What is Fueling Housing Recovery??

I had an interesting conversation with an Investor from Russia today. He read two of my recent blogs about a housing recovery. He commented that lending is tight in the USA yet the sale of homes and the prices of homes are both increasing. It did not make sense to him. I have been a partner in two Venture Capital firms and two private equity firms. These types of firms have been buying real estate for many years. It occurred to me that these types of firms were at least partially fueling the current housing recovery. So, I did some research and I was astounded. The National Association of Realtors (NAR) expects average existing home prices in 2013 to be around $185,800, with an increase to $193,600 by the end of 2014. (Source: National Association of Realtors, January 2013.) It appears that what is fueling the recovery in the U.S. housing market and home prices is something that’s never happened in our history. It’s not individuals buying houses that are moving prices and demand higher; it is the institutions. The Blackstone Group L.P. (NYSE/BX) bought $2.5 billion worth of U.S. homes—that’s 16,000 units in total so far, with cash! In October of 2012, the company owned $1.5 billion worth of homes and was spending $100 million a week to purchase more! Other companies like the Colony Capital LLC and Waypoint Homes are taking similar courses of action as the home prices increase. Colony Capital has already purchased 5,500 homes since April of 2012 and expects its investments to increase to $1.5 billion by the end of this year. Waypoint Homes has bought 2,500 home and plans to have a total of 10,000 homes by the end of 2013. Institutions are pouring big money into buying individual homes and fixing them up, and then turning around and renting them. And more and more companies are entering this new “game.” As an example, Silver Bay Realty Trust Corp. (NYSE/SBY) raised $245 million in an initial public offering (IPO), and it plans to get involved in the markets for single-family homes. This is clearly a good situation at first glance since the infusion of cash into the markets has helped fuel recovery. However, there is a downside to this. As soon as institutional investors can get better returns for their money elsewhere, they will be out of housing and moving on to the next thing. Home prices increasing may have been great for speculators and investors, but not for the economy. Paddy Deighan J.D. Ph.D http://www.homesavers.pro \

Further Evidence of a Housing Recovery

Last week, I wrote a blog about the housing recovery and I cited expert opinion that indicates that we are in fact in a recovery. The blog entry was very well received. Of course there are negative fundamentals that detract from the positive news (such as shadow inventory, unemployment and lending guidelines). However, despite negative aspects on many market fronts in the wake of the fiscal cliff “resolution” (or lack thereof), the housing market recovery seems to be strong. In fact, the number of “improving markets” as identified by the National Association of Home Builders (NAHB) rose sharply this month to 242, up by 47 over December 2012. 47 new markets met the requirements of solid relative growth, employment improvement, housing permit application volume, and home price improvement to be added to the list. Only six markets fell off the list this month. “We created the improving markets list…to spotlight individual metros where – contrary to the national headlines – housing markets were on the mend,” said NAHB chairman Barry Rutenberg. “Today,” he observed, “242 out of 361 metros nationwide appear on that list. The story is no longer about exceptions to the rule but about the growing breadth of the housing recovery.” Rutenberg threw in a dig about “overly strict mortgage requirements hold[ing] back the pace of improvement,” but the NAHB’s tone is definitely one of optimism for 2013. So now we have further evidence of a strong housing recovery for 2013. Probably the strongest evidence of a housing recovery and rising prices is that I plan on buying a home in 2013!!! Of course the market goes up when I decide to buy another home!!! LOL All we need now is loosening of credit and the recovery will really take hold. It is also important to note that no market goes straight up and no market goes straight down so there will always be some variations and deviations. Paddy Deighan J.D. Ph.D http://www.homesavers.pro

More Disturbing News for Real Estate Values

There is more disturbing news regarding the real estate industry and the anticipated turn around ion values. Many have predicted that the bottom has been reached and that prices will soon begin to rise – even by the end of this year. I have consistently maintained that values in certain areas will rise but that in general, values will continue to fall for quite some time. My opinion is based upon the realization that there is approximately 36 months’ worth of shadow inventory being held out of the market by lenders. This means that if not one new home comes into the market, there is sufficient inventory to satisfy demand for over three and a half years when you consider the current inventory and shadow inventory. It is simple supply and demand economic theory. How can prices recover when demand is somewhat constant (arguably) and supply is continuing to rise?? The only example of this NOT happening is oil prices where supply continues to rise and demand drops, yet prices rise. This is due to heavy manipulation of the markets and OPEC’s short sided view of making as much money as possible.
According to one prominent economist, 6.5 million new households will have to be formed before the excess housing inventory in the country will be absorbed. Brendan Lowney is a macroeconomist for Forest Economic Advisors in Massachusetts. He has estimated excess home inventories at 2.5 million, which is creating downward pressure on home prices and pushing more homes underwater. Lowey believes that the formation of an average 1.3 million new households per year will clear much of the excess inventory, and that this process will take about five years to complete. Only then, he says, will the housing recovery truly begin. Is it realistic to assume 1.3 million ne households per year??
This paints a bleak picture for sellers for the next few years. As one Fox Business columnist put it, “[the] housing recovery begins when foreclosures turn to closings”. Jay Butler, associate professor of real estate at Arizona State University, elaborated on that theme, pointing out that the key to the housing recovery is when “the housing market is driven by owner-occupants, not foreclosed properties. Other analysts add that jobs are the key, since high unemployment has made would-be homeowners reluctant to take on new payments – especially in a time when real estate is no longer perceived to be a “sure-fire” investment

Housing Prices Drop for the 57th Consecutive Month...

Zillow announced last week that home values have fallen for a 57th straight month. This is clearly not good news for anyone but, it has hit beneficiaries of the $8,000 tax credit for first-time home buyers particularly hard. The Wall Street Journal, announced that the first time home buyers (that purchased as a result of the Obama tax credits) have “lost twice as much to falling house prices as they gained from the incentive”. The initiative began as an incentive for first-time buyers, then was expanded to include a $6,500 credit for existing homeowners who made a new purchase. The program ran from January 2009 until September of 2010 and, arguably artificially and temporarily improved the housing market at the cost of a faster recovery. Typical homes bought during that period have lost about $20,000 in value since that time.
To make matters worse, the IRS recently reported that it paid $26 billion in home buyer credits during the running time of the program. However, it believes that “at least $513 million went to fraudulent claims. Common incidences of fraud included claimants that did not buy houses, claimants that filed twice and individuals who were underage or incarcerated

Shadow Inventory Portends Slow Housing Market Recovery

The shadow market is coming out of the shadows, and the numbers are staggering. According to a report released yesterday by LPS (Lender Processing Services), “foreclosure inventory levels [stand] at 30 times monthly foreclosure sales volume.” As a result of this massive backlog, real estate analysts expect more downward pressure on U.S. home values as most of these homes are likely to reenter the market as REO properties rather than being sold in another more profitable manner. The statistics on the foreclosure backlog are also staggering, with LPS reporting that the average U.S. loan currently in foreclosure has been delinquent for 537 days, and 30 percent of loans in foreclosure have not made payments in more than two years.

Thanks to slower processing times on foreclosures, it is unlikely that this backlog will disperse any time soon. In fact, although total U.S. loan delinquency has fallen nearly two percentage points over last year and foreclosure starts are down 14 percent from last year, the actual foreclosure rate is up as banks struggle to keep their books in order and intact. With the “non-current inventory” logging in at nearly 7 million, the backlog is likely here to stay.

Many analysts have been predicting that 2011 will be the beginning of a recovery for many sectors of the real estate market, though most agree that the residential market has a long way to go. With news such as this it is hard to see the beginning of a recovery.