5 Reasons the Housing Recovery Remains Wobbly

Some information from an article by Rick Newman published by US News
How will the current trends in the Charleston market affect real estate prices? In short, buyers that have been on the fence should consider stepping up to the plate and buy now – at least for your primary residence.  “Flippers” should remain cautious. Sellers who have been on the fence, too, might consider diving into this market head first and selling while demand is up and supply is low. In many ways Charleston’s real estate market is very healthy, almost a “perfect market storm” that benefits everyone.

If you’re a buyer or seller who’s been on the fence, your time to act may be at hand.

First, an interesting factoid: RealtyTrac just published a list of the “top 25 markets for flipping homes”.  No city in South Carolina made the list.    Still, this may be one offbeat indicator of a housing revival.  Why?

Because a few years ago, anybody buying a home to resell for a quick profit probably lost money instead, since home prices declined for six years straight, beginning in 2006-2007.  So if flippers are back, that’s at least one sign that buyers think prices will keep going up.  Sounds familiar, doesn’t it?

But some trends in the housing market justify such optimism: sales, like prices, are up after bottoming out in 2010. Foreclosures and mortgage delinquencies are dropping sharply. And housing affordability remains terrific, thanks largely to near-record-low interest rates engineered by the Federal Reserve.

But it’s still a troubled housing market in many ways, as several panelists explained during a discussion Mr. Newman moderated for the recent Milken Institute Global Conference in Beverly Hills, Calif. Here are 5 signs the housing market is still far from healthy:

The scarcity of good land for developers is crimping the new home construction market.

The scarcity of good land for developers is crimping the new home construction market.

1. Good land is scarce: This might seem hard to believe in a huge country, in the aftermath of a housing glut, but real-estate developers say it is hard to find desirable land for new projects, at fair prices. Part of the problem is that banks took control of a lot of land when they foreclosed on development projects, and the land is now worth less than its original price – which means banks would have to write off additional losses if they sold it.

And lenders remain leery about making loans for land purchases. “Land is a defining element right now,” said Emile Haddad, CEO of the real-estate management firm FivePoint Communities. “A lot of land is hidden in drawers right now.” That limits the supply of new homes for purchase and also restrains job growth in the construction industry.

2. Flippers are at risk: Mortgage rates as low as 3.5 percent make houses a good bargain right now, but the equation could shift abruptly if rates rise, as some business leaders think is inevitable. “Buyers should be very cautious,” said Jeff Greene, president of Florida Sunshine Investments.

“No doubt you can buy a house today and get a really good price and a low-interest loan. But if you want to sell that house to somebody two or three years later and rates go up to 5 or 6 percent, how much is he going to pay for that house?”

Low interest rates are making it possible for buyers to get a whole lot more house than they could during the peak.  But rates are predicted to rise, sometime.

Low interest rates are making it possible for buyers to get a whole lot more house than they could during the peak. But rates are predicted to rise, sometime.

If you end up living in the house for several years, however, rising rates could actually work in your favor, since they’re likely to be accompanied by higher inflation, which would boost nominal home values.

3. The recovery depends deeply on government aid: Virtually all mortgages written these days are backed by a government housing agency such as Fannie Mae or Freddie Mac. Beyond that, interest rates would probably be at least 2 or 3 points higher if the Fed weren’t pushing them down. “We’re in a financial repression,” says Jim Litinsky, founder of the hedge fund JHL Capital.

“Every asset is mispriced. But,” he adds, “of all assets out there, if you can lock in 30 year, 3.5 percent mortgage, that’s an incredible asset to own to ride the repression.”

4. Foreign buyers are helping boost prices: In top markets such as Miami, Los Angeles and New York, strong demand by foreign buyers has been one reason real estate prices have recovered. On one hand, that indicates faith in the U.S. market by buyers who could put their money anywhere. But it makes homes more expensive for Americans and could lead to another bubble, which could pop if interest rates rise rapidly.

Foreign buyers are pushing up prices in some markets.

Foreign buyers are pushing up prices in some markets.

5. It’s a very patchy recovery: Greene points out that while the Miami market is “on fire,” Palm Beach County, about 80 miles to the north, is still struggling with a “huge glut of housing.” And while home prices on average may be rising sharply, there are some regions – such as San Bernardino, west of Los Angeles – where the housing bust still hasn’t ended. Nobody will be flipping there.

Jim Bobo, Jr., Realtor, BIC, ABR, RSPS, MBA

SC Land and Homes LLC
Call or text (843) 442-7275
www.JimBoboRealEstate.com
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Charleston, SC January Residential Real Estate Sales Approach 2008 Levels

Charleston, SC January Residential Real Estate Sales Approach 2008 Levels
Charleston Trident Association of Realtors reports that increased market interest and consumer confidence help to fuel strong sales increases and sustainable price growth.

Charleston-area January sales see 5 year high

Charleston-area January sales see 5 year high

634 homes sold at a median price of $181,750 in the Charleston region in January, according to data released by the Charleston Trident Association of REALTORS® (CTAR). These figures represent the highest rate of January sales activity in the region since January 2008, when 648 homes sold. Activity and buyer interest were notably higher during the typically slow first month of the year as many REALTORS® reported a significant increase in calls from prospective buyers.

As sales volume continues to make consistent, sustainable progress, prices remain stable, approaching the $200,000 range, where local REALTORS® and expert economists looking at our region expect them to stay for the short-term future. “As was the case in 2012, we expect to see nominal, but sustainable, growth in prices this year”. “2012 closed out with a 4.4% increase in median price, which is an excellent rate of growth in a recovering market. It’s all about sustainability” said 2013 CTAR President Owen Tyler.
Comparing the beginning of 2012 to 2013, sales volume is up 16% and median price reflects 3% growth thus far in 2013. As the uptick of buyer interest in our market seems to be an enduring trend, inventory may become an issue in some areas. The number of available properties has consistently remained at a lower level than we’ve seen in the past five years, but will likely increase as the spring buying season draws closer. There were 5,520 homes actively for sale in the Charleston Trident Multiple Listing Service (CTMLS) as of January 31, 2013.
During the 2012 Year-In-Review residential market update hosted by CTAR in late January, expert economists Steve Slifer and Joey Von Nessen praised the real estate market activity in our region in 2012, but warned that uncertainty based on what’s going on in the government and Washington DC may have an effect on consumer confidence in 2013.
More detailed information about housing trends in Charleston, Dorchester, Berkeley and Colleton Counties are available from SC Land and Homes.
Please call, text or use the form below to let us know how we can assist you. We never share your personal information with anyone. Our Privacy Policy can be read here.

Jim Bobo, Jr., Realtor, BIC, ABR, RSPS, MBA


SC Land and Homes LLC
PO Box 1182
Johns Island, SC 29457-1182
Call or text (843) 442-7275
Fax (888) 456-6618

The 3.8% “Real Estate Tax”: Myth or Truth?

The 3.8% “Real Estate Tax”: Myth or Truth?

I recently received an email from a former client that claimed the Federal Government was going to tax every real estate transaction at 3.8% of the selling price.  This rumor has been circulating ever since health care reform was enacted into law more than two years ago. The National Association of Realtors released information explaining that the tax is actually a “capital gains tax” that will only affect high-income households that realize a substantial gain on an asset sale, including some real estate sales. NAR estimates 2-3 percent of home sellers will be affected.

The National Association of Realtors has prepared the following brochures to help explain how the 3.8% “real estate tax” will work.  In fact, Congress calls the tax the “New Medicare Tax on Unearned Net Investment Income”, and the tax will take effect January 1, 2013.  While NAR doesn’t support the tax (it was added into the health care law at the last minute and never considered in hearings), it’s not advocating for its repeal at this time.

NAR FAQs: New Medicare Tax on “Unearned” Net Investment Income

NAR Brochure: The 3.8 % Tax Scenarios

Jim Bobo, Jr., Realtor, BIC, ABR, RSPS, MBA

SC Land and Homes LLC
Call or text (843) 442-7275
www.JimBoboRealEstate.com
Contact us