March 28, 2011
Existing vs. New Home Pricing
According to a recent post on the National Association of Realtors blog, newly constructed homes command higher prices than existing homes.
Historically the premium of new home price above existing home price has been about 15 percent, however, recent price data say that the premium has risen to 45 percent.
The median price of new homes in January was $230,600 versus the median price of existing homes of $157,900. Much of this difference is due to distressed home properties on the market that are selling for much less than the replacement cost. However, with this exceptionally large price differential between new and existing homes, the NAR suggests that either new home prices have to fall or there is good growth potential for existing home prices.
State by State Estimate of Shadow Inventory
Much has been written over the past few years about the size of the “shadow” inventory of existing residential real estate. Depending on who you’re listening to it can mean different things.
So what is the definition of shadow inventory?
Definition 1– Foreclosed but not listed. Some analysts say the “shadow inventory” is the homes which the bank foreclosed on but not sold. These are homes that are not on the market but owned by the bank (REOs not listed on the market).
Definition 2 – Homes in the foreclosure process as well as delinquent mortgages where foreclosure proceedings are imminent.
Definition 3– All homes delinquent, short sales not on the market, REOs not on the market, and anything in the foreclosure process.
Definition 4 – All of the above plus modified loans (as they have a large percentage of failing anyway, pay option-arms about to be reset, and lots sitting idle with builders in trouble.
Many just go with the Standards & Poor’s definition which most similar to Definition 3… all delinquent loans, not just REO’s.
Recently, Research Economist Selma Hepp of the National Association of Realtors published an article on the NAR blog, Economist’s Outlook which attempts to estimate the shadow inventory state by state.
Hepp’s research determined that although the foreclosure crisis at times appears to be a national problem, in actuality only four states have continually had relatively worse foreclosure problems: Arizona, California, Florida and Nevada. These four states still account for 42 percent of the foreclosure inventory today. And, by adding Illinois, New York and New Jersey to the mix, the share increases to almost 60 percent of all inventory.
The national numbers indicate the situation is mostly improving … at least in terms of delinquencies. According to the research, in the last quarter of 2010, serious delinquencies, those 90+ days late, fell over the past year in all but four states, Washington, New Jersey, New York, and Vermont. The change in the total non-current loans is in fact down 38 percent nationally, with states such as Hawaii, California, Nevada, New Hampshire, Illinois and Massachusetts all seeing decreases over 40 percent over the last 12 months.
The share of delinquent loans already on the market is estimated based on NAR’s REALTORS® Confidence Index (RCI) survey in which Realtors report, among other things, what share of their sales were short sales or foreclosures. State level monthly data is averaged over the past year to get the state level estimates of short sales and foreclosures as shown in the map below.
The following chart shows top 26 states with highest levels of shadow inventory.
The following chart shows the 25 states with lowest levels of shadow inventory.
As expected, Florida tops the list with the largest shadow inventory of over 441,000 properties. California, Illinois and New York follow Florida in the levels of shadow inventory. This is also not out of the ordinary, given that these states have also had high delinquency and foreclosure rates, but also relatively longer foreclosure processes. On the other hand, Arizona and Nevada, while still ranking among top 25 states, are faring relatively better in terms of the shadow inventory. This is largely due to their shadow inventory moving somewhat faster through the pipe lines and comprising larger share of existing sales.
The following map shows the number of months it would take to clear the shadow inventory by state. The months’ supply is estimated by dividing the shadow inventory and the monthly number of distressed sales. The numbers range broadly from 51 months in New Jersey to 7 months in Nevada.
Various issues also affect shadow inventory and how long it takes to clear it. One important issue currently taking place in Florida is the controversy over banks’ foreclosure processes and documentation which has a significant impact on what happens with shadow inventory.
18% of Fla. homes vacant
According to recently released data from the U.S. Census Bureau 18 percent, or 1.6 million housing units are currently vacant in the State of Florida.
A number of recent media reports have focused on the large number of vacancies, considering it a reflection of homes for sale, and an indication of the time it would take for the real estate market to fully recover. However, many homes the Census Bureau considers vacant are empty by choice. These are homes in which snowbirds live only a few months out of the year, for example, or homes under construction but not yet inhabitable.
The U.S. Census Bureau defines vacant as a dwelling in which “no one is living in it at the time of the interview, unless its occupants are only temporarily absent” or “entirely occupied by persons who have a usual residence elsewhere.” The latter definition would include snowbirds or other part-time Florida residents
Despite these discrepancies, Florida’s vacancy rate surpassed other states. Arizona’s vacancy rate was 16 percent, while Nevada’s was 14 percent. California had 8 percent vacancies.
In Florida, Collier County registered a 32 percent vacancy rate, according to the Census Bureau, though Southwest Florida has a high number of snowbirds that would register as vacant. Lee County’s vacancy rate was 30 percent, while Miami-Dade registered 12 percent.
Posted by Scott R. Lodde
March 22, 2011
Florida Growth Outpaces National Trend
According to data from the 2010 Census, Florida has registered its seventh consecutive decade of double-digit population growth. While the nation as a whole grew by 9.7 percent, the number of Florida residents surged 17.6 percent as 2.8 million more people moved in from between 2000 and 2010, well above the 9.7% national rate.
However, the numbers tell a story of two different half-decades as the first half was so great that it made up for any decline of the past few years. Annual growth that had peaked at 2.3% in 2005 fell to 0.5% in 2009 and 0.7% in 2010.
The state’s growth was driven primarily by migration, particularly by domestic migration from other parts of the United States.
The state’s population gains also materialized despite a high rate of unemployment coupled with a housing slump. The Census statistics reveal that almost 1.7 million new residential units were constructed over the past decade, for a total of 8.9 million; however, the number of vacant properties grew nearly 63 percent over the same time frame to 1.5 million from 603,760.
Flagler County, north of Daytona Beach, was the fastest-growing county, up 92% to 95,696. Sumter County, home of The Villages retirement community in central Florida, grew 75% to 93,420, and Osceola County, just south of Orlando, grew 56% to 268,685.
Even larger and more densely developed areas gained: Miami-Dade, the largest county, up 11% to 2.5 million; Jacksonville, the largest city, up almost 12% to 821,784.
St. Petersburg and its county, Pinellas, were among the few decliners. The state’s fourth-largest city lost 1.4% of its population since 2000, down to 245,000. Pinellas fell 0.5% to 916,542.
10 Real Estate Markets to Watch in 2011
According to an article in Inman News, real estate markets in the Midwest and Northeast dominated a list of 10 fast-rising real estate markets nationwide as many markets in the Sun Belt states are still struggling through the housing downturn.
Inman examined housing, economic and demographic data for metropolitan areas nationwide in compiling a list of 10 housing markets that are showing signs of strength and may outperform other housing markets in 2011 in several key metrics.
The Midwest and Northeast U.S. accounted for eight of 10 markets on the list:
- Bismarck and Fargo, ND
- Des Moines, IA
- Bloomington-Normal, IL
- Elmira and Buffalo-Niagara Falls, NY
- Portland-South Portland-Biddeford, MN
- Burlington-South Burlington, VT
The other two markets on the list: Kennewick-Richland-Pasco, Wash.; and the Washington, D.C., metro area.
Inman News identified some markets with significant price appreciation as well as a vibrant job market, a high level of home affordability, low foreclosure activity, and other indicators for a healthy housing market. Most have populations below 250,000. In addition, jobs in the health care industry and public sector, especially, buoyed employment in these areas.
To compile the list, Inman News considered markets with low unemployment rates, high median sales price growth, growth in the number of building permits issued, a rise in in-migration from other states, population growth, projected job growth, affordability, low foreclosure activity, median household income growth, fewer average days on market for for-sale properties, and growth in occupied housing units.
Among the findings in this report:
- Of the states represented in this list of market areas, North Dakota, Vermont, Iowa and, to a certain extent, New York also shed fewer Realtors during the housing bust compared to other states.
- Two of the 10 markets on this list are state capitals and one is the nation’s capital — agents say government centers can lend job stability.
- Six of 10 markets had median sales prices below the national median in the fourth quarter of 2010, and seven out of 10 had median prices lower than the national median price for the full year in 2010.
- Where affordability rankings were available, the markets on the list had no less than 75 percent of homes affordable to those households earning the area’s median income.
- All had unemployment and foreclosure rates lower than the national average. None of the markets had unemployment rates higher than 8.2 percent.
- Only two of the markets had populations above 1 million. Six of 10 had populations below 250,000.
- Companies in the health care and medical industries were major employers in at least seven of the 10 markets.
- Seven out of 10 markets had some military presence. The Fargo, Burlington, Portland and Des Moines metro areas are each home to an Air National Guard base. The North Dakota National Guard Headquarters are in Bismarck. There’s an Air Reserve Station in the Buffalo market.
- The Washington, D.C., metro area had the largest military footprint of the 10 markets: the Pentagon, Bolling Air Force Base, Fort McNair, Walter Reed Medical Center, Marine Barracks and Washington Navy Yard are within its limits.
Harsh winter may have triggered vacation home market rebound
A recent market study from Cotton & Company indicates increasing consumer confidence after several years of negative trends in the real estate industry. The third annual Cotton Report polled more than 800 participants on housing preferences, motivating factors, pricing levels and timelines for purchase. The survey included participants from 39 states, as well as Canada, Europe and Latin America.
While no direct correlation was made to the harsh winter temperatures, the research survey indicated a substantial increase in the number of homebuyers seeking a vacation home purchase, an increase of 800% year-over-year. This trend is further supported by an increase in the number of buyers describing their transition as a geographic relocation, now 40%.
Over the three-year period of the annual research study, a continuous trend towards smaller homes has been noted with the most popular size home now being 1,700 to 2,299 square feet. Homes ranging from 1,000 to 1,699 square feet saw an increase of 5% in interest levels from 2010 to 2011.
The Cotton Report also shows signs that pricing levels have adjusted to meet consumer expectations. In 2009, respondents indicated the need for a 50% reduction in order to re-enter the market. In the 2011 survey, this level of price reduction has changed dramatically with the median response being a 20% reduction. This trend was also reflected in the consumer’s timeline to purchase. In 2011, 25% of the respondents reported they would be purchasing within 6 months, an increase from just 4% at the same time last year.
The annual consumer report is compiled by Cotton & Company, a 28-year-old real estate firm.
Gen X Buyers to Lead Housing Recovery
According to real estate experts in a recent webinar produced by the National Association of Home Builders, Generation X, adults ages 31 to 45, are expected to lead the recovery in the housing market. Speakers at the event highlighted results of a survey of 10,000 buyers in 27 metro areas.
While Generation X isn’t the largest population group, making up 32 percent of the population compared to 41 percent of baby boomers, it’s the most mobile age group.
The Gen X generation is coming with their own set of house preferences that may differ from other generations. Even though home sizes continue to shrink, first-time buyers and younger families are looking for more room to grow. Nearly 50 percent said they prefer a home with a large lot and in a suburban development. Only 21 percent said they are looking for a traditional or “walkable neighborhood” according to the survey.
This generation wants “green,” energy-efficient features. Regardless of age group, 70 percent of buyers said in the survey they are willing to pay $5,000 more for a home with “green” features.
Posted by Scott R. Lodde
March 15, 2011
According to Justin Hollander, an urban planning professor at Tufts University, Sun Belt states such as Florida must embrace the idea of “smart decline” — doing more with less, whether it’s fewer people, fewer home buyers or fewer jobs. Hollander is the author of Sunburnt Cities, a book which was published March 1st.
The idea is that Sun Belt cities will get fresh start after the housing bust suggesting that climate will remain one of the biggest draws and growth likely will return, the economy will rebound, and millions of vacant homes will be lived in again.
The current pause in the boom could be a seminal moment for cities across California, Nevada, Arizona and Florida – the Sun Belt states that grew the fastest and have been hardest hit by the housing collapse.
He believes these boomtowns have a chance to limit growth for growth’s sake by allowing dense development and reducing parking requirements to encourage walking, public transportation and more green space.
This is happening in cities such as Detroit and Buffalo which are trying to adjust to economic decline by shrinking smartly; concentrating development in small pockets and razing abandoned homes to make way for parks.
The economic slowdown along with rising energy prices, tight local government budgets and changing demographics is prompting new conversations that could lead to a substantial change in the future design of Sun Belt cities say many new urban planners.
These planners envision the cities of the future as resembling cities of the past. They will include more high-rise apartments, condos and townhouses near transit stops, shops and businesses on street levels and fewer parking garages.
In many Florida cities, medical facilities and research centers are being lured to reduce reliance on tourism and housing. Arizona and Nevada are chasing technology companies. All three states are trying to attract solar-energy companies and other renewable-energy industries.
Central cities lost people to suburbia where people yearned for a big house and a big yard they could afford.
And now, Sun Belt suburbs have the highest percentage of homeowners who owe more on their mortgages than their houses are worth.
Many Sun Belt cities have seen the suburban flight that caused the decline of many Northern cities during the past 50 years.
They believe the country will now be facing the depopulation of the suburbs.
The transformation from the suburbs to the cities will be pushed along by:
- Gas prices – As the cost of a gallon of gas starts to near $4, the 45-minute commute loses its appeal. Research by think tanks such as the Center for Neighborhood Technology shows that households in distant suburbs spend more on transportation than they save on housing.
- Environmental concerns – Protecting natural resources and reducing U.S. dependence on foreign oil are part of the national agenda. Living in smaller homes near public transit or within walking distance of stores and services can lower energy use and preserve green space by not using up as much land.
- Social and demographic change– Young adults don’t want to live in gated subdivisions far from entertainment, shopping and jobs, according to research by CEOs for Cities, a non-profit alliance of urban leaders. More are delaying marriage and childbirth, extending the time they’re likely to want an urban lifestyle. Also, 77 million Baby Boomers are or soon will be empty nesters, and many are gravitating back to urban centers.
As an example of what is going on in this area, Orlando is creating three “medical cities” around hospitals, medical schools and research facilities. Baldwin Park, site of the former Orlando Naval Training Center, now is a city within a city, offering a wide range of residential choices, from custom million-dollar homes to condominiums.
On March 11th, regulators shut down small banks in Oklahoma and Wisconsin, lifting to 25 the number of U.S. bank failures this year after157 banks were closed 2010.
The pace of bank failures reported by the FDIC for the first two months of 2011 is actually slightly ahead of 2010’s pace, with 23 failures in 2011 versus 22 in 2010. However, the $9 billion in assets of those 2011 failed banks is well below the $16 billion in assets for the banks that failed in the same period of 2010.
CMBS Delinquencies Up Again
According to New York-based researcher Trepp, the U.S. CMBS delinquency rate rose again in January with the percentage of loans 30 or more days delinquent, in foreclosure or REO climbing 14 basis points to 9.34%, the highest in history for U.S. commercial real estate loans in CMBS. The value of delinquent loans now exceeds $61.4 billion.
According to the new report, the office sector is weathering the downturn best, while industrial and multifamily continue to underperform.
The firm also reported that CMBS delinquency rates edged up 5 bps to 9.39% in February. Multifamily and lodging lead other asset classes in total CMBS delinquency at 16.6% and 14.6%, respectively although they saw their overall delinquency rates decline for the first time.
8 Vacation Rental Hot Spots
RISMedia, a real estate information website recently published an article entitled “Getaways: Top Vacation Rental Hot Spots for 2011”.
The article quotes data obtained from TripAdvisor, a travel Web site, recently released a list of America’s top vacation rental hot spots for this year.
TripAdvisor’s picks, which factored in search data from its site, include:
1. Kissimmee, Fla.
2. Big Bear Lake, Calif.
3. Gatlinburg, Tenn.
4. Kihei, Hawaii
5. Destin, Fla.
6. Palm Springs, Calif.
7. Outer Banks, N.C.
8. Lahaina, Hawaii
Posted by Scott R. Lodde
March 9, 2011
I read another enlightening post for John Mauldin’s Outside the Box blog entitled The Cognitive Dissonance of It All.
He starts off with a quote from Charles Mackay —
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”
The post is Mauldin’s attempt to shed light on the current “short-term” (in his mind) rebound in both the equities and commodities market. He believes it is simply a product of the “goosing” by the Federal Reserve printing press. As a result of these beliefs, his investment firm portfolio consists of short duration credit with moderate equity exposure. The big concern is sovereign defaults which he discusses in the blog.
Mauldin believes the term “academic” has become a synonym for “central banker” around the world as so few of them have ever run a business. These rulers of the world finances quickly arrive at a fork in the road (inflation versus default) when they initiate government policies on which evil to fight. They tend to favor inflation because they perceive it to less painful and less noticeable while kicking the can down the road as many bankers are currently doing in their own loan portfolios.
In his opinion, this is what Greenspan did when he dropped rates to 1% and traded the dot com bust for the housing boom. Knowing he was creating an “irrational exuberance” in the housing market, he turned over the reins to Bernanke and quit before everything collapsed.
Mauldin believes central bankers choose either inflation or default since they believe one path is separate and exclusive of the other. Due to the extent of the debt crisis around the world today, Mauldin believes these choices are synonymous with one another since one actually causes the other.
He uses the term ZIRP (Zero Interest Rate Policy) and believes it is a hideous TRAP, as few developed Western economies bounce along the zero lower bound (ZLB) realize or acknowledge that ZIRP is inescapable. As these countries (including the U.S.) pursue ZIRP to avoid painful restructuring within their own debt markets it facilitates a pursuit of aggressive Keynesianism that only perpetuates the reliance on ZIRP. According to Mauldin, the only meaningful reduction of debt throughout this crisis has been the forced deleveraging of the household sector in the US through foreclosure; one of the reasons we will be in a protracted “soft” economy for some time to come.
Total credit market debt has increased throughout the crisis by a transfer of private debt to the public balance sheet while running double‐digit fiscal deficits. This is where the rubber meets the road as central bankers presuppose that net credit expansion is a necessary precondition for growth. The risky game of ZIRP soon becomes a major inescapable problem the longer a country stays at the ZLB. The consequences will be deadly when short rates eventually (and inevitably) return to a normalized level.
He uses the United States’ balance sheet as an example. As the United States approaches the congressionally mandated debt ceiling ($14.2 trillion dollars including $4.6 trillion held by Social Security and other government trust funds), every one percentage point move in the weighted‐average cost of capital will end up costing $142 billion annually in interest alone. Assuming a move back to 5% short rates, the increase in annual US interest expense will be about $700 billion against the current US government revenue of $2.228 trillion.
Mauldin quotes Professor Ken Rogoff of the Harvard School of Public Policy Research. Rogoff believes that sovereign defaults tend to follow banking crises by a few short years. His recent book shows that historically, the average breaking point for countries that finance themselves externally occurs at approximately 4.2x debt/revenue.
Mauldin believes that the two critical ratios for understanding and explaining sovereign situations are:
(1) Sovereign debt to central government revenue and
(2) Interest expense as a percentage of central government revenue.
Using these yardsticks, he finds that when debt grows to such levels that it eclipses revenue multiple times over, there is a nonlinear relationship between revenues and expenses in that total expenditures increase faster than revenues due to the rise in interest expense from a higher debt load coupled with a higher weighted‐average cost of capital and the natural inflation of discretionary expenditure increases.
This is one of the reasons why the U.S. Federal government MUST get its house in order and deal with the “non-discretionary” portion of the budget before it is too late.
Mauldin notes a recently published paper by The Bank of International Settlements which painted a shocking picture of the trajectory of sovereign indebtedness. The study focused on twelve major developed economies and found that debt/GDP ratios will rise rapidly in the next decade, exceeding 300% of GDP in Japan; 200% in the United Kingdom; and 150% in Belgium, France, Ireland, Greece, Italy and the United States.
Additionally, the paper found that government interest expense as a percent of GDP will rise from around 5% [on average] today to over 10% in all cases, and as high as 27% in the United Kingdom.
Mauldin uses the example of Japanese government which for years has used government bonds (JGBs) to “self‐finance” its growing debt.
The available pools of capital to finance their debt is comprised of two accounts – household and corporate sector. Household is the incremental personal savings of the Japanese population, and corporate is the after‐tax corporate profits of Japanese corporations. As long as the sum of these two numbers exceeded the running government fiscal deficit, the Japanese government had the ability to self finance or sell additional government bonds into the domestic pool of capital.
This policy is quickly coming to an end.
As the Japanese government’s structural deficit grows wider driven by the increasing cost of an ageing population, higher debt service, and declining revenues, the divergence between savings and the deficit will increase.
Mauldin compares this approach to Alan Stanford and Bernie Madoff who showed us what tends to happen when this self‐financing relationship inverts. When the available incremental pool of capital becomes smaller than the incremental financing needs of the government a Ponzi scheme develops and, as noted above, the rubber finally meets the road.
As Japan’s severe decline in the population continues (in addition to Japanese resistance to large scale immigration), the ingredients of a toxic bond crisis are inevitable.
He notes a potential parallel between JGBs and US housing. In the last 20 years, Japanese stocks have dropped 75%, Japanese real estate has declined 70, and nominal GDP is exactly where it was 20 years ago.
While the drop has occurred in the real estate market, the buyers and owners of JGBs have never lost money in the purchase of the JGBs as their interest rates have done nothing but fall for the better part of the last two decades.
With all of the evidence literally stacking up against Japan, he notes that a few members of some of Japan’s major political parties are beginning to discuss and plan for the ominously named “X‐Day”.
X‐Day is the day the market will no longer willingly purchase JGBs. Many economists are worried this may happen in the U.S. as the Chinese abandoned the market for U.S. Treasuries.
Mauldin is also unsure of German commitment to fiscal and debt integration with the rest of the Euro zone. He believes Germany will gradually show a decline in support for the Euro and, as a result, set a series of substantial criteria for any German approval of further reform including balanced budget amendments, corporate tax rate equalization, elimination of wage indexation and pension age harmonization similar to theirs.
In the end, he believes the German people will not go “all‐in” to backstop the Euro zone without a credible plan to restructure existing debts and ensure that they can never reach such dangerous levels again.
What relevance does all this have with us in the United States?
It seems to me that at least State governments are trying to get a handle on their finances even if our Federal government continues to kick the can down the road.
Europe has Germany putting pressure on Greece, Italy, Ireland, Spain and Portugal to get their finances straight. In the U.S., the ultimate pressure will come from the municipal bond market which is forcing fiscal discipline upon State governments to balance their budgets.
Mauldin is brief and straightforward on the resolution to these problems. While the inflation/deflation debate is vigorously defended on both sides, he recognizes the ongoing need for deleveraging which will apply deflationary pressures. This will not be without pain but the end result for not deleveraging will be the eventual default of central governments or hyperinflations caused by public budget deficits which are largely financed by money creation.
Mauldin knows that it was excess leverage and credit growth that brought the global economy to its knees and notes in his posting that since 2002, global credit has grown at an annualized rate of approximately 11%, while real GDP has grown approximately 4% over the same timeframe.
This simply is not sustainable.
Posted by Scott R. Lodde
March 8, 2011
5 markets with the largest price drops
According to a ZipRealty survey that analyzed MLS-listed properties in 26 markets, the number of homes where sellers have cut their asking price is up 17.6 percent.
The survey indicates that in more than half of the surveyed markets, sellers are averaging at least two reductions in price as inventory has grown throughout much of the year. Sellers facing pressure of more buying options seem to be discounting to attract buyers resulting in list prices being cut for over 46 percent of the homes.
The median reduction amount has averaged 1.7 percent or $19,088.
Florida leads the nation in the largest percentage discount off the original list price, with Orlando (12.5 percent discount), Jacksonville (12.1 percent), and Miami/Fort Lauderdale/Palm Beach (11.9) leading the pack.
The top 5 markets with the largest overall median price reduction in absolute dollars include:
1. San Francisco: $32,500 median price reduction
2. Orange County, Calif.: $31,000
3. San Diego: $29,100
4. Miami/Ft. Lauderdale/Palm Beach: $25,000
5. Seattle: $25,000
Investors Buying Cheap Homes
According to the National Association of Realtors, the median sales price for a home fell last month to its lowest level in nearly nine years but home sales are starting to tick up after the worst year in more than a decade.
The momentum is coming from cash-rich investors who are scooping up foreclosed properties at bargain prices, not first-time homebuyers who are critical for a housing recovery.
The number of first-time buyers fell last month to the lowest percentage in nearly two years, while all-cash deals have doubled and now account for one-third of sales.
Lower prices would normally be good for first-time homebuyers, but tighter lending standards have kept many from taking advantage of them.
Cash-only investors can come in and get foreclosed properties at incredibly favorable prices whereas the average buyer can’t take advantage because they simply cannot get the credit to buy.
Sales of previously occupied homes rose slightly in January to a seasonally adjusted annual rate of 5.36 million, up 2.7 percent from 5.22 million in December. That pace remains far below the 6 million homes a year that economists say represents a healthy market. And the number of first-time homebuyers fell to 29 percent of the market – the lowest percentage of the market in nearly two years. According to the NAR, a more healthy level of first-time homebuyers is about 40 percent.
Foreclosures represented 37 percent of sales in January. All-cash transactions accounted for 32 percent of home sales – twice the rate from two years ago. In places like Las Vegas and Miami, cash deals represent about half of sales.
In the three states where foreclosures are highest, at-risk homes make up at least two-thirds of all sales. According to a Campbell/Inside Mortgage Finance survey, 63 percent of sales in January involved homes that were at risk of foreclosure in Florida. And in Arizona and Nevada, a combined 72 percent of sales involved those homes at risk of foreclosure.
A major barrier for first-time homebuyers is tighter lending standards adopted since the housing bubble burst as banks require buyers put down a larger downpayment. The median downpayment rose to 22 percent last year in at least nine major U.S. cities, according to a survey by Zillow.com.
Many potential buyers who could qualify for loans are hesitant to enter the market, worried that prices will fall further. High unemployment is also deterring buyers.
A big obstacle to a housing recovery is the glut of unsold homes on the market. Although those numbers fell to 3.38 million units in January, it would still take 7.6 months to clear them off the market at the January sales pace. Most analysts say a six-month supply represents a healthy supply of homes.
Analysts said the situation is much worse when the “shadow inventory” of homes is taken into account. These are homes that are in the early stages of the foreclosure process but have not been put on the market yet for resale.
Posted by Scott R. Lodde