Fall Real Estate Guide: Bargains, Bubbles And Stable Markets

Fall Real Estate Guide: Bargains, Bubbles And Stable Markets

Published: Thursday, 8 Oct 2009 | 9:31 AM Est

By: Chris Taylor

Take a quick look at America’s hardest-hit housing markets, and you might think you’re looking at some once-in-a-lifetime bargains. Miami down by almost half from its peak? Las Vegas off 55 percent and Phoenix selling at a similar discount? Get your checkbook, you’ve got a McMansion to buy.

But hold off a minute, says Ingo Winzer of real-estate consulting firm Local Market Monitor, which tracks and forecasts 330 metro areas around the country.

Just because a local housing market has sunk like a stone, doesn’t mean it can’t drop some more. And that’s exactly what many cities around the country are facing right now.

“Real estate cycles last for many years,” says Winzer. “Even though prices have been dropping for a couple of years in some markets, they could keep dropping for several years more.”

The culprit: A horrendous employment situation, which has already seen almost seven million jobs lost since the end of 2007. Even if the recession has technically bottomed out, people are still being laid off, and that will continue to be a drag on the housing market. Couple that with skittish lenders and the sheer number of distressed mortgages, and you have a toxic mix that still hasn’t been resolved.

“We’re definitely close to the bottom,” says Celia Chen, senior director of housing economics at Moody’s Economy.com, who points out that the Case-Shiller 20-city house-price index has finally been ticking up. “But we expect prices to start descending again by the end of this year. With so many foreclosures still in the pipeline, we don’t expect a bottom until the middle of next year.”

But not all is lost. All real estate is local, after all, and your hometown has its own unique prognosis. To make his forecasts at Local Market Monitor, Winzer compares income levels to housing prices, to determine which markets around the country are overvalued or undervalued. He then pairs that with local jobs outlook, to predict what’s in store for each community. His take on the best (and worst) housing bets for the next year:

Best Expected Performance:

In this group are many locales that never experienced the housing boom in the first place. Since they never climbed to unsustainable heights, they didn’t have a price cliff to fall off. Among this group are southern spots like Baton Rouge, La.; Columbia, S.C.; and Little Rock, Ark.

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Yes, the Housing Market Has Rarely Looked Better

By JAMES B. STEWART

Passing through the Fort Myers, Fla., airport a few weeks ago, I noticed people eagerly signing up for a free bus tour of foreclosed real estate—with all properties offering water views. During the ride to my hotel, the young driver volunteered that he had just bought his first house, paying $65,000 for a foreclosed property in nearby Cape Coral that last sold for over $250,000. He said he had never expected to be able to buy anything on a driver's salary, let alone something that nice.

Last week, Standard & Poor's reported that its S&P/Case-Shiller U.S. National Home Price index of real-estate values increased this past quarter over the first quarter of 2009, the first quarter-on-quarter increase in three years. Its index of 20 major cities also rose for the three months ended June 30 over the three months ended May 31, with only hard-hit Detroit and Las Vegas experiencing declines. The week before that, the National Association of Realtors reported that sales volume of existing homes was up 7.2% in July from June.

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In short, the data suggest that real-estate prices hit a bottom some time during the second quarter, and have now begun to rise. There's no way to be certain that this marks the end of the long, painful correction that followed the real-estate bubble, but clearly prices are no longer in free-fall. That means if you've been sitting on the fence, it's time to act.

Ordinarily I'd never try to time the real-estate market, but I can understand why buyers have been cautious. Few want to buy in down markets, just as stock buyers avoid bear markets. And for most people, of course, buying a house is a much bigger decision than buying a stock. But with real-estate prices nationally now down about 30% from their 2006 peak and showing signs of turning up, the prices aren't likely to go much lower. Every real-estate market is local, and so there may be a few exceptions. Overall, though, I can't imagine a better time to buy than now.

In addition to bargain prices, buyers also should find plenty of homes to choose from. The inventory of unsold homes was 4.09 million units in July, up 7.3% from June, according to the National Association of Realtors. And mortgage rates this week were at a two-month low of close to 5%, according to Zillow. Even the stricter appraisal process is working to the advantage of buyers. Appraisals are coming in far lower than most sellers have been expecting, forcing them to face the new reality of sharply lower prices. And with stricter standards, lenders aren't going to let buyers borrow more than they can afford, which protects buyers and helps to keep prices down.

Unless you're really prepared to accept the demands (and headaches) of being a landlord, I don't recommend direct ownership of real estate as an investment. The days of buyers lining up to flip Miami Beach and Las Vegas condos are mercifully gone.

There are much easier ways to make money in real estate, such as real-estate investment trusts or buying shares in home builders and other housing-related businesses (such as Home Depot). Historically, the mean rate of return on real estate has been around 3%, according to research from Yale economist Robert Shiller, who co-developed the Case-Shiller index. Shares in REITs and other stocks have often done much better.

But there's a good reason homeownership has been such a central part of the American dream. It delivers security, pride of ownership, a sense of community and decent investment returns as a bonus. I felt glad for my driver in Florida. He represents the other side of the foreclosure crisis. For every hardship story, and no doubt there are many, others are realizing their dreams of home ownership and getting what may well turn out to be the deals of their lives.

James B. Stewart, a columnist for SmartMoney magazine and SmartMoney.com, writes weekly about his personal investing strategy. Unlike Dow Jones reporters, he may have positions in the stocks he writes about. For his past columns, see: www.smartmoney.com/commonsense.

Survey Undermines Importance Of First-Time Homebuyers Credit

Published

Tuesday, October 06, 2009

Property Wire

With the fate of the stimulus bill in the hands of Congress, a vast majority of people in the real estate industry are touting the benefits of the first-time homebuyer program, and even urging its extension to current homeowners. Yet a Zillow poll disputes the extent of the credit's impact, indicating that for a significant number of buyers continuation of the incentive would not be a factor in their purchasing decision. For more on this, see the following article from Property Wire.

As US politicians prepare to debate the future of incentives to boost the real estate industry the latest surveys show that estate agents want them to continue but buyers say they make little difference to them.

Many experts have said that the $8,000 first time buyer tax credit, which is due to finish at the end of November, has had a major impact on the property market.

A bill to extend the programme is currently before the US Senate.

Realtors are backing an extension. In a poll by real estate company Weichert 71% said that the homebuyer tax credit was the single largest factor motivating buyers in 2009.

As well as continuing with the stimulus, they also want more potential buyers to be able to benefit.

The majority, some 92%, said the market will decline if the tax credit expires at the end of November while 97% want it to continue to the end of 2010.

The survey also showed that 20% felt affordable home prices were the biggest motivating factor and 8% indicated low interest rates played a major role.

‘The tax credit is working to restore confidence and stimulating the overall economy but we still have a long way to go before we return to a normal market.

As this survey shows, many in our industry are concerned that we will lose much of the ground that has been made toward a recovery if the tax credit is not extended,’ said president James Weichert.

Agents that responded to the survey also indicated expanding the credit to existing homebuyers and not just first-time buyers would further stimulate the housing market and higher-priced properties in particular.

But it would appear that property buyers don’t agree.

A survey from zillow.com found that a third of prospective first-time homebuyers said an extension of the tax credit would have no influence on their decision to buy in 2010.

In the survey of adults who qualify for the credit, 18% said extending the credit until the end of 2010 would be the main influence in their decision to purchase a home.

An additional 25% said it would be a significant influence, 27% said it would have some influence, and 31% said it would have no influence.

If the credit were extended, Zillow predicts that 1.86 million homebuyers would take advantage of the program and that would cost around $14.86 billion.

The National Association of Realtors is in favor of an extension.

‘The credit needs to be available for an additional period of time in order to sustain the progress that’s been made so we can continue to see our markets fully recover.

Uncertainty about the future of the credit will dampen consumer demand.

The only way we can assure that the progress we’ve made can continue is to extend the credit and to do that now,’ said NAR president Charles McMillan.

This article has been republished from Property Wire. You can also view this article at Property Wire, an international real estate news site.

Long-Term Mortgage Rates Ease Further This Week

Long-Term Mortgage Rates Ease Further This Week

McLean, VA – Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 4.87 percent with an average 0.7 point for the week ending October 8, 2009, down from last week when it averaged 4.94 percent. Last year at this time, the 30-year FRM averaged 5.94 percent. The last time the 30-year FRM was lower was the week ending May 21, 2009, when it averaged 4.82 percent.

The 15-year FRM this week averaged 4.33 percent with an average 0.7 point, down from last week when it averaged 4.36 percent. A year ago at this time, the 15-year FRM averaged 5.63 percent. This is the lowest the 15-year FRM has been since Freddie Mac started tracking it in 1991.

The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.35 percent this week, with an average 0.5 point, down from last week when it averaged 4.42 percent. A year ago, the 5-year ARM averaged 5.90 percent. The 5-year ARM has not been lower since Freddie Mac started tracking it in 2005.

The one-year Treasury-indexed ARM averaged 4.53 percent this week with an average 0.5 point, up from last week when it averaged 4.49 percent. At this time last year, the 1-year ARM averaged 5.15 percent.

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Metro Denver home resales slip; prices rise

Move-up buyers, affordability and location are helping to push median figures higher.

By Margaret Jackson
The Denver Post

While home resales in the Denver metro area declined in September compared with a year ago, median sales prices for houses and condos increased, according to data released Wednesday.

A total of 3,846 homes sold in September, down 9.8 percent from September 2008, according to Metrolist data. Meanwhile, median prices for single-family homes rose 4 percent to $225,000, compared with $216,500 a year ago. Condo prices increased 3.6 percent to $145,000, compared with $139,900 in the same month last year.

"With condos, it's affordability and location," said independent real-estate analyst Gary Bauer. "We also have this underlying effort going on called the green movement, and more and more people are looking closer to work or alternative transportation."

An increasing number of move-up buyers in the market has pushed the median prices higher as well, Bauer said. Move-up buyers typically purchase homes in the $150,000-to- $250,000 range, he said.

"The majority of the activity has been in the lower price ranges," Bauer said. "The higher price ranges are stagnant."

The number of homes on the market declined 17.1 percent to 19,834, compared with 23,923 a year ago, a number that's likely to continue falling through the end of the year because of the holidays and the high number of first-time buyers in the market.

"We're seeing a lot of first-time buyers that would like to buy, but there just isn't enough inventory out there for all of them," said Lon Welsh, managing broker of Your Castle Real Estate. "We suspect the lack of really inexpensive homes for sale has changed the sales mix to a higher price point, driving up the average price."

Margaret Jackson: 303-954-1473 or mjackson@denverpost.com

Denver Home Sales Decline

Metrolist: Denver home sales decline in September, but so do unsold homes

Metro Denver home resales were down in September from the same month of 2008 and from August of this year, but buyers continued to chip away at housing inventory, according to a Metrolist Inc. report Wednesday.

Resales are sales of homes that have been sold at least once before, and don’t include newly built homes, and are also called existing home sales.

Average sold price for all existing homes, including single-family homes and condominiums, jumped 4.88 percent to $251,112 year over year, and were basically flat from this August.

First-time buyers, attracted largely by the federal government’s $8,000 first-time homebuyer tax credit, continued to dominate the market last month, according to Gary Bauer, Littleton-based independent residential real estate broker and Metrolist analyst. Purchasers qualify as first-time buyers, if they haven’t owned a home for the previous three years.

The tax credit expires Nov. 30, but real estate trade groups such as the National Association of Realtors and National Association of Home Builders are lobbying the U.S. Congress to extend the credit another year.

So-called “move-up” buyers — those one step up from first-time buyers — were also active last month, as sales of homes priced at $150,000 to $200,000 rose as well.

Total September home sales decreased 9.8 percent to 3,846 from the same month of 2008. Sales dipped 1.05 percent from August of this year.

September is the end of the country’s principal homebuying season, which starts in late spring and coincides with children being out of school to make moving easier. “The next months will experience seasonal downturn,” Bauer said in a statement.

To the good, unsold homes on the market for sale also dropped last month — 17.1 percent to 19,834, from 23,923 the September of last year. Inventory dropped 1.9 percent last month from 20,225 in August of this year.

Other key home-sale statistics for metro Denver last month:

• Single-family home sales alone dropped 10.84 percent to 3,001 from September 2008, and 2.12 percent from August. Average sold price increased 5.5 percent to $274,433 year over year, and was basically flat compared to the previous month.

Median sold price rose 4.09 percent to $225,000 from September 2008, and was flat compared to August. Median is the middle price between lowest and highest, and is considered a truer measure of price by some real estate experts because it’s not skewed by price extremes.

• Condo sales decreased 6.01 percent last month to 845 year over year, but were flat compared to this August. Average selling price increased 3.91 percent to $168,288 year over year, and was flat compared to August.

Median selling price went up 3.65 percent to $145,000 year over year, and was also flat compared to the previous month.

Year-to-date home sale data for September from Metrolist includes:

• Total home sales decreased 15.63 percent to 31,554 from September 2008, and average selling price was down 5.41 percent to $242,010.

• Single-family home sales dropped 15.77 percent to 24,983, with average sold price down 4.97 percent to $263,518. Median sold price decreased 2.85 percent to $218,500 year over year.

• Condo sales decreased 15.09 percent to 6,571 year over year, and average selling price was down 7.67 percent to $160,235. Median sold price dipped 2.86 percent to $136,000.

Based in Greenwood Village, Metrolist is metro Denver’s Multiple Listing Service (MLS) providing home-sale data to residential real estate brokers and agents.

pmoore@bizjournals.com | 303-803-9232

I often remind clients that they need to calculate in sweat equity when purchasing distressed properties. Certainly you can "purchase equity" in the 20k to 50k range. But if the property takes 20k to get up to resale condition, then what is left is your sweat equity. In this market I am seeing HUD homes being bid up 10, 15 even $30,000. Here is a good article from WJS Online showing that the competition for foreclosures is rampant across the county.

Are Distressed Homes Worth It?

By M.P. MCQUEEN

Home buyers are finding that the battered real-estate market offers just as many opportunities for headaches as for bargains.

Seth and Crystal Grotzke, both 25 years old, recently bought a bank-owned two-bedroom, two-bathroom townhouse in Edina, Minn., for $110,000—when similar homes in the same development were selling for as much as $131,000. But exactly one day before the scheduled July closing, the Grotzkes learned there was a second, unpaid mortgage. Because of the foul-up, the couple was forced to live in Mr. Grotzke's boss's basement for more than a month. They finally closed on Aug. 31.

"We knew there would be title issues, but none that would last for that long," says Mr. Grotzke, an assistant pastor. He adds that buying a foreclosed property is a way for God to "teach you patience."

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