home prices in Mesa, Ariz. and Fresno, Calif. also clock in at seven times rent. Arlington, Texas, Sacramento, Calif., Phoenix and Jacksonville, Fla.all had buy-rent ratios of eight, Trulia said.

Top renter's markets

Even though rents average $2,980 a month in New York (the highest of any of the 50 markets), it's still the best city for renters, according to Trulia's survey.

Paying for the same kind of two-bedroom Manhattan apartment would cost 36 times as much, nearly $1.3 million.

Big money towns

One surprising place where renting is cheaper is Ft. Worth, Texas; buying exceeds renting costs by 32 times. Part of the reason is there are relatively few condos in the city and they tend to be upscale and costly. That, combined with low rents of about $9,500 a year, make renting cheaper.

Omaha, Neb., where buying is 27 times annual rents, Seattle and San Francisco, which both clock in with purchase prices that are 24 times rents, and Kansas City, at 22 times rents, are other places where renting makes financial sense.

Should you rent or buy?

The buy-rent calculation is just one part of the decision-making process. Other factors include:

• How long you plan to stay. If you're not keeping the home for several years, transactional costs of buying and selling (e.g; commissions, closing costs) can wipe out any buying edge.
• Whether you have cash for closing. It's not easy to find banks willing to lend more than 80% of the cost of a home. That means buyers have to come up with 20% down, plus closing costs. On a $200,000 home, that's $40,000.
• Whether you can cover all the homeownership costs. It's not just the mortgage: There are property taxes, insurance, heat, utilities and regular maintenance.
• Whether you can claim the tax advantages of homeownership.Mortgage interest is deductible and can shave a lot off tax bills but this benefit accrues mostly to high income earners with substantial mortgage payments. Many borrowers claim the standard deduction on their taxes and so derive no savings from the deduction.

Even where it's cheaper to rent, it doesn't necessarily mean renters will come out ahead, according to Ken Johnson, a real estate professor at Florida International University and co-author of a new study on whether it's better to buy or rent.

"Paying off a mortgage is a kind of forced savings," he said. Each check homeowners write lowers the balance they owe and increases the value of their property holdings. That, unlike cash in a bank account, is not easy to tap.

Where the jobs are

Homeowners have to go through a lengthy and costly process to access it by taking out a home equity loan or a cash-out refinance -- actions they tend not to take unless there's a specific need.

Depending on where they live, renters may save on monthly expenses but, unlike the forced savings of mortgage payments, they won't have anything to show for their monthly payments in the way of savings.

Ultimately, however, the decision whether to buy or rent depends on each person's situation and their plans for the future.

While buying a home may be an attractively cheap option these days, many mortgage holders have found out the hard way that the joys of homeownership can turn sour should the unexpected strike. 

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Time to Consider Investing in the U.S. Home Market?

The long, discontented winter for the U.S. home market might be easing. Home prices are inching up in some markets, and it might be a good time to invest.

That doesn't mean that every place makes sense for homebuying. Nationally, new-home sales fell by the largest amount in more than a year in March--7.1%--so there's no widespread rebound under way, according to the U.S. Commerce Department.


You'll still have to be incredibly careful and look at several factors such as local job growth, housing inventories, and price trends. Whether you're looking to relocate, eyeing a retirement locale, or scouting investment properties, caution is still essential.

Foreclosures and excess inventory will continue to hurt key markets. "I think we'll see a strange housing market for the next couple of years, where foreclosures and vacancies continue at the same time as new construction grows rapidly," said Ingo Winzer, president of real estate information service Local Market Monitor.

With the exception of Washington and perhaps Boise, markets in Arizona, California, and Florida were pummeled in the downturn, with some areas suffering 50% markdowns from the peak of the bubble.

Bright Spots
Although good news is in short supply, there's a tinge of optimism surfacing on U.S. real estate. Local Market Monitor reported recently that its housing demand index is in expansion status, compared with 64 months of contraction that began in 2006. The strongest markets generally are experiencing robust job growth, which typically is one of the linchpins of any strong housing market. Rebounding regional industries are boosting some areas such as Austin, Texas; Bakersfield, Calif.; Boise, Idaho; Ogden, Utah; Dallas; and Grand Rapids, Mich., according to the Metro Monitor from the Brookings Institution. These were among the strongest-performing metropolitan markets Brookings surveyed.

Clusters of strong industries make a huge difference in real estate recoveries. Information technology businesses in Austin; Boise; Ogden; Portland, Ore.; Provo, Utah; and San Jose, Calif., (Silicon Valley) are seeing growth. Other industries in recovery mode are manufacturing--particularly auto production--and high technology. Meanwhile, areas once supported by old-line industries--such as Allentown, Pa.; Little Rock, Ark.; Atlanta; Fresno, Calif.; and Philadelphia--aren't faring as well.

Indeed, those areas hardest-hit by the bubble bursting and the Great Recession are struggling. While you're seeing some evidence that the downturn might be bottoming out, places like Las Vegas; Los Angeles/Central California; Tucson, Ariz.; and Tampa, Fla., are among the worst performers.

In terms of price increases, however, it appears that the most devastated areas are slowly coming back. They've not recovered to 2006 levels--and may never--but there's strong evidence that they've turned the corner. Here's a short list of areas from Realtor.com with the best year-over-year price increases (through March 2012):



Rooting Out Real Bargains
Prices alone, however, aren't necessarily a green light to buy. In cities where housing inventories are high and foreclosures are ongoing, you'll continue to see downward pressure on prices. List prices are still falling in Chicago; Knoxville, Tenn.; Southern California; Sacramento, Calif.; and several cities in Pennsylvania, including Philadelphia. That means even though some areas appear to be recovering, it might be some time before prices stabilize.

For absolute bargains, the best prices are found where the price-to-rent ratio--a gauge that shows where buying makes the most sense--is still favoring homeownership, according to Trulia.com. These cities include Detroit; Oklahoma City; Dayton, Ohio; Toledo, Ohio; Grand Rapids, Mich.; Cleveland; Atlanta; and Memphis, Tenn. Of course, many, if not most, of these areas have been hurting from massive job losses from older industries, so they might not be the best places to buy if you're expecting quick price appreciation.

Ultimately, if you're interested in a long-term investment, you'll need to look at areas that have the greatest chance of sustaining job growth well into the future. These markets are not to be confused with those offering the best values now, though some might offer some bargains relative to cities that have traditionally been the highest-priced, such as those in Silicon Valley.

Using Local Market Monitor's 24-month forecasting model, San Jose/Santa Clara, Calif.; Houston; Austin; McAllen, Texas; Fort Worth, Texas; Rochester, N.Y.; Pittsburgh; Louisville, Ky.; Oklahoma City; and Knoxville, Tenn., might offer the best opportunities for price appreciation, which ranges from 1% to 4% during the next two years.

Much of the new optimism hinges on foreclosures leveling off and job growth continuing. Another boost might come from proposed changes that may allow homeowners whose mortgages are owned by Freddie Mac (FMCC) and Fannie Mae (FNMA) to stay in their homes through refinancing or writing down principal.

Because this is an election year, it's probably a safe bet that Washington will do everything it can to show some progress on housing. In the interim, keep your eye on places where home inventories are falling, jobs are being created, and prices are stabilizing. You could find some excellent values if you do your homework.

To see hot properties in Santa Cruz click: http://www.authenticre.com/Hot-Properties

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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