Will Housing Lead the Recovery?

Prices have started to go up over the past several months. Is this trend sustainable? I would like to be optimistic. I also think housing is the engine for economic growth but there must be work, there must be jobs, and there must be confidence.
Be careful of statistics, after all if you had a penny and you earned another penny --- you had a 100% increase. But you still had only two cents!
Do I think prices have bottomed out? Yes. In some markets, prices bottomed out last year! What is your local market doing?? In Charlotte, there is only a 2-month supply of homes on the market. Are prices escalating --- yes.

GDP REPORT

2nd quarter 2009           - 0.7%
3rd quarter 2009              2.2%
4th quarter 2009              5.6%

1st quarter 2010               2.7%
2nd quarter 2010             1.7%
3rd quarter 2010              2.6%
4th quarter 2010              3.1%

1st quarter 2011              0.4%
2nd quarter 2011             1.3%
3rd quarter 2011             1.8%
4rd quarter 2011             3.0%

1st Quarter 2012             1.9%

2nd quarter 2012           Advance Estimate        1.5%

Are You Better Off Today than you Were in 2010?

As housing goes …. So goes the economy!

The Great Recession

I have posted the below graph in the past because the comparison of the 2007 recession to other recessions is stark and devastating. The most interesting comparison is between 2001 and 2007.

The 2007 recession seems to be a mirror image of the 2001 recession except for the depth of the recession. In 2001, this was a mild recession for housing. There was a lull in the market but picked up steam very quickly --- leading to the housing bubble. In every other recession, housing has been adjusted along with other elements of the economy.

In 2001, housing prices were not reset and continued to rise --- rapidly. The 2007 recovery seems to be on the same path as 2001 except for the magnitude of the unemployed. This graph does not illustrate the entire picture since it does not include those that have dropped out of the job market.

The problem is that the rest of the economy is not picking up but rather slowing down. The GDP advanced estimate for the second quarter will provide the trend. If the advance estimate is around 1.5%, we are not heading in the right direction.

Are you really better off than 1-year ago?

I have said it over and over again, As Housing Goes so Goes the Economy! This time, housing may be giving us a false sense of positive momentum. I sure hope I am wrong and te momentum is real and long term for us all!

Apartment Vacancies Plunge to 2001 Levels

Posted by BarryGraubart in First Glance Reports – Reis Reports

Nationally, the apartment market continues to thrive. Despite market jitters and disappointing economic news, apartment vacancies in Q2 have dropped to 4.7% nationally, a level last seen in 2001, a market with a strong economy and unemployment at just 5%.


Those numbers come from the just-published Reis First Glance Reports. Full second quarter data will be published on the site beginning August 1.


The second quarter saw a 20 bp drop in vacancy rates, lower than the 30-40 bp declines we’ve seen the past ten quarters. This moderation in vacancy compression is not unexpected with such tight markets, as landlords begin to shift their strategies for revenue growth from vacancy decline to accelerating rent increases.


Against that backdrop, effective rents increased 1.3% for the quarter, nationally, the fastest pace recorded by Reis since the third quarter of 2007. The rent increase was broad-based, as all 82 primary markets surveyed by Reis showed gains for the period.


The tightening market was aided by low inventory growth with just 10,000 units coming online nationally during the quarter. With developers looking to take advantage of current conditions, Reis expects a total of 75,000 units to come online in 2012, with 150,000 – 200,000 forecast for 2013.

I would like to highlight their forecast of 100% increase in MF units coming online in 2013 from 2012. 

From the graph, REIS is now predicting that the multifamily housing completions will increase to levels seen in 1988 and 1999 - both recessionary periods. I don't feel good about the trends. Multifamily projects typically have a lot of units in multi-story buildings. Most MF projects are financed in total and the project is started in total. The completion of the project may take a year while a SF can be built in 120 days. Thus, in my opinion, by the time these projects are completed in 2013, the rental market vacancy rates will increase.

Compare the above graph with the single family starts graph

In my opinion, multifamily housing will compete with single family housing in 2013 for the pent-up demand. Single family housing will win just because it will cost less per month to buy a house than rent an apartment. Again, I predict a sharp increase in SF new home prices. Do you know that lumber has increased 18%  over last year? Housing inflation and appreciation is starting now.
Tell your family members, friends, co-workers, and strangers to buy now. The most significant problem is that interest rates were always used to slow down inflation and encourage growth. With interest rates at historic lows, buy now! Raising interest rates will ............................................???????

Local Gov’t Using Eminent Domain to Seize Homes

Local government wants to use eminent domain to TAKE homes that are underwater BUT are performing loans------ WHAT!!!!

I found the following article but didn’t record the source since I couldn’t believe what I was reading!

FONTANA, Calif. — In a story July 15 about a proposal for cities and counties to use the power of eminent domain to seize mortgages and help homeowners into more manageable payments, The Associated Press reported erroneously that Robert Hockett, a Cornell University law professor, likes that the proposal forces the hand of uncooperative investors. Hockett said that he likes that the proposal forces the hand of some investment bankers who have stifled plans to reduce principal.


Under the proposal, cities and counties would argue that a public purpose is served by condemning the mortgages under eminent domain because the cities and counties face economic blight and a damaged tax base.


Discussion of the idea is taking place in one of the epicenters of the housing crisis, a working-class region east of Los Angeles where housing prices have plummeted. Last week brought another sharp reminder of the crisis when the 210,000-strong city of San Bernardino, struggling after shrunken home prices walloped local tax revenues, announced it would seek bankruptcy protection.


Now – and amid skepticism on many fronts – officials from the surrounding county of San Bernardino and cities of Fontana and Ontario have created a joint powers authority to consider what role local governments could take to stem the crisis. The goal is to keep homeowners saddled by large mortgage payments from losing their homes – which are now valued at a fraction of what they were once worth.


"We just have too much pain and misery in this county to call off a public discussion like this," said David Wert, a county spokesman.


The idea was broached by a group of West Coast financiers who suggest using the power of eminent domain, which lets the government seize private property for public purpose.


In this case, they would condemn troubled mortgages so they could seize them. Then the borrowers would be helped into mortgages with significantly lower monthly payments.


Steven Gluckstern, chairman of the newly formed San Francisco-based Mortgage Resolution Partners, says his main concern is to help the economy, which is being held back by the mortgage crisis.


"This is not a bunch of Wall Street guys sitting around saying, `How do we make money?'" he said. "This was a bunch of Wall Street guys sitting around saying, `How do you solve this problem?'"


Typically, eminent domain has been used to clear property for infrastructure projects like highways, schools and sewage plants. In this case, supporters say, the public purpose is served because communities battered by foreclosures have seen tax rolls decimated and services gutted and have suffered economic blight.


The plan targets homeowners who are current on their mortgage payments but "under water," meaning they owe more on the mortgage than the home is worth. “

OK…..OK – a home underwater but a performing loan is a home underwater on paper only. The homeowner considers their house a home not an investment. If they continue to live in their home and not focus on the paper “loss”, home prices will appreciate again.


I guess desperate people, companies, or governments do desperate things in desperate times. This however is over the top! Government needs to get out of the way and leave the housing industry alone.

Don’t be discouraged by what you can see,

be encouraged by what you can’t see!



A NEW BILL FROM CONGRESS

To amend the Omnibus Crime Control and Safe Streets Act of 1968 to enhance the use of Juvenile Accountability Block Grants for programs to prevent and address occurrences of bullying and to reauthorize the Juvenile Accountability Block Grants program.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Juvenile Accountability Block Grant Reauthorization and the Bullying Prevention and Intervention Act of 2012'.

SEC. 2. BULLYING PREVENTION AND INTERVENTION PROGRAMS; REAUTHORIZATION OF JUVENILE ACCOUNTABILITY BLOCK GRANTS.

(a) Bullying Prevention and Intervention-

(1) IN GENERAL- Paragraph (13) of section 1801(b) of the Omnibus Crime Control and Safe Streets Act of 1968 (42 U.S.C. 3796ee(b)) is amended to read as follows:

`(13) establishing and maintaining accountability-based programs that are designed to enhance school safety, which programs may include research to prevent bullying, the prevention of cyberbullying, and gang prevention programs, as well as intervention programs regarding bullying;'.

(2) SENSE OF CONGRESS- It is the sense of the Congress that the use of best practices in the effort to combat bullying should be encouraged.

(b) Reauthorization of Juvenile Accountability Block Grants- Section 1810(a) of such Act (42 U.S.C. 3796ee-10(a)) is amended by inserting before the period at the end the following: `and $40,000,000 for each of fiscal years 2013 through 2017'.

REALLY?

Home Prices

There are unintentional consequences of home prices rising quickly. Homes under contract will now have to appraise. Remember, appraisals are an analysis of past sold homes. Appraisals are not a prediction of things to come but of a defined transaction. I also heard that the time to close will also be extended because of the lack of appraisers left standing in the industry.

Sellers are recognizing the shortage of inventory and are reluctant to start with a low price to sell. In fact, many sellers are starting to raise their prices. Unfortunately, homes may not appraise especially if there are short sales and foreclosures in the same neighborhood or nearby.

The result will be an increase in contract failures. You may remember this illustration. I still don’t believe all of the foreclosures have been released by the banks. Housing is trying it’s best to jump start the economy. Remember, I am not an economist but the definition of a “fad” is “something that is embraced very enthusiastically for a short time, especially by many people”. In my opinion, prices have bottomed out and are rising. However, I am not confident that lenders will not release the shadow inventory soon because of the new market dynamics. Time will tell.

When only one segment of the economy is moving and granted housing is the engine, I just think this activity is a false sense of security. I hope not but you still should sell your home or buy your home --- NOW!

Local Housing Markets are Changing --- Fast!

The economic malaise is effecting the housing market in reverse. Fear of the future and the need to stay in place have taken over the mindset of homeowners. We used to find jobs in other cities and we would move. A 2.8 monthly inventory of homes on the market signals a sellers market!! Compare the above to the inventory in September 2011. In 9 months, the Charlotte market has changed significantly.



The following chart provides the results of the changing market. Remember, it is not because the Charlotte economy is going through the roof but more about homeowners not wanting to or can't make a change.



In one year, the average price of a home in Charlotte has increased 13.5%. If the supply remains low, prices will continue to escalate. We are seeing multiple contract offers and quick sales. Check your local market and let me know the difference in pricing over the past 12-months. The problem with the appreciation in home prices --- it is not because of the overall economy or consumer confidence but the lack of confidence and the fear of the future.







What Can You Afford Today with Today's Interest Rates?

The following infomation has been provided by Allen TateMortgage.

Weekend Rate Sheet 07/13/2012

Conventional Conforming Fixed Rates

30 Year                                   3.375%

20 Year                                   3.250%

15 Year                                   2.750%


3% down Conv 30 yr – Minimum Credit 700             3.750%

Conventional Conforming Arms

Quoted @ 90% LTV

5/1 Yr                                       2.625%

7/1 Yr                                       2.750%

10/1 Yr                                     3.125%

Government Loans-0- origination fee                                                FHA and VA Arms

30 Year Fixed FHA                  3.250%                                       3/1 Yr                      N/A%

30 Year Fixed VA                    3.500%                                       5/1 Yr                     2.875%


USDA Rural Housing

100% Financing      Income Limits

30 year Fixed                           3.250%

North Carolina Finance Agency      Income Limits

30 year Fixed Rate                  3.250%

North Carolina Finance Agency      Income Limits

30 year fixed rate                    3.750%
Down Payment Assistance

There are mortgage programs available with 3% down with a little higher interest rates.
There are mortgage programs available with a minimum credit score of 580

With rents going up, WHY wouldn't a first time homebuyer at least consider buying today???????







Finally a Home Buyer Offers to Buy and Then?

President Barack Obama, with Vice President Joe Biden, delivered remarks before signing the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, 2010.


As with any federal legislation, it takes time to implement or react to the provisions of the law since regulations are first written to implement the legislation. Thus, it is clear that this legislation has had a profound impact on home buyers and closing of the real estate deal. This Dodd-Frank legislation is much more wide spread than just affecting the home buying process.

No wonder our economy is not rebounding……………. I say over and over again ---- As Housing goes so goes the Economy! Until Dodd-Frank is repealed, our housing problems will continue to persist.

Labor force status: Employment-Population Ratio

Labor Force Statistics from the Current Population Survey

Series Id: LNS12300000
Seasonally Adjusted
Series title: (Seas) Employment-Population Ratio
Labor force status: Employment-population ratio
Type of data: Percent or rate
Age: 16 years and over

2008 to Present "Great Recession"

I have provided the statistics before but a visual representation of the labor force as a percentage of the population is a much better way to understand the unemployment problem.

To read the graphs: on the left axis is the percentage of the work-force population actually working!!

From January 2010 to the present, we are a roller coaster but remaining relatively constant. This tells me the job growth is basically keeping up with population growth. However, the economy is not strong enough to create work for the workers that left the labor force from 2008-2010.

I thought it would be interesting to compare the "great recession" to the last four recessions.

Early 2000 Recession (Note: the effect on housing was mild and now we know why!)

1990's Recession - this recession was also a banking issue --- remember the Savings and Loan issue? This recession was problematic for housing and recovery was slow.

1980's Recession - this recession was brutal!! You buy a home with an American Express card with interest rates of 18% or above!!

Ronald Reagan won the 1980 election by an electoral margin of 489-49 and captured almost 51 percent of the popular vote. It took his policies several years to make a positive impact. What bothers me is that even with a presidential change this fall, we could be faced with many more years of ..............................

1970's Recession -  employment to population ration is the lowest of all recessions in mid-1975.  

 

Compare the illustrations and then compare the statistics and time. We will still have to hang on by our finger nails --- if you have any left!!

WE HAVE TO DO WHAT WE DO DIFFERENTLY!

Short Sales

It is not easy to buy a short sale simply because the lender has to approve of the sales price of the home. The bank has to decide how to handle the difference between the proceeds of the sale and the mortgage amount due from the borrower.

Each lender approaches a short sale differently and it takes time to get an answer. Buyers should know that alot of time and effort can be expended to find out the bank will not approve the sale.

Or they approve the sale but they want the seller to take out a personal loan for the balance between the sales price and the mortgage amount due. Or --- do they really forgive the difference in the payoff amount and the mortgage balance due? However, an increase in short sales seems like a positive. Homeowners need to or want to move and are pursuing this approach rather than a foreclosure, at least initially. The real estate industry is changing and those that can use the trends to their advantage will do well in buying a home now.

Housing Starts & Family Formations

This graph illustrates a sharp increase in family formations. By the end of 2012, I would expect single family housing starts to reflect this same level of increase.

For the past three years, the decline in family formations has been due to many factors none being more significant than the economy. This pent-up demand will fuel housing starts regardless of the overall economy.

This would be great if housing got some traction and built us out of the great recession. There is a lack of housing inventory (supply) and the increase in demand will cause prices to increase. A sharp increase in housing activity will also strain material suppliers and cause material shortages. The housing labor force has basically disappeared over the past three years and it will take some time to rebuild the capabilities.

For a seller - list your home now.
For a buyer - you may have waited too long if you were striving for a "deal"
For land owners - residential zoned land may actually be marketable

There is another aspect of the home building industry which has not been evaluated to any extent. Local regulations!! It has been my experience that local government continues to find ways of controlling land regardless of economic conditions. Local government has had a free reign over the industry for the past three years. Let's investigate the results of their efforts.    

Are you better off today than you were in 2011?
What would a double dip recession do to us?
We all must VOTE in November! Register your friends, family members and colleagues to vote.
It is up to us to make a difference.



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