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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South Carolina home sales rise 24% in October

South Carolina home sales rise 24% in October

Jim Bobo Real Estate

Sales of residential homes and condominiums rose 24% in October, South Carolina Realtor’s reported, describing 2012 as a “comeback year.” Prices were fairly stable, the association said, as the median sales price increased 0.1%. The price range for homes with the strongest sales statewide was $200,001 to $300,000, with a 19.5% sales gain in that category. The property type with the strongest sales gains was condos, up 18%.

Charleston-area sales rose 30.7%, to 894 from 684 a year earlier. Greenville had the strongest percentage gain, up 35% to 660 homes sold in October, compared with 489 a year earlier. Columbia posted 663 homes sold, up 29.7% from 511 in October 2011.

The association said 4,608 homes sold last month compared with 3,717 in October 2011. “Most markets have shed listings, resulting from strong sales and sluggish seller activity. There has been a general easing of foreclosures and short sales, meaning distressed listings are dragging prices down less than in recent years. So it’s both about market fundamentals and market composition,” the Realtors association said in releasing the data.

Compared with October 2011, State-wide new listings in South Carolina increased 10.1% to 7,888, while pending sales were up 26.7% to 4,676. Inventory levels shrank 13.4% to 46,776 units. Days on market was down 10.8% to 131 days. Absorption rates improved as months’ supply of inventory was down 24.7% to 10.2 months. These variables have continued to improve for over a year now, and they all contribute to a more stable housing market. This along with continued job growth is pushing prices up.

According to the association, the economy is growing with 2013 expected to outpace 2012′s growth, mortgage rates are expected to remain near historic lows through 2015, and rents are expected to rise due to low vacancy rates.

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

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

Did you see this national headline? “Home values rise for first time in 5 years”…read more

Home values rise for first time in 5 years”.  The article is based on a report from Zillow.  Read the entire article here.

Beware home statistic sources

In under 1 minute, I’d like to share several thoughts on any statistic buyers or sellers might stumble upon.

First, any national housing statistic, regardless of its source or accuracy, will not have relevance in every neighborhood across the country.  For instance, some Greater Charleston Area neighborhoods and areas have seen an increase in average home prices since at least mid-2011, while others still see values decreasing.

Second, and to further complicate things, Zillow does not use sales of bank-owned foreclosures (REOs) in their data.  Since REOs account for a substantial* per cent of home sales, many appraisers will tell you their professional standards demand the inclusion of REOs.  Sellers generally cannot escape the effect foreclosures and short sales have on most home values, and one could rationally conclude that most home value statistics tabulated today which exclude REO sales data are skewed.

Third, the effort to stabilize real estate prices has been a concerted one involving multiple private and government institutions, especially the NAR and lenders who stand to lose trillions if values continue to erode.  So you would think any “good” news should be taken as good news.  But without jobs creation and an expanding economy, all the effort in the world isn’t going to matter.  Just remember that “one good statistic does not a good market make”.  A “good” market is going to depend on many factors unique to your local market.

So be wary of real estate statistics sources.  Before using them in any buying or listing decision, analyze both national and local market statistics, finding out what data went into those statistics and keeping in mind that local statistics probably have more relevance than national ones.  In short, do your homework!

* It is important to note that REOs and short sales in the Greater Charleston Market are currently in decline.

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

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