In my last quarterly update, I welcomed the lazy hazy days of summer. In a blink, those days have been replaced by back-to-school nights and shorter days. In the real estate business cycle, the traditional “busy season” begins to cool off and the “winter market” closes in.
As we prepare for the inevitable climate and foliage change that fall and winter bring, we also focus on a presidential election. Looking forward requires looking back and in that regard, the summer of 2016 has returned another positive report for the national real estate market.
The cautious optimist in me is still asking some of the same questions from past quarters. How long will the positive trend last? When will the Fed raise interest rates? Will the election be the catalyst to spur less favorable conditions? How long will the Greater Houston markets show price growth despite the volatile oils markets?
For now, we’ll have to wait to see how things play out. In the meantime, let’s look at some trends and developments of interest to mobile employees (and the companies that move them), as referenced in NAR Research’s September/October 2016 Market Pulse: Continue Reading →
Fall usually means football and the end of baseball. This fall, all eyes are on the Fed as the threat of an interest rate increase is the main concern. Interest rates are the wild card in the continued slow but steady housing recovery. My view is that housing has “recovered” because 2006 peak prices were never sustainable.
If a rate increase occurs, there are two schools of thought on the potential impact. First is that the increase will reduce purchasing power and snuff out any further chance of continued price increases and demand. The second is that sideline (rate) watchers, those who have contemplated a home purchase, will jump into the purchase market for fear of losing out.
This second scenario will add to what we have largely seen over the past several years as a “rate-driven” demand. When we can get to a point where rate changes are offset by substantive wage growth, and both first time buyers and others can act based on needs, we will have cleared a major hurdle.
A quote from Frank Nothaft, Chief Economist at Corelogic, accurately sums up the current “mood” relative to US Real Estate: “The overall economy has provided mixed signals on its performance so far this year, but one thing is clear: Home sales are off to a brisk start through April. We expect house prices in our national index to be up about 5 percent in the next 12 months, and mortgage rates are likely to move higher over the next year.”
To bolster that claim, Corelogic reported the following on June 9, 2015: “The National foreclosure inventory fell by 24.9 percent year over year in April 2015 to approximately 521,000 homes, or 1.4 percent of all homes with a mortgage. This marks 42 months of consecutive year-over-year declines.”
Additionally and supportive of positive market conditions, CoreLogic also reported (June 8) that distressed sales—real estate-owned (REO) and short sales—accounted for 12.1 percent of total home sales nationally in March 2015, a 3.2 percentage point drop from March 2014 and a 1.9 percentage point decrease from February 2015. At their peak, distressed sales totaled 32.4 percent of all sales in January 2009, with REO sales representing 27.9 percent of that share.
More qualified home buyers are being left on the sidelines simply due to their credit scores. That was the big takeaway from the recent Mortgage Bankers Association (MBA) Expo and Conference, where David H. Stevens, President & CEO of the MBA, warned that the secondary market is negatively impacting mortgage affordability and availability, increasing costs for borrowers and even preventing many from obtaining homes, and stifling a full-blown market recovery.
The current average credit score in America today is about 700, while the average credit score of a borrower with a loan backed by Fannie Mae in Q1 2014 is 741. On top of these strict credit criteria, there are loan level price adjusters, overlays and ever-increasing guarantee fees. In this system, according to Stevens, only those with the most pristine credit can afford a home. This clearly indicates that while credit availability for mortgages may have improved since the recession, homebuyers still face “credit challenges.”
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In terms of US Real Estate recovery, 2013 will end on cautious but optimistic note. It’s hard not to be optimistic considering the numerous marked improvements that signify that the housing market is gaining strength. While wage growth and significant job creation were absent to solidify the perfect recovery, nonetheless 2013 could be called the “seller’s comeback.”
Among the recent highlights:
— According to the Commerce Department, residential building permits issued in October surpassed 1 million for the first time in five years and 13.9% above October of 2012.
The US Housing Market saw numerous positive signs in the first half of 2013. Mortgage interest rates have edged up significantly in the past 30 days but mortgage activity is still robust for the most part. Higher mortgage interest rates are a logical response to stronger demand for housing.
Recent developments of note include:
— The Mortgage Bankers Association (MBA) reaffirmed its outlook for mortgage originations in the second half of 2013 but lowered its forecast for US economic growth. The MBA expects originations in the second half of the year to total $606 billion, up from the $527 billion it had forecast at the beginning of the year but down considerably from the estimated $976 billion in originations during the first half of the year.
Home prices continued to decline in Q4 of 2011, marking a three-year decline from 2008 to 2011 in all 4 regions. The region hit the hardest over this time has been the west, where the median price has dropped -4.6%.
Despite this, the spring 2012 forecast is looking brighter. Among some of our clients, inventory levels are dropping and amended value transactions are trending upwards. We’ve even seen multiple offers on properties in some markets, a possible harbinger of better things to come. In fact, through Q1, the National Median Sale price is up 2.5% vs. 2011 year- end, according to the National Association of Realtors (NAR).
Our optimism is further buoyed by recent statistics from four key sources:
— Pending home sales are on an upward trend and well above 2011 Q1 figures according to the National Association of Realtors.
Some argue that foreclosure activity was the only thing spurring the housing market recovery and that the recently-announced moratorium on the sale of foreclosed properties will bring it grinding to a halt. But is it fact or media hype—-such as this Wall Street Journal blog post–fueling all the anxiety?
The reality is that foreclosure sales are contributing to the rebound; according to RealtyTrac, almost 30% of recent sales are foreclosed/distressed properties. Many of those buyers were investors, but this isn’t to say that relocating employees couldn’t be affected. Unlucky transferees who planned to scoop up a foreclosure may find their home buying process coming to an abrupt halt, meaning they’ll need longer temporary living or have to start the home finding process all over again.
This chain reaction could also impact the typical “one year” rule that many companies stipulate in policy, although there’s little doubt that the IRS would consider this moratorium an “extenuating situation” preventing the employee from completing the move within one year. For the sake of keeping relocating home buyers out of limbo, let’s hope for a quick resolution to the problem and a return to “business as usual.”