Housing Market Still Faces 3 Challenges

Existing-home sales gained momentum in June, reaching an annual pace of 5 million sales for the first time since October 2013, according to the National Association of REALTORS®’ latest housing report. Rising inventories also are pushing the overall supply of homes for sale toward a more balanced housing market, with unsold inventories 6.5 percent higher than a year ago, NAR notes.

“Inventories are at their highest level in over a year and price gains have slowed to much more welcoming levels in many parts of the country,” says Lawrence Yun, NAR’s chief economist. “This bodes well for rising home sales in the upcoming months as consumers are provided with more choices.”                 housing market

Still, the market is facing several headwinds that continue to subdue a more robust recovery. NAR noted three in its most recent housing report:

1. Sluggish new-home construction: While overall housing inventories showed improvement in June, inventory problems continue to weigh on the market and could become more problematic if new-home construction doesn’t increase in more markets, NAR notes. “New-home construction needs to rise by at least 50 percent for a complete return to a balanced housing market because supply shortages — particularly in the West — are still putting upward pressure on prices,” Yun notes.

2. Stagnant wage growth: Yun also noted that stagnant wage growth is holding back what should be a stronger pace of sales. “Hiring has been a bright spot in the economy this year, adding an average of 230,000 jobs each month,” Yun notes. “However, the lack of wage increases is leaving a large pool of potential home buyers on the sidelines who otherwise would be taking advantage of low interest rates. Income growth below price appreciation will hurt affordability.”

3. Dwindling first-time home buyers: The percentage of first-time buyers continues to be low by historical standards. First-time home buyers made up 28 percent of the housing market in June, down from a typical 40 percent of the market historically.

NAR President Steve Brown says that some prospective buyers who have above average credit scores but low down payments are being deterred from home ownership by the high cost of FHA mortgage insurance.

“Access to affordable credit continues to hamper young, prospective first-time buyers,” says Brown. “NAR recommends that the FHA reduce high annual mortgage insurance premiums for all qualified homebuyers and eliminate the insurance requirement for the life of the loan. The FHA Hawk program is a good start, but it should offer further reductions for participating home buyers.”

Housing Snapshot for June

Here are some more housing indicators from NAR’s most recent report.

Home prices: Median existing-home prices for all housing types in June was $223,300, 4.3 percent higher than year-ago levels. This was the 28th consecutive month for year-over-year price gains.

Distressed homes: Foreclosures and short sales accounted for 11 percent of June sales, a 15 percent drop from year-ago levels. On average, foreclosures sold for a discount of 20 percent below market value, while short sales were discounted 11 percent in June.

Time on market: The median time on market for all homes was 44 days in June, up from 37 days on market in June 2013. Forty-two percent of homes sold in June were on the market for less than a month.

All-cash sales: All-cash sales made up 32 percent of transactions in June, up slightly from 31 percent in June 2013. Individual investors, who account for the majority of cash sales, purchased 16 percent of homes in June, down from 17 percent in June 2013.

Regional Snapshot

Take a closer look at how existing-home sales fared in your area.

  • Northeast: Existing-home sales increased 3.2 percent, but remain 3 percent below year-ago levels. Median price: $269,800, an 0.1 percent decrease from June 2013.
  • Midwest: Existing-home sales surged 6.2 percent, but remain 2.4 percent below June 2013. Median price: $177,900, up 4.6 percent from a year ago.
  • South: Existing-home sales rose slightly by 0.5 percent, up 1 percent from June 2013. Median price: $192,600, up 3.4 percent from a year ago.
  • West: Existing-home sales increased 2.7 percent, but remain 7.3 percent below a year ago. Median price: $301,000, up 7.2 percent from a year ago.

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Source: NAR

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New Home Construction Starts Still Low

New home construction starts have been low over the last couple years, and likely will continue to be low for the next two years, according to analysts at RBC Capital Markets.home construction

While new housing starts will likely hit the 1 million mark this year, that’s still far below the average of 1.46 million starts per year over the last half-century, RBC’s Robert Wetenhall notes in a new research report. Wetenhall predicts starts to reach 1.05 million in 2015 and 1.1 million in 2016.

Slower demographic growth, a soft labor market, tight lending standards, and a sharp increase in the cost of home ownership will make incremental volume growth more difficult to achieve if [economic growth] continues tracking in the range of 2 percent to 2.5 percent,” RBC analysts wrote in the report.

Instead, many builders are focusing on catering more to the luxury market by building pricier homes instead of trying to increase the overall number of units they’re constructing.

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Source: WSJ 07/21/2014

 

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First Time Home Buyers Make These 5 Mistakes

First-time home buyers can be eager to jump into home ownership. But real estate experts say they see them committing the same mistakes, time and time again. Here are some of the most common ones, as identified by experts in a recent CNBC article:   home buyers

1. They’re unprepared to compete against all-cash offers. Buyers need to be ready to make a quick decision if they’re housing market is heating up. Buying a home is “really like finding a job – it’s going to take a lot of time to prepare,” says Cara Pierce, a certified housing counselor with ClearPoint Credit Counseling Solutions. “That way, when the deal comes along, you’re ready to pounce on it.” Housing experts say buyers should have already saved as much as possible for a downpayment, repaired any credit report blemishes, and gotten preapproved for a loan as they start their house hunt to put them in a better position to compete.

2. They place a car ahead of the home. Lenders are going to scrutinize applicants’ debt-to-income ratio when assessing how well they can afford a mortgage payment. Consumers’ debt has gone on average from $40,000 in 2010 to $51,000 today, according to David Norris, president and COO of loanDepot, a non-bank mortgage lender. “It would be much easier to own a home if you can show a history of saving and not have gotten yourself into too much debt,” Norris told CNBC.

3. They place too much emphasis on online loan information. Online sites can be good for finding out general information about loan products and estimated costs, but experts recommend visiting with mortgage lenders face-to-face to help demystify some of the process and to take into account your specific situationGo to different places and talk to loan officers to get a feel for what the differences are between similar types of loans,” says Pierce. “Sometimes a company won’t charge an origination fee, but then the interest rate is higher … and in some cases you can put many of the upfront costs—closing costs, title insurance—into the loan, which makes your balance larger.”

4. They bank too much on online home values. Some real estate websites are giving buyers a false sense of home values, the CNBC article notes. “If a buyer believes that the actual value of the property is $1.1 million [as listed online] when it’s really $1.3 million, it’s a real disservice to the client,” says John Barrentine, co-founder and CEO of RED Real Estate Group. “You really should [spend time] with someone that understands the market, someone who’s there day in and day out.” Home buyers can get the best feel of the market by working with a real estate agent and driving around neighborhoods and get a sense of things about homes that may be less valuable or even more valuable than perceived online.

5. They forgo the home inspection. About 10 percent of homes recently purchased weren’t inspected by a home inspector, according to Bill Loden, president of the American Society of Home Inspectors. Some buyers were trying to cut down on the costs of hiring an inspector to investigate a home – which usually averages about $450 — but defects uncovered later could potentially result in the loss of thousands of dollars. “It takes a trained eye to be able to see the problems that can exist in a home,” Loden said. “The inspection can also give the first-time buyer a bit of a schooling on the house and how to maintain it.” Buyers should also be prepared to ask questions about conditions that are common to specific areas, such as radon in Midwest; sewers in California; and active clay soils in Dallas that can lead to foundation issues, the CNBC article notes. The home may require additional inspection from a specialist to rule out potential problems.

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Source: CNBC 07/17/2014

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67% Of Home Owners Planning Home Renovations

Sixty-seven percent of consumers say they’re planning home renovations within the next six months, according to realtor.com®’s Home Improvement Survey of more than 1,500 home owners. They’re planning to spend more money on their home renovations than last year, the survey found.                                home renovations

The most common budget range for home improvements was between $2,001 and $5,000. Eighteen percent of respondents who say they plan to renovate before the end of the year are budgeting $10,000 to $20,000 on their renovation.

Respondents indicated that these are the most popular areas of the home to renovate: the kitchen (61%), bathrooms (59%), backyards or patios (33%), and the exterior of the home (32%).

“With 32 percent of consumers planning to spend money on improving the look and feel of their homes, home buyers should think about purchasing homes that require renovations,” says Barbara O’Connor, chief marketing officer for Move Inc., the operator of realtor.com. “By considering these kinds of homes, buyers open themselves up to more affordable options and the ability to renovate their homes to fit their specific needs and tastes.”

Here are some additional survey findings:

Most Popular Reasons for Planned Home Improvements

  • To improve the aesthetics and/or enjoyment of the home (32%)
  • In preparation for putting house on the market (22%)
  • Recently purchased a home needing renovations (19%)
  • To improve the value of the home (11%)

Owners’ Home-Improvement Budgets for the Next Six Months

  • $2,001 – $5,000 (22%)
  • $5,001 – $10,000 (19%)
  • $10,001 – $20,000 (18%)
  • $20,001 – $50,000 (14%)

Owners’ Intentions to Sell

  • Not any time in the foreseeable future (37%)
  • 0 – 6 months (20%)
  • 1 – 3 years (19%)
  • 4 – 6 years (10%)

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Source: Move Inc

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Listings Utilizing Open Houses At 6.3% Nationwide

Open houses can generate a lot of buyer traffic for a listing, but they are held for only a small fraction of listings. According to a HomeFinder study, open houses were held to reach potential buyers for only 6.3 percent of listings nationwide.  open houses

Here are some additional open house insights from the study:

  • Sunday is the most common day to host an open house.
  • A home is on the market for an average of seven days before holding an open house.
  • Seventy-seven percent of all open houses are held for listings that are single-family homes.
  • The median list price of a home hosting an open house is $339,990.
  • The following top five cities have the most open houses in the country: New York; Los Angeles; Washington, D.C.; Chicago; and Baltimore.

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Source: HomeFinder.com 07/09/2014

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Rising Home Prices Hurting Housing Affordability

Rising home prices pushed housing affordability down in May compared with last year, making homes a little less affordable to the average family, according to the National Association of REALTORS®’ latest housing affordability index.

The median price for a single-family home rose to $213,600 in May, up 4.9 percent from a year ago. However, the affordability picture may improve in the coming months as price gain slow. Meanwhile, mortgage rates rose 77 basis points from last year (with one percentage point equal to 100 basis points).                      Housing Affordability

“While jobs and income levels are up slightly from last year, they are not growing fast enough to offset price increases,” writes Michael Hyman, an NAR research assistant, on NAR’s Economists’ Outlook blog. “Having money for a down payment can still be a big hurdle for potential home buyers who already pay comparable rent payments.”

Affordability was down in May in all regions of the country, with the South posting the largest drop in affordability in the month, but the West saw the largest slump in affordability year-over-year after seeing the largest price gain of 8.4 percent.

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Source: NAR 07/15/2014

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Baby Boomers Not Downsizing Yet

Baby boomers aren’t showing any signs of leaving the single-family home market that has defined their generation’s real estate habits, despite many predictions that they would by now. As baby boomers hit age 65 and become empty nesters, many housing analysts forecasted that a huge wave of them would downsize and move into an apartment, condo, or townhouse.

But Fannie Mae researcher Patrick Simmons says that isn’t happening yet. baby boomers

“There’s a perception, particularly in many media reports, that this massive generation born between 1946 and 1964 is altering its housing consumption,” Simmons, the director of strategic planning for Fannie Mae’s economic group, told the Chicago Tribune. “It’s true that they’re becoming empty nesters in droves. But by one measure, the proportion of boomers who live in single-family homes actually increased between 2006 and 2012.”

Baby boomers’ mobility has gone down. Nine out of 10 boomers surveyed by AARP reported that they wanted to stay in their current home as long as possible. Some may be motivated to stay put because of the housing crisis. For baby boomers, the value of single-family homes they owned fell by an average of 13 percent. Some boomers could still be underwater and are waiting to recoup more on their house before they sell. Others may be holding on to their home because they snagged a record low mortgage rate in recent years, and they know borrowing won’t be any cheaper if they do decide to sell.

Some baby boomers are downsizing but choosing to stay in smaller single-family homes rather than move to a condo or townhome.

But “eventually, baby boomers will slow down with age and have the same physical frailties that their predecessors had,” Simmons told the Tribune. “My sense is that it’s not going to be a major shift — something we see in the numbers in a year. It will likely unfold over a decade or more.”

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Source: Chicago Tribune 07/06/2014

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Low Mortgage Rates Not Good For Housing Recovery

Mortgage rates are near historic lows, which is great news for home owners and buyers. But the situation could prove to be a big thorn in the side of the recovery.

More than one-third of homes with a mortgage have a mortgage rate below 4 percent, according to estimates provided by CoreLogic, a real estate data provider. Many home owners have taken advantage of low rates recently, fueling a refinance boom. Some home buyers were able to snag a record low of 3.3 percent interest in 2012.     housing recovery

As such, many home owners may be more inclined to stay put, unwilling to swap out a low mortgage rate for a new mortgage that could carry a rate up to one percentage point higher or more in the coming months. Those who can’t stay put may decide to to keep their home and rent it out. In any case, the number of homes for-sale could continue to be low and contribute to slower home sales, housing recovery analysts note.

Mark Fleming, chief economist at CoreLogic, estimates that up to 3.6 million home owners will be unlikely to sell this year because they do not want to give up a lower mortgage rate.

“They got the deal of the century,” Glenn Kelman, CEO of Redfin, a real estate brokerage, told The Associated Press. “I don’t think in 100 years anyone will be lending money at 3.5 percent. How do you walk away from a deal like that?”

Indeed, The Associated Press reports that this marks a significant shift from the way the housing market has worked in the past three decades. “For most of that time, whenever a home owner decided to trade up to a better home, mortgage rates usually were lower than the last time they had bought,” The Associated Press reports. “That helped make a new purchase seem more attractive.”

Economists say “rate lock-in” is a contributing factor for why so few homes are for sale. The housing market has faced a shortage of homes since late 2012. For every $1,000 increase in a home owner’s annual mortgage payment, the likelihood that the home owner would sell dropped as much as 16 percent, according to a 2011 study by the Federal Reserve Bank of New York.

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Source: Associated Press 07/11/2014

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6.5 Million Homes At Risk With Hurricanes

More than 6.5 million homes along the U.S. Atlantic and Gulf coasts could be at risk of a storm surge from hurricanes, which could amount to nearly $1.5 trillion in potential reconstruction costs, according to CoreLogic. The analysis estimates the number and reconstruction value of single-family homes that could be exposed to a potential hurricane-driven storm surge.

“This exposure could constitute significant risk for home owners and financial services companies, as many at-risk homes lack protection from insurance coverage,” CoreLogic’s report notes.                        hurricanes

Florida has the highest number of homes at risk of storm surge damage, with nearly 2.5 million homes potentially in harms way, representing $490 billion in potential damages, according to the report. At the metro level, the New York metro area, which includes northern New Jersey and Long Island, contained the highest number of homes at risk for potential storm surge damage – 687,412 – as well as the highest reconstruction value at more than $251 billion.

The reconstruction value of homes exposed to hurricane storm surge damage was found to be much greater in the Atlantic region than the Gulf. The total reconstruction cost value of homes along the Atlantic coast is nearly $951 billion – nearly double the value of properties at-risk in the Gulf Region, at slightly over $545 billion, according to the report.

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Source: CoreLogic

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Home Buyers & Sellers Not On “The Same Page”

Home buyers and sellers are “not on the same page” when it comes to the state of the housing market, according to a new Redfin survey of 707 of its agents and partner agents across 35 U.S. markets. Buyers and sellers are taking a more aggressive stance in the market, with some sellers overpricing their homes and more buyers refusing to get in bidding wars, the survey found.                       the same page

“In May, 40 percent of sellers surveyed by Redfin said that they planned to list their homes above market value, even though home sales had dropped by 9 percent since the year before,” says Nela Richardson, Redfin’s chief economist. “Typically, it takes sellers six to nine months to adjust to a price change, but this latest shift is longer. Prices have moved down and then up so much over the past five years that it’s even more difficult for sellers to have a realistic baseline for what their homes are worth in the current market.”

Fifty-eight percent of Redfin agents say that sellers are holding unrealistic expectations about the value of their homes, up from 49 percent in the previous quarter. Meanwhile, buyers are showing less willingness to chase after a home, as they face affordability and financing hurdles, the survey found.

“Buyers who have been searching for a long time may still try to win deals with aggressive offers,” Richardson says. “However, new buyers in the market are much less willing to chase an escalating sale price to compete with multiple bids. The demand side of real estate is moving from ‘please take my offer’ to ‘take it or leave it as you please.’ Home buyers’ willingness to walk away from a deal that’s a bad fit is good for them and is ultimately healthier for the housing market.”

So is it a seller’s market or a buyer’s market? It depends on who you ask. Twenty-four percent of Redfin agents surveyed say that “sellers have all the power,” a drop from 35 percent three months ago.

Rising inventories have been beneficial for buyers who are less willing to participate in a bidding war, but they are facing other challenges, such as access to credit and affordability, the survey finds. The top challenges Redfin agents identified as growing problems for buyers are: lack of affordability; qualifying for a mortgage; saving enough for a down payment; and worries about the economy.

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Source: Redfin

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