June 28, 2011
Fractional Market will Rebound Faster than Whole-Ownership
According to data recently released by fractional industry research firm Ragatz Associates, shared ownership properties are going to rebound more quickly and strongly than whole-ownership second homes as the economy recovers.
The “shared ownership” market consists of timeshares, vacation and destination clubs as well as other “fractional” private residence clubs.
According to Ragatz, shared ownership vacation properties offer an increasingly attractive alternative to second home ownership.
The firm recently canvassed nearly 300 worldwide projects offering some form of shared ownership and found that the affordability and the way in which shared ownership property satisfies consumer demand for vacation convenience and flexibility make the fractional sector a perfect opportunity.
As the national economy recovers, industry experts anticipate shared ownership to experience significant growth as the typical vacation home is only owner-occupied three to six weeks out of the year.
As a result, when one compares the costs of owning and maintaining a comparable second home, with that of a residence club, the true value of the fractional product speaks for itself and today’s consumer clearly sees the good sense in paying only for the time they actually get to use a vacation property.
Another factor which will help fractional sector bounce back strongly is the ability of buyers to swap their time slots for other properties around the world. Just the idea of exchange is an important consideration to the purchase decision by residence club buyers even if most don’t end up choosing to swap.
Compact housing needed for population shift
According to Patrick Phillips, CEO for the Urban Land Institute, the U.S. population is projected to grow by 150 million within the next 40 years and “more compact, mixed-use development” is needed to handle the growth and changing demands.
Phillips believes the design and development of urban areas will be radically different in the decades ahead as we see a push to make our cities more livable and sustainable.
The one-person household is the fastest-growing type of household and younger generations are placing a higher value on the sense of community and are willing to swap extra space for convenience.
An urban renaissance has been taking place with neighborhoods that are near urban centers becoming more desirable.
Americans’ equity in their homes near a record low
The Federal Reserve recently reported that falling real estate prices are eating away at home equity and the percentage of Americans that own their own homes is near its lowest point since World War II. The average homeowner now has 38 percent equity, down from 61 percent a decade ago.
The Fed report is based on data from the first quarter of this year. Another report recently found that home prices in big cities have fallen to 2002 levels.
Home equity is important for the economy because it has a lot to do with how wealthy people feel. If they feel swamped by a mortgage loan, they’re less likely to spend freely on other things. Home equity also serves as collateral for some loans.
There are 74.5 million homeowners in the United States. An estimated 60 percent have a mortgage. The rest have either paid off the loan or bought with cash.
According to the private real estate research firm CoreLogic, of the people who have mortgages, 23 percent are “under water,” meaning they owe more on the mortgage than their home is worth. An additional 5 percent are nearing that point.
Also crimping the housing recover are foreclosures. Homes in foreclosure sell at a 20 percent discount on average, and those discounts erode prices throughout a neighborhood.
Many economists believe home prices are expected to keep falling until the number of foreclosures for sale is reduced, companies start hiring in greater force, banks ease lending rules and more people think it makes financial sense again to buy a house. In some areas of the country, that could take years.
The Federal Reserve report found that Americans’ overall net worth grew 1.65 percent in the January-to-March period, to $58.06 trillion, mostly because of stock market gains. However, most of those gains have been erased since March.
The Fed report suggests the average household owes about $119,000 on mortgages, credit cards, auto loans and other debt.
Debt now equals 119 percent of the money Americans have left over after taxes. In late 2007, when the country was binging on debt, it was 135 percent. In the healthier 1990s, it was roughly 90 percent.
The Fed report also found that corporations are still hoarding cash. Excluding banks and other financial firms, companies held $1.9 trillion in cash at the end of the quarter. That was slightly more than in the previous quarter and set another record.
The reluctance of companies to spend more of their cash helps explain why job growth has been slow since the recession ended. The unemployment rate is 9.1 percent, slightly higher than when the year began.
Household net worth in America is up nearly 19 percent from early 2009 but still about 11 percent below its peak in 2007. Normally, greater wealth would spark consumer spending. But the lost home equity is counteracting it.
Per household, it comes to about $518,000. But the gap between the super-rich and everyone else in the United States has grown over the past three decades. So while average wealth is increasing, most Americans don’t feel the difference.
Posted by Scott R. Lodde
June 21, 2011
Top picks for international buyers
Cape Coral, Fort Myers and Naples among the top ten locations
According to a blog post at the housing web site Trulia.com, ten out of the 24 most popular American cities for international buyers are in Florida as international buyers take advantage of real estate bargains in the United States. Last year, international buyers reportedly spent $41 billion on purchasing homes in the U.S.
Last year, Europeans, Canadians and Brazilians reportedly spent about $13 billion on homes in Florida alone.
The most popular American cities were Los Angeles and New York, which were among the top five most-searched cities for visitors from the United Kingdom, Australia, France, Germany, Brazil, Italy, Russia, the Netherlands, Sweden, China and India.
Here are the most popular Florida cities for international buyers in order of demand:
1. Cape Coral, Fla.
3. Fort Lauderdale, Fla.
4. Naples, Fla.
5. Fort Myers, Fla.
6. Miami Beach, Fla.
7. Kissimmee, Fla.
8. Orlando, Fla.
9. Jacksonville, Fla.
10. Tampa, Fla.
Harvard Report: Housing Shortage Likely Coming
According to the annual “State of the Nation’s Housing” report by Harvard University’s Joint Center for Housing Studies, within the next decade, 16 million new housing units will be needed to meet population growth and shifting demands.
That means household growth, which has dropped drastically in recent years, will need to greatly reverse its trend to meet the forecasted spike in demand. From 2007-2010, household growth averaged about 500,000 per year – less than half the 1.2 million annual pace averaged prior from 2000-2007.
According to the report, in order to absorb the current rate of foreclosed and distressed homes plaguing most markets, a more normal rate of household formation is critical,. However, normal household growth has stalled as young adults delayed homeownership and immigration has slowed.
As a result builders have drastically cut production of new homes and a turnaround in demand could quickly result in tighter markets. Over the longer term, the number of younger households is set to rise sharply, supporting growth in the population that fuels growth in both new renters and first-time buyers.
The report projects demand for 1 million new homes a year is needed to meet population growth in the coming decade. The report also predicts a surge in smaller homes, estimating that 3.8 million baby boomers will be looking to downsize their homes within the next decade. Immigration growth will also increase the need to replace existing homes, and demand for second homes will contribute to rising demand for housing units.
Researchers conclude at least 16 million new housing units will be needed over the next decade.
Seven Highest-Performing Major Housing Markets
According to Clear Capital’s latest monthly Home Data Index Market Report, several real estate markets are starting to show signs of improvement with home prices in the last quarter as the industry demonstrates more signs of stabilizing.
REO saturation rates have improved in the majority of the country’s largest markets. However, many areas are still battling year-over-year price declines. Clear Capital’s index reports that quarter-over-quarter home price declines were 2.3 percent in the latest quarter, which is less than half compared to the previous month.
Seven of the top 15 markets posted quarter-over-quarter property price gains in this month’s report, compared to none in last month’s, according to Clear Capital.
Here are the seven highest-performing major real estate markets.
- Washington, D.C.-Arlington, Va.-Alexandria, Va.
Quarter-to-quarter home price change: 4.5%
Year-to-year price changes (May 2010-May 2011): 4.9%
REO saturation: 17.5%
- St. Louis, Mo.
Quarter-to-quarter home price change: 2.2%
Year-to-year price changes: -11.4%
REO saturation: 35.3%
- Pittsburgh, Pa.
Quarter-to-quarter home price change: 1.6%
Year-to-year price changes: 0.3%
REO saturation: 10.9%
- New York, N.Y.-Long Island, N.Y.-No. New Jersey, N.J.
Quarter-to-quarter home price change: 1.5%
Year-to-year price changes: 1.4%
REO saturation: 9.6%
- Virginia Beach, Va.-Norfolk, Va.-Newport News, Va.
Quarter-to-quarter home price change: 1.4%
Year-to-year price changes: -13.2%
REO saturation: 22.4%
- Miami-Ft. Lauderdale-Miami Beach, Fla.
Quarter-to-quarter home price change: 0.6%
Year-to-year price changes: -5.2%
REO saturation: 39.6%
- San Jose-Sunnyvale-Santa Clara, Calif.
Quarter-to-quarter home price change: 0.5%
Year-to-year price changes: -5%
REO saturation: 25%
The lowest-performing market for the fifth straight month was Detroit-Warren-Livonia, Mich., with a 13.2 percent decrease in quarter-over-quarter home price change and a 58 percent REO saturation rate.
Posted by Scott R. Lodde
June 6, 2011
Affordability Reaches Highest Level in 20 Years
The NAHB/Wells Fargo HOI is a measure of the percentage of homes sold in a given area that are affordable to families earning that area’s median income during a specific quarter. Prices of new and existing homes sold are collected from actual court records by First American Real Estate Solutions, a marketing company. Mortgage financing conditions incorporate interest rates on fixed- and adjustable-rate loans reported by the Federal Housing Finance Board.
According to the information published for the first quarter of 2011, the index reached its highest level in the last 20 years. The previous high was set in the fourth quarter of 2010 with 73.9 percent.
According to the Index, nearly 75 percent of all new and existing homes sold in the first quarter of 2011 were affordable to families earning the national median income of $64,400.
The most affordable metro housing market in the nation is Syracuse, N.Y., in which 94.5 percent of all homes sold were affordable to households earning the area’s median family income of $64,300.
Other metro cities ranking high on the affordability index were Youngstown-Warren-Boardman, Ohio-Pa.; Indianapolis-Carmel, Ind.; Warren-Troy-Farmington Hills, Mich.; and Toledo, Ohio.
Meanwhile, the least affordable major housing market for the first quarter of 2011 was New York-White Plains-Wayne, N.Y.-N.J.
Seven Cities Where Home Prices Are Rising
According to housing data published by Realtor.com, nationally, median list prices are down 4 percent year-over-year, averaging $191,900. The group looks at data from 146 markets across the U.S.
However, a few cities are bucking that trend and have seen list prices grow higher in the last year.
Here are seven markets that have seen its median list prices grow higher over the past year:
1. Fort Myers-Cape Coral, Fla.: Up 25.7% year-over-year for median list price
Median list price: $225,000
2. Miami: Up 8.64%
Median list price: $239,000
3. Shreveport-Bossier City, La.: Up 8.13%
Median list price: $173,000
4. Washington, D.C.-Maryland-Virginia-West Virginia: Up 5.99%
Median list price: $369,900
5. Columbia, Mo.: Up 5.07%
Median list price: $168,000
6. Peoria-Pekin, Ill.: Up 3.57%
Median list price: $144,900
7. Fort Collins-Loveland, Colo.: Up 3.48%
Median list price: $249,900
CoreLogic Index shows home price increase
CoreLogic recently released its April Home Price Index (HPI), which shows that home prices in the U.S. increased on a month-to-month basis by 0.7 percent between March and April, 2011. This is the first such increase since the homebuyer tax credit expired in mid-2010.
However, national home prices including distressed sales declined by 7.5 percent in April 2011 compared to April 2010 after declining by 6.8 percent in March 2011 compared to March 2010. Excluding distressed sales, year-over-year prices declined by 0.5 percent in April 2011 compared to April 2010 and by 1.6 percent in March 2011 compared to March 2010. Distressed sales include short sales and real estate-owned (REO) transactions.
Highlights of the April 2011 report:
- Including distressed sales, the five states with the highest appreciation were: North Dakota (+4.2 percent), Vermont (+3.4 percent), New York (+3.2 percent), The District of Columbia (+2.2 percent) and Mississippi (+1.4 percent).
- Including distressed sales, the five states with the greatest depreciation were: Idaho (-15.2 percent), Michigan (-13.2 percent), Arizona (-11.9 percent), Rhode Island (-11.6 percent) and Nevada (-11.4 percent).
- Excluding distressed sales, the five states with the highest appreciation were: West Virginia (+8.4 percent), South Carolina (+6.1 percent), Hawaii (+5.8 percent), Mississippi (+5.0 percent) and North Dakota (+4.5 percent).
- Excluding distressed sales, the five states with the greatest depreciation were: Nevada (-10.3 percent), Idaho (-9.5 percent), Arizona (-6.0 percent), South Dakota (-5.9 percent) and Minnesota (-5.6 percent).
- Including distressed transactions, the peak-to-current change in the national HPI (from April 2006 to April 2011) was -33.8 percent. Excluding distressed transactions, the peak-to-current change in the HPI for the same period was -21.9 percent.
- Of the top 100 Core Based Statistical Areas (CBSAs) measured by population, 92 are showing year-over-year declines in April, an increase over March when 91 of the top CBSAs show year-over-year declines.
Posted by Scott R. Lodde
June 2, 2011
As the market for primary home becomes more affordable, a growing number of articles focus on the increasing rental market. This week’s Headlines focuses on the frequent number of articles devoted to this recent trend.
Cities See Rise in Rental Homes
A recent article in USA Today describes the rising share of homes that are rented rather than owned. More than 500 midsize and large cities have seen a rise in this trend.
Almost 4 million homes have been lost to foreclosures the past five years, turning many former owner-occupied homes into rentals.
According to many economists, the shift to rental housing is potentially long lasting and portends changes for neighborhood stability and how people build wealth.
Moody’s Analytics believes this trend is big but will more at a “glacial” pace although the swing from owner- to tenant-occupied homes in the past decade has been dramatic in some places.
Of the 100 largest cities, some of those with the largest shifts were Irvine, Calif., which went from about 40 percent of occupied homes rented in 2000 to 49.8 percent in 2010; Philadelphia increased from 40.7 percent to 45.9 percent; and Birmingham, Ala., rose from 46.3 percent to 50.7 percent.
Twenty-five cities including Baltimore, Minneapolis, Sacramento and Salt Lake City swung from having more than half of homeowners in 2000 to majorities of renters in 2010. In Reading, Pa., 57.6 percent of occupied homes were rentals in 2010, up from 49 percent in 2000.
Florida, California and Arizona had the most cities where the share of renter-occupied housing grew by at least 5 percentage points. All three states have been hit hard by foreclosures.
Nationwide, 34.9 percent of occupied homes were rented in 2010, up from 33.8 percent in 2000.
Vacant properties, excluding seasonal or vacation homes, accounted for 7.9 percent of U.S. housing units in 2010.
According to the Harvard University’s Joint Center for Housing Studies, the renter household market had remained fairly stable from 1990 to 2006.
Since 2006, when housing prices peaked, the number of renter households in the U.S. has grown an average of 692,000 a year, while owner households have fallen an average of 201,000 a year, according to recent Census surveys.
Troubled Home Market Creates Generation of Renters
According to a study prepared by Harvard’s Joint Center for Housing Studies, a growing number of Americans can’t afford a home or don’t want to own one, a trend that’s spawning a generation of renters and a rise in apartment construction.
Many of the new renters are former owners who lost homes to foreclosure or bankruptcy. For others who could afford one, a home now feels too costly, too risky or unlikely to appreciate enough to make it a worthwhile investment.
The proportion of U.S. households that own homes is at its lowest point since 1998. When the housing bubble burst four years ago, 31.6 percent of households were renters. Now, it’s at 33.6 percent and rising. Since the housing meltdown, nearly 3 million households have become renters. At least 3 million more are expected by 2015, according to the report.
Nearly 38 million households are renters.
Among the signs of a rising rental market:
· The pace of apartment construction has surged 115 percent from its October 2009 low. It’s still well below a healthy level. But permits for apartments, a gauge of future construction, hit a two-year peak in March. By contrast, permits for single-family homes are on pace for their lowest annual level on records dating to 1960.
· The number of completed apartments averaged about 250,000 a year before the boom. They fell to 54,000 last year and will probably number around the same this year. But according to the CoStar Group, the number will likely double to about 100,000 in 2012 and hit 250,000 by 2013 or 2014,. The lag is due to the time it takes for an apartment building to be completed: an average of 14 months.
· Demand is driving up rents. The median price of advertised rents rose 4.1 percent between the end of 2009 and the end of 2010, census data shows. Few expect the higher prices to stem the flood of renters, though. One reason: Younger adults don’t value homeownership as earlier generations did and many prefer to rent, studies show.
· Rental housing is giving builders more work just as construction of single-family homes has dried up. Still, that economic lift won’t make up for all the single-family houses not being built. Apartments account for only about one-fourth of homes. And renters are outspent roughly 2-to-1 by homeowners, who pay for items from lawn care to remodeling that helps drive the economy.
According to Moody’s Analytics, before the housing bust, mortgage rates were so low it was often cheaper to buy than rent. That was true a decade ago in more than half the 54 biggest metro areas. Today, by contrast, it’s cheaper to rent in about 72 percent of metro areas.
Many younger Americans see owning as risky. It hardly seems the best way to build wealth, especially when prices are falling.
From the 1940s until 2007, homes appreciated an average of nearly 5 percent a year, adjusted for inflation. In the past four years, the median price of a single-family home has sunk 37 percent, by $57,500, to its lowest since 2002. Yet in some areas, owning is still too expensive for many.
With larger downpayments and tighter credit, we are creating a renter’s nation as it becomes difficult for most Americans to afford a home. Many now see the home as a burden, not an investment.
Lenders Now Own 872,000 Homes
According to the real estate research firm, RealtyTrac, U.S. banks and money lenders now own 872,000 homes, a number that could more than double in the coming years.
The current number of properties owned by banks and lenders is nearly double what they owned in 2007, before the housing market began to collapse.
Lenders frequently sell homes at a substantial discount and economists expect it will take three years for lenders to sell the properties they have taken over.
That means for the next three years at least, the sale of so-called distressed homes will continue to slow a recovery in the housing market.
According to Moody’s Analytics, the distressed housing market remains a heavy weight on the banking system and prices are going to fall some more.
Moody’s has predicted home values could drop an average of 5 percent by the end of 2011 before making a slight comeback in 2012.
A separate real estate research firm, Trepp, said lenders could lose $40 billion by selling homes at discounted prices.
Buy vs. rent: These days, buying wins
According to an article in CNNMoney, for the first time in years, buying a home may beat renting.
The article relies on a paper to be published in Real Estate Economics by Ken Johnson of Florida International University and Eli Beracha of East Carolina University.
Two factors contribute to this trend. First, rents, though mostly stagnant the past few years, are expected to head higher as more people bitten by the housing bust turn to renting.
Second, home prices have finally dropped enough to create a buying opportunity, as prices are down 32%, nationally from their peak in 2006.
The net result is that home price gains would need to average only 3.25% annually to beat renting. According to the authors an owner would have to stay in the home for at least eight years in order to make the math work.
The authors compared the cost of owning with the cost of renting and buying typically leads to higher monthly and annual bills once all costs are factored in — mortgage payments, property taxes, maintenance and transactional costs.
While the higher costs can be offset if the home gains in value, however the authors assume the renters can invest their savings. This was a big part of why the authors say renting has typically been the better deal.
Homeownership has dropped to 66.4% from a peak of 69.1% in 2005, according to the Census Bureau.
Of the 23 cities the report looked at, Seattle is the best place to buy right now. When renters invest in portfolios that include stocks, the appreciation rate required over the next eight years there is 4.84% and the area’s historical average is 6.06%.
For several cities, including New York, Boston and Dallas, renting is still preferable. In New York, for example, homeowners would need a 7% annual rise in home values to beat renters.
The report cautions buyers to questions the assumption that home prices will rebound. The potential for many more foreclosures that could flood the market with distressed homes will continue to depress prices.
Posted by Scott R. Lodde