| “It’s a great day to be in real estate! Duane Beisner here… sales manager and a sales representative for ERA real estate. |
Duane’s Quote of the Day
Habit if not resisted soon becomes necessity. Augustine of Hippo
Duane’s Joke of the Day
The Devil tells a Real Estate Agent, “Look, I can make you richer, more famous, and more successful than any Real Estate Agent alive. In fact, I can make you the greatest agent that ever lived.” “Well,” says the Real Estate Agent, “what do I have to do in return?” The Devil smiles, “Well, of course you have to give me your soul,” he says, “but you also have to give me the souls of your children, the souls of your children’s children and, as a matter of fact, you have to give me the souls of all your descendants throughout eternity.” “Wait a minute,” the Real Estate Agent says cautiously, “What’s the catch?”
Nothing for Duane’s Social Commentary today!
For Duane’s Real Estate News
I came across a great article by Lawrence Yun, NAR Chief Economist
It’s certainly been an interesting past month. We’ve seen up and down movement in the stock market, concerns about mine safety, a potential environmental catastrophe, primary elections in many states, and the (fortunately) unsuccessful bomb threat in Times Square. Of course, most of those developments have little direct impact on housing. That’s the good news. So let’s take a look first at what we know for sure from the latest housing statistics.
Home sales continued to recover in March. Existing-home sales – which reflect closings (not contract signings) – rose 6.8 percent from the previous month. At the same time, pending home sales rose 5.3 percent. Distressed sales, those that are short sales or foreclosed sales, accounted for roughly one-third of all transactions and will likely continue to represent a sizable portion for the rest of the year. Why? Because mortgage delinquencies are still very high. Meanwhile, new home sales, which unlike existing-home sales actually reflect contracts and not closings, rose 27 percent. Remember though that we are already in May and the home buyer tax credit has expired (as of April 30); data collection for April is still taking place and so the figures are likely to be even higher. A nice uptick in mortgage purchase applications in April points in that direction.
That home buyer tax credit did exactly what it was intended to do – spurred home sales, especially among first-time buyers. In fact, first-time buyers accounted for 44 percent of home sales in March. Despite all the chatter about their heavy presence in the housing market, investors made up only 19 percent of all buyers. That 19 percent share is about the historical norm. What is out of the norm is the proportion of all-cash purchases. As has been the case for several recent months, one-fourth of all buyers in March made their home purchase sans financing (i.e., without taking out a mortgage). In normal times, all-cash purchases would make up about 10 percent of transactions.
Home prices are recovering as well. The median transacted existing-home price squeaked out a 0.4 percent gain in March compared to one year ago. New home prices advanced 4.3 percent.
Surprisingly, housing inventory – despite higher sales activity – has been rising. That is because fresh listings have been rising faster than the existing inventory has been absorbed. A combination of foreclosures, short sales, and homeowners who have not wanted to sell during the depths of the downturn last year are evidently contributing to the supply. There were 3.6 million existing homes for sale at the end of March. In addition, there are still too many vacant homes; the best estimate is at about 700,000 above normal levels. But the new home inventory of 228,000 units is the lowest level in 50 years. The very depressed housing starts have quickly helped to chip away at the inventory of newly constructed homes. Aside from home builders who are concerned about competing with deeply discounted distressed existing homes, builders are also encountering a problem of being unable to obtain construction loans. Even so, broadly speaking the inventory overhang will be with us and hold annual home price growth in the low single-digits for at least five years. Some local markets (there’s that “all real estate is local” mantra again), however, will easily surpass national growth rates, and could see double-digit price growth this and next year. One region poised for better price gains is the low local inventory markets in Southern California.
Now that the housing market is truly on its own, what can we expect? In the immediate months following the tax credit expiration date, home sales will slide measurably lower. By autumn of 2010, it will be up to job creation and consumer confidence to do the trick in supporting the housing market. Another potentially big demand source is that from improving funding for jumbo and second-home mortgages. These segments of the housing market were essentially shut down last year because these mortgages did not have government backing and the banks were scrambling to boost their capital to be well beyond the ‘stress-test’ levels. As a result we saw much bigger swings in the second-home market. Second home sales in 2009, for example, were down 55 percent from their peak level in 2005. Primary home sales, meanwhile, declined by “only” 23 percent over the same period. The good news is that in the recent past months steadily improving signs of increased lending for jumbo and second-home mortgages have been appearing. That is not surprising given the huge profits and much improved capital situation in the banking sector. Banks are steadily moving towards more normal lending activity even to the sectors that do not have government backing. Therefore, there could be a nice swing back of high-end jumbo home sales and vacation home sales this year. But a new menace could derail this optimistic scenario: Greece! That country, in short, is bankrupt. It is unable to raise revenue to pay for government spending, including pension benefits for many who have retired at the age of 55. The Greek government has been borrowing heavily to plug the budget gap, but investors are asking if they will ever get their loaned funds back from the Greek treasury. Germany, in particular, is irate that its citizens, who typically retire at a much older age than do Greeks, are being asked to provide pension money for Greek citizens. In the meantime, Greece is ready to ratchet up the argument by blaming the crisis on foreigners and greedy lenders.
So, how do such events in a far-off land impact the U.S. housing market? If Greece defaults then German and many other banks will see their capital evaporate. That in turn will make it difficult to lend to other countries like Portugal and Spain to finance their budget deficits. If Portugal or Spain also defaults via contagion, then another major credit crisis is on hand. (Ireland would have been included in the list of potentially troubling countries with unsustainable government debt, but the Irish decided to drastically cut salaries, furloughed many government employees and convinced its investors it will repay the loans.) Global financial linkages assure that U.S. banks will also take some hit in their capital buffer. Jumbo and second-home mortgages – good bye! At the moment, the potential for the spread of this contagion all the way to the U.S. is a small probability, though it will be highly significant if it were to occur.
Finally, there is the oil spill in the Gulf of Mexico. As of the writing of this article (early May), it is still too soon to accurately assess all the wreck that will eventually materialize. It may be years before some of the affected local economies get fully back on their feet. For the broader U.S. economy, the oil spill will mean two things. First, the price of oil will rise measurably – or more imported oil will have to be brought to the U.S. In both scenarios, economic growth will be held back. If oil prices were to rise to $100 per barrel and stay there, then GDP growth will likely be reduced by one percentage point (GDP growth of 1.9 percent rather than the current forecast of 2.9 percent). If more oil is imported then the net export equation deteriorates. Slower economic growth will mean slower job expansion and a higher U.S. budget deficit. Neither of those results are positive for our economy, or real estate. It’s a waiting game.
This is Duane signing off. Happy Trails to you! As always, proud to be an American. You can email me at duane.beisner@era.com Or visit my website at www.rejedi.com
No comments:
Post a Comment