Headlines – Week of June 19, 2011

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


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