Headlines – Week of February 20, 2011
February 28, 2011
Bullish On Housing – 10 Reasons
A recent article by Andrew Jeffery is a principal of Cirios Real Estate states that now may be the time to become bullish on housing despite the ongoing issues of a looming shadow inventory, a lackluster job market and geopolitical instability.
However, the author has one huge caveat and that is … all housing markets are local and while the recovery remains in full force, there has been and will continue to be fundamentally strong markets where prices have increased while many weak ones have languished.
Jeffery’s 10 reasons to be bullish on housing:
1. Jobs. Housing follows jobs. Period. And while the job market is still weak in many areas, pockets of strength are emerging. His example is Google.
After Google Inc. announced it would be hiring as many as 6,000 new employees, the company received 75,000 applications in two weeks and is looking to retain talent in its fight against local rivals like Apple Inc, Salesforce.com and Yahoo Inc., along with social media upstarts like Facebook, Twitter, and Zynga. If housing really does follow jobs, the San Francisco Bay Area may prove to be a bright spot in 2011.
2. Jobs. Again … housing follows jobs. Consumer confidence is close to reaching last spring’s high point and while hiring hasn’t restarted in earnest, firing has slowed. And if you haven’t been fired yet, your job is reasonably secure. Job security drives optimism, planning for the future and … home buying.
3. Pent-up demand. Consider this: 2006 college grads entered the labor market just as home prices began to collapse. Those who still have a job kicked and scratched their way through the Great Recession and are now 27, perhaps married or getting there and kids may be on the horizon. Today’s young adults are under-represented as homeowners compared to historical norms, and a disproportionately large chunk lives at home. As the job market returns to life, this trend is likely to reverse.
4. Foreclosures. According to Jeffrey, banks are rational actors and are unlikely to destroy the value of their own assets — which is exactly what flooding the market with bank-owned properties would do. Coupled with political pressure and an ever-increasing maze of foreclosure litigation gumming up the repossession process, foreclosed inventory will continue at its steady stream.
It will take years (around four based on current estimates) to work through shadow inventory, but there will be no flood.
5. Inflation. The author believes that inflation expectations, not inflation, are what we should be worried about.
Rising inflation expectations pull demand forward, pushing up prices in an inconvenient self-fulfilling prophesy. Historically, real estate has been a rather good hedge against inflation. As people start to get nervous about inflation, they buy real estate.
6. Higher rents and low interest rates. Rents are rising, inventory is down, and landlords are back in the driver’s seat. And despite a recent bounce, interest rates remain historically low. High rents and low interest rates push would-be renters towards buying, particularly in areas with job markets that are relatively less weak than the country at-large.
7. A booming apartment market. Homeownership is at a 10-year low, young adults are moving out of their parents’ basements and into apartments, and leverage is fantastically cheap. The multifamily space typically recovers first and historically this is good news for housing.
8, Investor appetite remains strong. Distressed opportunities, across all types of real estate have come to market slower than expected, which means buyers have had more time to hit the pavement and raise money. Investor demand for real estate remains robust. With limited opportunities, competing buyers are driving up prices of distressed assets. In many markets, for every well-priced foreclosure there are a dozen all-cash buyers looking for a deal. The baby boomers are eyeing trading down into smaller, retirement-friendly homes and even more are looking for reliable fixed income.
9. The stock market. With the Dow Jones Industrial Average back above 12,000 and the S&P 500 Index topping 1,300 for the first time since mid-2008, the wealth effect is in full effect, as buyers look to sell stock for a down payment and the confidence to pull the trigger on a new home.
10. Confidence. Do you feel better or worse about the U.S. economy, and more importantly your own personal economy than you did two years ago? Challenges but we Americans are a resilient, optimistic bunch.
Confidence in the present builds confidence in the future, and confidence of all types increases risk-taking activities.
Downtown Miami’s Residential Occupancy Reaches 85%
According to Goodkin Consulting/Focus Real Estate Advisors, eighty-five percent of the 23,628 condo and apartment units constructed in downtown Miami since 2003 are now occupied, a 31% increase since June 2009.
The report signals a strong demand for urban living in Miami for the first time in the city’s history. According to the study, 78% of the condo units built during the building boom in the downtown Miami area have been sold. Unsold inventory in the downtown area has now fallen to roughly 4,960 units—a 40% drop since 2009. At the same time, average monthly leasing velocity has risen 7% in the past year.
Assuming current sale rates continue, the Miami downtown’s remaining inventory could be sold-out within 26 months. Quite an accomplishment since many analysts believed it would take nearly a decade to reach absorption.
Total condo sales in Downtown Miami were up approximately 36% year-over-year from 2009 to 2010, with 3,780 units sold in 2010. Seventy-eight percent of the 22,439 condo units completed since 2003 have been sold. Meanwhile, average sales prices in 2010 were up in the fourth quarter and on a year-over-year basis. The average unit sales price in 2010 was $347,729, a 15% increase from the average price of $302,254 in 2009. Average condominium sales price per square foot in 2010 was up 10% to $300 per square foot.
Much of the sales activity taking place can be attributed to an infusion of capital from abroad. Investors from rebounding markets such as Brazil, Mexico, Colombia, and Argentina are increasingly viewing downtown Miami an attractive place to invest. According to some, international buyers now account for roughly 60% of the sales taking place in Miami’s urban core.
One of the most important outcomes of the residential occupancy boom is Downtown Miami’s newfound destination status and commercial growth. What was once considered a strict 9-to-5 employment district is now emerging as a vibrant 24-7 city filled with a wide array of culinary, entertainment, cultural and arts experiences.
Home Prices Hit Post-bust Lows in Most Big Cities
According to the Standard & Poor’s/Case-Shiller index, home prices in a majority of major U.S. cities tracked have fallen to their lowest levels since the housing bubble burst.
Prices fell in December from November in all but one of the 20 cities it tracks. The 20-city index declined 1 percent.
The only market to see a gain was Washington.
Eleven of the markets hit their lowest point since the housing bust, in 2006 and 2007: Atlanta, Charlotte, N.C., Chicago, Detroit, Las Vegas, Miami, New York, Phoenix, Portland, Ore., Seattle and Tampa, Fla.
Prices are expected to keep falling for at least the next six months.
Some of the worst declines are in cities hit hard by foreclosures and high unemployment, including Detroit, Phoenix and Tampa. Many people are holding off buying or selling homes because they fear the market hasn’t hit bottom yet.
A large number of homes that aren’t selling are contributing to a second wave of price declines since the boom years. Many of them have been vacant for months.
In December, prices fell for the sixth straight month and for the eighth time in the past 11 months. Foreclosures are also expected to increase as the year goes forward.
The housing recovery is uneven across the United States, with coastal cities in California and the Northeast faring much better than the Midwest and Southeast. One exception is Dallas, which has avoided some of the big losses seen elsewhere.
Posted by Scott R. Lodde