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Intero Insider: April Sales, Values Trending Up

By Gino Blefari | May 23rd, 2012 0 Comments

The latest housing numbers are out and the message is clear: Things are heating up in markets across the country once again, and the best news about this is the fact that it’s no longer just investors who are gobbling up properties. Now we’re seeing more demand and sales coming from primary residence buyers.

Sales of existing homes increased 3.4% to an annual rate of 4.62 million in April from March, and were up 10% from the same month a year ago, according to the latest numbers from the National Association of Realtors. The best part of this news is that home values also increased 10.1% to $177,400 in April. The increase in values may seem to hurt affordability, but in actuality it tends to spur more buyers who are on the fence to make a move while conditions are still great.

Buying conditions are still excellent for buyers. Average rates on the 30-year fixed-rate mortgage were 3.79%, according to Freddie Mac’s latest survey measuring the week ending May 17.

Not only are the numbers good – they’re showing strength in all the right places. A healthy market is one that sees sales and values increasing at a reasonable pace, and one that is not unevenly filled with distressed properties and investor buyers.

The share of sales that were foreclosed properties is slowly diminishing. Distressed homes, which include foreclosures and short sales that sell for deep discounts, accounted for 28% of April sales, with 17% being foreclosures and 11% being short sales. This was down from 29% in March and 37% in April a year ago. Foreclosures sold for an average discount of 21% below market value in April, according to NAR, while short sales sold at an average 14% below market value.

The share of buyers who were first-time purchasers increased to 35% in April, up from 33% in March, but down slightly from 36% in April last year. Meanwhile, investors purchased 20% of homes in April, down from 21% in March, and holding steady from 20% during the same month last year.

Depending on your market, you may be seeing a plethora of discount deals still out there, or multiple bid situations. NAR says this is because inventories are tight in some markets, notably the Washington, D.C., area, Miami; Naples, Fla.; North Dakota; Phoenix; Orange County, Calif.; and Seattle. Expect stronger price increases in most of these areas in the coming months.

All of this shows that to talk about the condition of the housing market right now, you really need to first define which segment you’re talking about: first-time buyers, foreclosures, city, state, neighborhood, etc. The market is moving in a few different directions, depending on where you’re looking. Overall, things are definitely trending up, but be sure to understand which segment you’re trying to assess before drawing any big conclusions.

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Intero Insider: Why You Should Never Try to Time the Real Estate Market

By Gino Blefari | May 17th, 2012 0 Comments

“Is now a good time to buy my first home?” is an age-old question that all renters ask themselves at some point. The arguments pro and con vary widely – with some hinging on hard statistics that will show good reason pro and con, and others relying solely on more intangible things like lifestyle, future plans and core values.

The Wall Street Journal printed an in-depth take on this argument pro and con, with detailed and well-sourced points of view from both Eric Lascelles, chief economist at money management firm Global Asset Management (pro buying now), and Gary Shilling, president of A. Gary Shilling & Co., an economic consulting firm in Springfield, N.J. (con buying now).

Their arguments in a nutshell:

Mr. Lascelles: “Investors understand that this is the mother of all buyer’s markets, and won’t last forever.” Conditions are amazing with low interest rates that can be locked in for the life of the loan, ample supply and low prices in most markets. Because investors see this opportunity, they’ve been gobbling up properties for themselves. The open window for average home buyers won’t be there long.

Mr. Shilling: “Buying a house now would be a disastrous investment if prices fall another 20% or more.” The problem is excess inventories, which will continue to pull prices down. Shilling and his associates have calculated an excess of 2 million housing units in the market.

What’s missing here is a deep discussion of the psychology of homeownership, which can’t be dismissed. If renters have it in their heads that they want to buy a home at some point in their lives, they’re most likely going to lean toward Mr. Lascelles’ view of the current real estate market. Why not buy now, when conditions are so good? And with investors increasingly taking up more share of the homes being sold each month, there is a sense of urgency that the days of buyers’ favor won’t be here forever.

What’s also missing is acknowledgment of the completely individualized situation in each local market, and each household. These high-level arguments are interesting, but unfortunately are meaningless to most of the people sitting at kitchen tables making the decisions to buy or not buy. What goes into those decisions revolves much more around the family finances, job outlook, and neighborhood housing market. Sure, savvy buyers will be reading the news and keeping up with how the overall market is moving. But, at the end of the day the national market forecast and economic indicators are not something you see on the average family’s “back of the napkin” short list of considerations for whether to buy or not to buy.

Real estate is local, and individual. Because of this, many attempts to “time” the market by entering at just the right time are either subjective or futile. Buyers are much better off timing their decision with what fits with their own lives.

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Intero Insider: Help for Underwater Homeowners

By Gino Blefari | May 9th, 2012 0 Comments

Despite the recent bout of good news that’s spreading through some real estate markets in the U.S., the word “underwater” is still part of the vocabulary in many others. In fact, the problem is still so widespread that Freddie Mac, the U.S.-supported mortgage company, this week announced it will drop a fee associated with refinancing deeply underwater mortgage loans.

The fee drop signals that the government and its mortgage giants Freddie Mac and Fannie Mae are determined to make the Home Affordable Refinance Program (HARP for short) work. Freddie Mac said it will eliminate a fee of 0.5 percentage point, known as a “cash adjustor,” on home loans that are refinanced under HARP and have balances greater than 125% of the property’s current market value.

The move aims to help underwater homeowners refinance their mortgages, thus enabling them to stay in their homes (as opposed to foreclosing or walking away). Freddie Mac officials said that they hope the drop of the fee will encourage more homeowners to take advantage of HARP.

There were 11.1 million homes with negative equity at the end of the fourth quarter 2011, according to a report from CoreLogic. The number of homes with negative equity (or that were “underwater”) was up from 10.7 million the previous quarter, showing that the problem had not stopped growing at last tally.

Many underwater homeowners do wish to stay in their homes. Refinancing and taking advantage of HARP can help. But some good old motivational math can also help tremendously with moral, which is why I thought these calculators developed by HSH are interesting and potentially helpful:

  • KnowEquity When is a calculator that aims to help underwater homeowners answer the question, when will I be above water again?
  • KnowEquity How is a calculator that aims to help underwater homeowners what it will take to reach equity within a specified time frame.

Both calculators are helpful if you are trying to set a goal to stay in your home. Knowing what you need to do to get there is a powerful motivator.

Unfortunately, when looking at the numbers, underwater mortgages will not be disappearing anytime soon. While some markets are seeing values increase, it’s just not enough to offset the lost equity that spans 11.1 million home loans. So seeing a bit of positive news in the form of help and motivation on this front is worth flagging.

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Intero Insider: 4 Signs It’s Time to Buy a Home Now

By Gino Blefari | May 2nd, 2012 0 Comments

If ever there was a fantastic time to buy a home, it’s right now. Never mind the fact that I head a leading real estate brokerage company. Let the statistics show you why now is your best bet to get into the housing market:

1. Home values are recovering

U.S. home values rose 0.5% from February to March, the largest monthly increase since May 2006, before values at the national level peaked, according to a recent report from Zillow this month. In addition, the company said in its home value forecast that it expects 19 of the 30 markets it covers will reach a bottom in values this year. Phoenix and Miami-Ft. Lauderdale are expected to see significant home value increases.

2. Interest rates are still extraordinarily low

The cost of borrowing is still extremely attractive for buyers who qualify and are ready for the financial responsibility of a home mortgage. Saying mortgage rates have hit a new “record low” has become a bit of a broken record. At an average 4.04% in the latest Mortgage Bankers Association survey, rates on the standard 30-year fixed-rate mortgage are almost too good to be true. While there’s no sign from the Federal Reserve that rates will increase significantly anytime soon, it’s definitely a great condition for buyers right now.

3. Multiple offers are back

Demand for housing is starting to outweigh supply in some markets across the country. We covered the return of bidding wars this spring in markets like Silicon Valley, Miami, Seattle and Washington, D.C. Even despite the presence of “war” like situations, multiple offers are once again a fact of life in markets with strong economies and job prospects.

4. Rents are rising with no end in sight

The median U.S. rent was $721 per month in the first quarter, up 5.6% from the same period a year earlier, according to the Commerce Department. Altogether, rental income has increased 12% in the year ended in March. In addition to rising rent, the supply of units is the tightest in more than 10 years, with 8.8% of units vacant in the first quarter. This at a time when the demand for rental units is at the highest in 15 years. This means more buyers likely will continue to jump from that tight market into owning while the numbers make sense.

As you can see, the buyer market is about to get more crowded than it’s been the last few years. These are each solid market forces that could push more and more buyers off the fence, creating more transactions and helping to lift home values this year and next. If you think you want to buy – or know buyers who are testing the waters – now is your chance to take advantage of prime home-buying conditions.

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Intero Insider: Demand Grows Like a Weed After a Spring Rainstorm

By Gino Blefari | April 25th, 2012 0 Comments

We’re well into the spring home-buying season and the latest numbers for March are out to help us gauge how the 2012 real estate market is faring. The verdict is that we’re settling into a stable pattern of growth as monthly existing home sales have trended above year-ago levels for nine consecutive months.

However, there’s another interesting thing that’s happening. While year-over-year sales volume is up, there was a drop in March from February. The reason? National Association of Realtors Chief Economist Lawrence Yun notes that inventory levels are low, creating a situation in which there aren’t enough homes for sale to satisfy demand from buyers.

Total existing home sales declined 2.6% to a seasonally adjusted annual rate of 4.48 million in March from February, but were 5.2% above the 4.26 million-unit pace in March 2011, according to NAR’s report. Meanwhile, housing inventory declined 1.3% in March to 2.37 million existing homes for sale. Listed inventory is 21.8% below a year ago.

There’s no exact answer to why inventory has dropped so much. But we can infer that the shrinking foreclosure rate is contributing to a lack of properties on the market, as well tepid sellers playing the waiting game. If you don’t have to sell right now and you’re in a slower market or traumatized from the declining state of the last few years, then you’re likely staying put and waiting out the market until there are clear signs of an upswing.

In addition, buying conditions are so stellar in many markets right now  - with extremely attractive interest rates and home prices – that demand is growing like a weed after a spring rain! NAR says that many of its members have reported a definite increase in “foot traffic” to see listings and open houses And we recently covered how some markets are back in bidding-war situations. So the signs are good, folks!

Another solid factor in the spring home-buying season this year is the 2.5% year-over-year increase in median sales price at $168,800. Additionally, distressed homes accounted for a smaller portion of sales in March (29%) than they did in February (34%) and in the same month a year ago (40%) – indicating that the distressed portion of the market is steadily shrinking.

The facts are in and it’s clear the real estate market is no longer a clear punching bag for economic ailments. We’re building momentum that appears to be built on a strong foundation – not just temporary home-buying tax credits and other federal initiatives. Spread the word!

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The Intero Insider: Mitt Romney Eyes Mortgage-Interest Deduction

By Gino Blefari | April 18th, 2012 0 Comments

Throughout the economic downturn and recovery, we’ve seen the topic of the mortgage-interest deduction come up time and again. It’s fitting that Republican presidential candidate Mitt Romney would bring it up this week as millions of Americans are frantically filing income taxes to avoid being late.

In a speech on Sunday, Romney said he’s considering eliminating the mortgage-interest deduction for second homes for high-income individuals. This often comes up with politicians and congressional groups as a viable option for creating more revenue for the federal government.

Let’s first look at the number of homes and owners this might affect. The National Association of Realtors estimates that second homes – including vacation and investment properties – accounted for 38% of home sales in 2011. The group said that about half a million vacation homes and 1.2 million investment properties were sold last year, continuing a trend in which these homes have accounted for the largest chunk of sales since 2005.

Generally speaking, eliminating or making changes to the mortgage-interest deduction is not going to have a great impact on the housing market. While the government may reap some rewards in the form of more cash made via taxation, most homeowners and first-time buyers still see the deduction as an important perk or benefit of owning a home. Messing with this deduction now at a time when the recovery is still quite fragile and slow would be a bad idea.

Eliminating or scaling back the mortgage-interest deduction would hit states in which vacation homes are most popular harder than others. Florida, Maine, Michigan and Colorado could see fewer sales as a result.

Moreover, more buyers have been jumping in the market and buying investment properties in recent years. Sales of investment properties spiked 64% last year. These are properties that otherwise may not have been purchased, which makes a pretty big case for keeping all incentives in place for investors to continue buying, and therefore aiding the housing recovery along.

While some say that the mortgage-interest deduction isn’t as big a deal for second home buyers because of the emotional nature of those purchases, I’m leery of mucking up a homeownership perk that’s long been held as a great benefit to owning a home. If incentives like this are working to keep investors hungry for real estate – and that hunger in turn is helping the market as a whole – then let’s back off and find another way to fix our fiscal mess.

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The Intero Insider: Spring Has Sprung for Housing Markets

By Gino Blefari | April 11th, 2012 0 Comments

Spring is in the air – especially for real estate markets. I’ve always felt like the personal stories and anecdotes I hear from agents who are on the ground and working with buyers and sellers say much more about the state of the market than statistics, which are often time lagging and misleading.

This spring, the agents I talk to are busy – beyond belief it seems. They’re seeing multiple offers, pre-recession inventory levels, and a general thirst for real estate from consumers.

But the stats aren’t too shabby either. Another great piece of news we saw come out recently was a look at the market for second homes and investment properties in 2011. Investment home sales surged 64.5% to 1.23 million in 2011 from 749,000 in 2010, while vacation home sales rose 7% to 502,000 in 2011 from 469,000 in 2010 (according to the National Association of Realtors’ annual survey).

Overall, vacation home purchases accounted for 11% of all transactions last year, up from 10% in 2010, while investment sales jumped to 27% last year from 17% the year before. The shift is good news for real estate markets because it shows the market is able to absorb the foreclosures hitting the market.

That’s what some of the stats are saying. What do the agents say?

As I mentioned, most that I talk to are super busy. They tell me that markets where jobs have been picking up and where inventory is at a healthy level are doing very well. However, the pockets of neighborhoods that were overdeveloped for the most part are still struggling to absorb inventory.

This all points to a good spring for buyers and sellers. The tech-heavy economies like ours in Silicon Valley are benefiting from extraordinary job markets in which big standout companies like Zynga and Facebook are growing like weeds, hiring and enjoying new IPOs.

Spring historically has always been a great season for real estate, but this one feels even better as we hear anecdotes and statistics working in the same direction. There’s a turning point happening. And although many still argue we’re in a mostly jobless recovery, those who are lucky enough to be in areas where the economy is picking up are doing just fine. (Don’t get me wrong, though – those who are in badly hit areas that aren’t recovering as easily are still struggling and we need to acknowledge that.)

Americans are back in the real estate frame of mind.

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The Intero Insider: Bidding Wars Are Back

By Gino Blefari | April 4th, 2012 0 Comments

Bidding wars. These horror stories/glorious situations (depending on which side of the deal you were on) were abundant in the years leading up to the top of the housing market in 2006. Then the phrase slipped out of consciousness – and reality – for most markets in the last few years. And now, amidst a slow and tough-as-nails housing recovery, these situations are back.

Is this the tipping point we’ve been waiting for? A story that ran on Bloomberg last week seems to suggest that yes, it is the tipping point in the markets that are seeing multiple bids. And these markets also happen to be the ones with strong underlying economies.

What markets are we talking about? Silicon Valley, for one. And across the country, bidding wars have been noted in Seattle, Miami and Washington, D.C., according to Bloomberg.

What’s driving the voracious interest in homes in these markets is a combination of a six-year low inventory, an increase in jobs and increased affordability brought on by a handful of years of falling prices. In fact, it’s now more affordable to buy than to rent in many of these markets.

The housing market is bouncing back in these markets. That’s great news for sellers, owners and the local economies. But what about the buyers? Well, it’s certainly an incentive to get off the fence and make a move. If you’ve been waiting for prices to drop even further in these pivotal markets, you likely waited too long.

However, a positive side effect of the presence of bidding wars is that it can also spur homeowners who’ve been on the sidelines to finally jump in the market and list their homes for sale, increasing the local inventory. So it’s not as if the market is suddenly going to tip back to a boom frenzy.

The biggest takeaway for me in this latest trend of bidding wars is that it is the perfect example of the cyclical nature of housing markets, which gives me a positive view on the future. For every boom, there is a come down and for every lull there is a corresponding bounce back. That’s just the way supply and demand works.

We can feel confident knowing that homeownership is still embedded in the American life. We know that an unfavorable housing market leads to a hot rental market, which creates upward pressure on prices there and eventually leads renters to again fuel their desire to own.

Like all great things in life, it takes time. But we’re getting there. It’s going to be an exciting spring for real estate!

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Intero Insider: Who’s Buying?

By Gino Blefari | March 28th, 2012 0 Comments

Here in the Bay Area, the answer to the question “who’s buying homes?” seems to be a resounding “employees of all the hot tech companies” – Facebook, Zynga, Google, Oracle, Apple – the usual suspects. Yes, we are indeed blessed with a deep economy that seems to be creating many more jobs than you see being created in other parts of the country.

When it comes to the nation as a whole, the answer to who’s buying right now is mostly investors and first-time buyers. According to the National Association of Realtors’ latest monthly housing statistics, investors purchased 23% of homes in February, up from 20% the same month a year ago and unchanged from January. Meanwhile, first-time buyers accounted for 32% of purchases in February, down from 34% the same month a year ago and 33% in January.

Where are they buying?

Sales were up across the country in February compared to the same month a year earlier. However, not all regions saw increases from the previous month.

At the regional level, the Midwest came out on top in February (which is unexpected, given that it’s the middle of winter – typically not a favored time to buy or sell a home). Existing-home sales were up 13.3% in February from a year ago to a pace of 1.02 million. Sales were up 1% from January, and the median price in the Midwest was $120,500.

In the South, sales were 9.3% higher than a year ago, and .6% higher than January at an annual pace of 1.77 million. The median price in the region was $138,100.

Here in the West, existing-home sales were 6.1% higher in February than a year ago, but were down 3.2% from January to an annual pace of 1.22 million. The median price in the region was $195,300.

In the Northeast, sales were up 5.5% from a year ago, but fell 3.3% from January to an annual level of 580,000 in February. The media price in the Northeast was $225,800.

What are they buying?

The Realtor group said that all-cash sales increased to 33% of transactions in February, which leads us to believe that a third of buyers may be buying investment properties since investors account for the bulk of cash transactions.

Of the February sales, single-family home sales were 9.4% higher than a year ago, but 1% lower than in January. Existing condo and co-op sales were 3.9% higher than a year ago, but unchanged from January.

What can we surmise from all these statistics? The important takeaway is that this year is starting off stronger in most regions than last year. In fact, February – historically a weaker month of the year for home sales – seems to be acting much like spring in terms of the strong pace of sales. Remember: slow and steady is the name of this recovery. So far, the numbers support that prognostication.

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Intero Insider: Why Rising Rents Could Signal Positive Gains in Home Values

By Gino Blefari | March 21st, 2012 0 Comments

It’s a classic tale of supply and demand: home purchases soften and rental markets in return heat up. People have to live somewhere and when the market for buying becomes unattractive or grows out of reach, they turn to renting (or to moving in with friends and family). But what’s the lasting impact on home values?

Contrary to what you may think, a hot rental market does have a positive effect on housing. Why? Because as rents trend up and show stable income for landlords, more investors see the opportunity in snapping up rental properties. This interest and activity takes low-priced inventory off the market as investors move in and buy, eventually helping to put a bottom under the value of all homes in the local market.

In addition, rent can only heat up so much before it starts to become unattractive cost-wise and renters again turn to buying.

Zillow covered this aspect of rental market dynamics in its latest activity report, which showed that median rents rose 3% from January 2011 to January 2012. While that same announcement last week noted that home values continued to fall during the same period – declining 4.6% – the company’s chief economist noted the impact on home values as ultimately a positive thing for all the reasons mentioned above.

Zillow found that 70% of markets across the U.S. saw an increase in rents, while 7% experienced home value increases.

The main takeaways here are this:

  • If you have cash and are looking to invest, investigate your local real estate market for rental property opportunities. Rents are rising and demand is still high, meaning it’s time to dive in if you’re going to dive in.
  • Renting may be reaching a tipping a point in some markets – meaning that the cost is getting high enough to convert some renters to buyers as they see more value in owning.
  • Some positive market underpinnings are rearing their head as increasing rents can lead to more stability in local market home values.

Housing market stats are tricky. Many conclusions are not always obvious at first. This is why we must always read past the headlines and dig deeper into the meaning of specific market activity to get more meaningful forecasts to inform our decisions.

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