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Headlines – Week of October 28, 2012

November 9, 2012

U.S. Home Values Jump the Most Since 2006

Two separate reports provide evidence that home values are rising.

According to a new study by CoreLogic, U.S. home prices jumped 5 percent in September compared with a year ago, the largest year-over-year increase since July 2006.

The data provided in the report also said that prices declined 0.3 percent in September from August, the first drop after six straight increases. The monthly figures are not seasonally adjusted and the company believes the monthly decline reflects the end of the summer home-buying season and not a softening in the housing recovery.

Steady price increases should give the housing market more momentum when home sales pick up in the spring. Rising prices encourage more homeowners to sell their homes and entice would-be buyers to purchase homes before prices rise further.

Other measures have also shown healthy gains in home prices over the past year. The Standard & Poor’s/Case Shiller 20-city index rose 2 percent in August compared with a year ago, a faster pace than the previous month.

The price gains in the past year reported by CoreLogic were widespread. Prices have risen in all but seven states. And they declined in only 18 out of 100 large cities that are tracked by the index.

Some of the biggest increases were in states that suffered the worst from the housing bust. Home prices in Arizona jumped 18.7 percent in the past year, the most of any state. Home prices in Idaho rose 13.1 percent, the second largest. Nevada’s home values rose 11 percent.

Home prices jumped 22.1 percent in Phoenix, the metro area with the biggest gain. Prices in Houston rose 6.6 percent, the second-highest increase. The states with the biggest drops were Rhode Island (3.5 percent) and Illinois (2.3 percent).

CoreLogic’s price index is based on repeat sales of the same homes and tracks their price changes over time.

Sales of both new and previously occupied homes are still below levels that are consistent with a healthy housing market. That’s partly because the supply of available homes for sale remains low. And many prospective homebuyers are struggling to qualify for a mortgage or scrape together the bigger down payments that many banks are requiring.

 

 

CoreLogic HPI monthly updates leverage the full authority of CoreLogic’s industry-leading real estate databases, covering 6,783 Zip codes, 623 Core Based Statistical Areas (CBSAs), and 1,188 counties in all 50 states and the District of Columbia.

 

 

In a separate report, Zillow also announced that U.S. home values jumped 1.3 percent in the third quarter, the biggest gain since 2006 as the recovery was uneven across the country.

The median value rose to $153,800 from $151,800 in the previous three months on a seasonally adjusted basis. It was the biggest increase in Zillow’s Home Value Index since the first quarter of 2006, when values rose 1.5 percent.

According to the report home prices are rising nationally as the U.S. unemployment rate declines and buyers compete for a tightening supply of homes listed for sale.

Values fell from the second quarter in 52 percent of markets covered by the index as the traditional home buying season ended.

Zillow also reported that in Phoenix, where investor demand is helping to boost prices, home values rose the most of the 30 largest U.S. metropolitan areas, with a 5.9 percent increase from the second quarter.  They climbed 3.9 percent in Las Vegas and 3.8 percent in Denver.

Atlanta had the biggest drop in values, falling 2.2 percent from the previous three months, the data show. New York, Philadelphia, St. Louis and Cleveland were among other large metro areas where values declined.

Zillow showed a drop in values for 17 of the 41 states it covers.

Values nationwide will increase 1.7 percent over the next year, according to Zillow’s projection. Of the 253 markets tracked by the forecast, 183 areas have hit bottom and another 41 will reach a floor in the next year, the company said.

Zillow measures the value of 100 million U.S. homes, regardless of whether they sold during the quarter, and calculates the median for its index. Other gauges, such as the S&P/Case-Shiller index, track purchase prices.

Posted by Scott R. Lodde

Rushmore: Lessons Learned from Past Recessions

November 6, 2012

According to a recent article written by Steve Rushmore at Hospitality Valuation Services (HVS), the U.S. hotel industry is going through a period of uncertainty as a result of the upcoming presidential election which could have a huge impact on taxes, small businesses, operating costs, disposable income and governmental regulations.

As a result, many hotel developers, investors and lenders have been on the sidelines waiting for a clear direction before they start making decisions on where to deploy their capital.

In the article, Rushmore provides an intriguing look back in time when there was a similar period of economic malaise for a look at what stimulants contributed to the recovery and growth of the hotel sector.

He points to the decade of the 1980s had many of the same economic elements that the industry experienced over the past five years – a massive recession followed by slow recovery.

The following table shows Daily Hotel Room Night Demand for the U.S. Hotel Industry each year from 1979 to 1990. The table also shows the year-to-year numerical change in room night demand as well as the percentage change. It identifies the years the U.S. experienced a recession.

Rushmore points to the recession of the 1980s which was one of the longest recessionary periods in U.S. history.  This recession was the result of very tight monetary policy that was necessary to control the rampant inflation during the late 1970s as well as the energy crisis of 1979.

The table shows hotel demand started to drop in 1980 and continued for four years to 1983. The 6.5% decline in hotel demand was the largest since the Great Depression. The high level of inflation caused interest rates to peak at 17%, making it virtually impossible for anyone to obtain a mortgage. This devastated the real estate industry with new construction and transfers coming to a virtual halt.

To help us out of that recession, Congress focused their attention on stimulating the recovery in this segment to move the U.S. economy out of recession and the hotel industry benefited by the recovery as hotel demand started to increase in 1984 and reached the 1979 level in four years.

Hotel demand continued to escalate until 1990 when the economy went into another recession.

The tax shelters of the 1980s and the deregulation of the savings and loan industry were the stimulus Congress used to get the real estate sector growing again and hotels were perfect candidates due to the large amount of personal property that could be written off quickly. Tax shelters allowed hotel developers and investors to rapidly depreciate their properties and obtain investment tax credits, which effectively eliminated the need to put equity capital in the property. In addition, hotels could be totally financed with a mortgage (including the personal property).

The deregulation of savings and loan banks allowed them to start making commercial mortgages. This change in rules produced huge amounts of mortgage capital eager to get the higher interest rates from commercial lending.

As Rushmore points out, S&Ls, who had no experience with commercial lending, were literally throwing money at hotel developers to finance their projects.

Although the facts and circumstances are different than those of 30 years ago, the solution is similar since the main roadblock to new hotel development and transactions is the availability of new financing.

The article points out that the huge increase in new government regulations following the collapse of the financial industry has crippled banks and other lenders’ ability to make real estate loans.  Since lenders fear government regulators will increase their reserve requirements, label their loans as non-conforming they have stopped lending.

As with the deregulation of the S&L industry, Rushmore is calling on Congress to loosen the Draconian banking regulations so we can get back to a normal lending environment.

 

Posted by Scott R. Lodde

Headlines – Week of October 21, 2012

November 2, 2012

Are Banks Holding onto REOs?

In September, the HousingPulse Distressed Property Index (DPI) from Campbell Surveys, which measures the proportion of purchase transactions involving distressed properties, hit a record low of 38.6 percent based on a three-month moving average.

The drop marks the fifth consecutive monthly decline and is more than 10 percentage points lower than the February’s near-record-high of 48.7 percent.

According to HousingPulse, the lack of foreclosures and REOs available for sale is the reason for the steep decline in distressed sales.

According to HousingPulse, major banks seem to be keeping many REO properties off the market this year, but suggested banks may look to release “significant amounts” of bank-owned properties next year which could lead to lower prices.

Foreclosures ‘boil over’ in Judicial Foreclosure States

In an article posted in the last Headlines, RealtyTrac reported that foreclosures are continuing to fall across the country, reaching five-year lows, but states where foreclosures don’t have to be approved by courts are posting some of the largest drops.

While foreclosure-related filings were down sharply from a year ago, there was an increase in foreclosure activity in 20 states, particularly in states where courts handle the foreclosure process, including New Jersey, New York, Maryland, Illinois and Pennsylvania.  

The increase in short sales and foreclosures was predicted in judicial foreclosure states after the nation’s five largest mortgage servicers reached a $25 billion settlement in March over “robo-signing” allegations.

While foreclosure-related filings were down 31 percent collectively from a year ago in the 24 nonjudicial states and District of Columbia, some judicial foreclosure states saw big annual increases in foreclosure activity, led by Kentucky (up 73 percent), New Jersey (up 65 percent), New York (up 56 percent), and Maryland (up 54 percent).

Foreclosure-related filings were up from a year ago in 20 states in August, including Illinois, which posted the highest rate of any state with 1 in every 298 housing units. A total of 17,781 Illinois properties were subjected to a foreclosure-related filing in August, a 42 percent increase from a year ago.

Florida climbed to second on RealtyTrac’s list of states with the highest rate of foreclosure-related filings, with 1 in 328 properties subjected to a filing.

Until August, the top two spots on the list have been held by one of four nonjudicial foreclosure states since December 2010: Arizona, California, Georgia and Nevada.

10 states with highest foreclosure rate

Rank

State

August 2012 Properties with Foreclosure Filings

1/every X Housing Units

Percent change from July 2012

Percent change from Aug. 2012

1

Illinois

17,781

298

29.09

42.33

2

Florida

27,422

328

7.39

16.35

3

California

40,200

340

-4.47

-32.30

4

Arizona

7,899

360

-3.87

-28.72

5

Nevada

2,921

402

3.33

-69.82

6

Georgia

9,478

431

-12.73

-19.29

7

Ohio

9,218

556

-5.15

-6.33

8

Michigan

7,648

593

-12.66

-41.24

9

Delaware

665

610

180.59

1.68

10

Colorado

3,584

617

24.66

-27.35

Source: RealtyTrac

A New Housing Boom by 2015?

According to a recent article by CNNMoney, the housing market has been showing several signs of recovery, including home prices and home sales on the rise, new construction up, foreclosures falling and mortgage rates near record lows. As a result, some economists are getting very bullish about the housing recovery and even predicting that the market will return to its “boom” level days in just three years.

In a recent report, Barclays Capital predicts that home prices could be back to peak levels by 2015. Barclays is predicting home prices to rise 5 percent to 7.5 percent a year.

In the article, an analyst at Barclays is quoted as saying that the housing market underwent a dramatic over-correction during the prior five years, resulting in pent-up demand for housing purchases that will spark a rapid rise in housing starts.

Home construction is also expected to soar, rising 20 percent or more a year for the next year, according to some economists’ forecasts. The new-home market could return to its pre-bubble average of about 1.5 million new homes a year by 2016 according to the CNNMoney report. That would double the construction level expected this year.

Full Article

Posted by Scott R. Lodde

Headlines – Week of October 14, 2012

October 25, 2012

Remodeling Boom Seen into 2013

According to a recent study published by The Harvard Joint Center for Housing Studies remodeling and home improvement activity will see strong gains over the rest of 2012 and the first half of next year.

The Center’s Leading Indicator of Remodeling Activity (LIRA) suggests a recovery in the remodeling industry is underway and there could be double digit growth in home improvement spending over the next eight months.

The study uses the Department of Commerce’s Value of Construction Put in Places series (or C-30) to project the value of residential improvements.

The Department of Commerce defines home improvements as remodeling, additions, and major replacements to owner-occupied properties after the completion of the original building. This definition include additions to existing buildings, finishing basements and attics, improvements to the exterior building or lot, and replacement of major systems and equipment such as furnaces or water heaters. It does not include spending for painting, landscaping, or routine maintenance.

The study cites strong growth in sales of existing homes and housing starts, coupled with historically low financing costs which are providing the thrust to produce a favorable outlook for home improvement spending over the coming months.”

Southwest Florida Real Estate Recovery Strengthens

According to a recent article in the Fort Myers New Press, we are on the upside of recovery. Both notable shifts in forward-looking indicators, and overall outlook from prudent real estate investors, point to very positive signs of improvement.

In Florida, and particularly here in Southwest Florida, the industrial sector of the commercial real estate market is leading the pack with newly released data showing a top-three placement for lowest industrial vacancy rates in the nation.

According to a recent Cushman and Wakefield market statistical report, the Naples metro area ranked No. 2 in the nation for the lowest industrial vacancy rates with 4.2 percent overall vacancy.

Moreover, Florida claimed three of the top 10 metro areas with the lowest industrial vacancy rates (Lakeland at No. 1, Naples at No. 2, and St. Petersburg/Clearwater at No. 7). Lee County ranked 38th on the list with a 9.3 percent vacancy rate, slightly higher than the national average of 8.7 percent vacancy.

Both nationally and statewide, prices and home sales increased year over year in August. According to the National Association of Realtors, existing home sales jumped 7.8 percent in August to the highest level in more than two years, the highest level since May of 2010 when sales were fueled by a federal home-buying tax credit.

Foreclosure activity was down sharply in Lee County according to statistics recently released by the Southwest Florida Real Estate Investors Association. In September, lenders filed 567 foreclosure lawsuits, down sharply from 765 in August and about the same as the 570 in September 2011. Decreases in foreclosure filings further constrain the amount of future inventory available to buyers paving the way for the resurgence of new construction.

 

9 States Where Foreclosures Are Dropping the Most

According to information from RealtyTrac, foreclosures are continuing to fall across the country, reaching five-year lows, but states where foreclosures don’t have to be approved by courts are posting some of the largest drops.

The following states with a “non-judicial” process reported the largest annual decreases in foreclosure activity in the third quarter:

  1. Nevada: 71 percent decrease
  2. Oregon: 63 percent
  3. Utah: 60 percent
  4. Virginia: 34 percent
  5. California: 29 percent
  6. Michigan: 28 percent
  7. Arizona: 23 percent
  8. Colorado: 21 percent
  9. Georgia: 20 percent

Florida is a judicial state in which foreclosures must be approved by the courts.

Some of the largest drops in foreclosure activity are attributed to recent laws adopted in some states such as Nevada, Oregon, and California that have added requirements for lenders to meet before they can foreclose on home owners.

 

Posted by Scott R. Lodde

Headlines – Week of September 30, 2012

October 10, 2012

Declines in Shadow Inventory Foreshadow Rise in Prices

According to the financial information services company CoreLogic, current residential shadow inventory fell to 2.3 million units as of July 2012, representing a supply of six months. The information was published in the company’s most recent Shadow Inventory report.

This was a 10.2 percent drop from July 2011, when shadow inventory stood at 2.6 million units, which is approximately the same level the country was experiencing in March 2009. Currently, the flow of new seriously delinquent (90 days or more) loans into the shadow inventory has been roughly offset by the equal volume of distressed (short and real estate owned) sales.

Highlights of the report:

  • As of July 2012, shadow inventory fell to 2.3 million units or six-months’ supply and represented just over three-fourths of the 2.7 million properties currently seriously delinquent, in foreclosure or in REO.
  • Of the 2.3 million properties currently in the shadow inventory, 1 million units are seriously delinquent (2.9 months’ supply), 900,000 are in some stage of foreclosure (2.5-months’ supply) and 345,000 are already in REO (1.0-months’ supply).
  • The dollar volume of shadow inventory was $382 billion as of July 2012, down from $397 billion a year ago and $385 billion last month.
  • Serious delinquencies, which are the main driver of the shadow inventory, declined the most from April 2012 to July 2012 in Arizona (3.2 percent), Pennsylvania (2.8 percent), New Jersey (2.3 percent), Delaware (2.2 percent) and Maine (2.2 percent).
  • As of July 2012, Florida, California, Illinois, New York and New Jersey make up 45 percent of all distressed properties in the country.

 

Population Growth Rate ‘Fueling’ South Florida’s Latest Condo Boom

According to a new report from the Federal Reserve Bank of Atlanta, a “significant” increase in the growth pace of Florida’s population is contributing to the wave of newly proposed condo units. 72 towers with 10,500 units are slated to be developed in the tricounty South Florida region of Miami-Dade, Broward, and Palm Beach.

The bank’s EconSouth Third Quarter 2012 report believes that some of the recent and projected condominium construction in Miami is a result of renewed in-migration to Florida.  After experiencing a dramatic slowdown in population growth following the recession (down to about 140 people a day), Florida is seeing significant growth again of about 700 net new residents a day.

According to the report, the resurgence in Florida’s population growth has put the state on pace to surpass 20 million people by 2014, and in the process replace New York as the third most populous state in the nation behind California and Texas,.

The big question posed by the report is whether the changes in construction financing as a result of the crash are sufficient to prevent a repeat of a similar crash.

Highlights from the report:

  • Nearly 150 cranes “filled” the South Florida skyline at the height of the last condo boom.
  • As of Sept. 30, 2012, one new condo tower has already been completed in the tricounty region and 11 other high-rises are under construction as the post-crash development era gains momentum, according to a recent report by CondoVultures.com.
  • Developers have “sold” about 18 percent of the 10,500 newly proposed condo and condo-hotel units expected to be constructed in the coastal South Florida region through the third quarter of 2012.
  • A majority of the newly proposed condo units are not expected to be completed until 2014 when the unsold developer inventory from South Florida’s last real estate boom and bust is projected to be sold, according to the Proposed Condo Projects list from the licensed Florida brokerage CVR Realty™.
  • Fueled by investors primarily from overseas, less than 3,400 new condo units remain unsold from a supply of nearly 49,000 units created since 2003 in South Florida’s seven largest coastal markets of Greater Downtown Miami, South Beach, Sunny Isles Beach, Hollywood / Hallandale Beach, Downtown Fort Lauderdale and the Beach, Boca Raton / Deerfield Beach, and Downtown West Palm Beach and Palm Beach Island as of June 30, 2012.
  • To overcome the obvious financing hurdle, most of the newly proposed projects are requiring prospective buyers to commit to deposits – to be paid in phases – of as much as 80 percent of the preconstruction contract price.  This is a dramatic change from the most recent South Florida condo boom, preconstruction buyers were generally asked for deposits of about 20 percent.  For example, a buyer may bring anywhere from 30 percent to 80 percent to the table and then pay in increments as the building moves through the development process. The developer brings 20 percent to the table.

Foreclosure Filings Spike in South Florida Region

According to a new report from CondoVultures.com, lenders initiated more than 13,200 foreclosure actions in the tricounty South Florida region in the third quarter of 2012, representing a 36 percent surge in filings on a year-over-year basis compared to the same July through September period in 2011.

For the year, lenders have filed nearly 35,700 notices of default – the first step in the repossession process – in the first nine months of 2012 in Miami-Dade, Broward, and Palm Beach counties after filing less than 24,000 actions during the same January through September period in 2011.

Despite the spike in South Florida foreclosure actions in the first nine months of this year, the 2012 total number of filings initiated in the region is down compared to the same nine-month period in previous years when nearly 49,000 actions were filed in 2010 and nearly 75,500 actions were filed in 2009, based on filings with the Clerks of the Court for each respective county.

According to the report, lenders are stepping up their foreclosure efforts South Florida some two years after the ‘robo-signer’ controversy first surfaced late in the third quarter of 2010.  

Barring some dramatic change, the peak of the foreclosure filing activity in South Florida appears to have occurred in 2009 when nearly 100,000 actions were initiated in Miami-Dade, Broward, and Palm Beach counties.

Compare this to 2012 where the South Florida region is on pace to experience more than 47,500 actions based on the filing activity in the first nine months of the year.

 Posted by Scott R. Lodde

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