Things to Know Weblog

Here is an interesting excerpt from the another depressing article issued November 28, 2007 by the California Association of Realtors.

• Statewide, the 10 cities and communities with the highest median home prices in California during October 2007 were: Newport Beach, $1,575,000; Santa Barbara, $1,275,000; Cupertino, $1,033,000; Danville, $1,017,500; Los Gatos, $1,005,000; San Carlos, $927,500; Redwood City, $912,000; San Ramon, $835,000; San Clemente, $832,500; and San Mateo, $829,500.
• Statewide, the 10 cities and communities with the greatest median home price increases in October 2007 compared with the same period a year ago were: Santa Barbara, 24.4 percent; Arcadia, 21.3 percent; Redwood City, 20.6 percent; Newport Beach, 18.4 percent; San Ramon, 14.4 percent; Cupertino, 11.7 percent; San Carlos, 9.5 percent; Redlands, 8.8 percent; Redondo Beach, 8.7 percent; and Sunnyvale, 7.6 percent.

This is just another indication that prices of property located in desirable areas continue to hold steady or increase even during the current real estate downturn.

Here is an interesting article which helps explain why prime real estate in the coastal areas of Orange County are experiencing stable to increasing sales prices.

AP
Foreign Cash Could Boost Housing Market
Saturday November 10, 2:35 am ET

By Stephen Bernard, AP Business Writer

Foreign Cash Could Provide Much Needed Relief for U.S. Housing Market Thanks to Weak Dollar

NEW YORK (AP) — The weakening dollar has caused many problems for consumers, but it may also be providing the fuel for one unintended — and very welcome — benefit: a rally in the struggling housing market driven by foreign investors.

For an individual or developer trying to sell a home, interested buyers are just as likely to already have a place in London or Paris as they are to be first-timers new to the market.

“European investment is likely to pick up,” said Mark Vitner, chief economist for Charlotte, N.C.-based Wachovia Corp. “Now is the time to come over and take advantage.”

The theory goes that foreign investors step in and replace first-time home buyers who have been squeezed out of the housing market during the recent downturn. These new investors in turn allow current homeowners to sell and trade up to larger homes.

That will help restart owners moving up the housing ladder, a process that had been key to economic growth in recent years.[read more ...]

More information regarding a turn around in the housing market may be found in the following article from the National Association of Realtors Research Department:

For more information, contact:

Walt Molony, 702/691-8592, wmolony@realtors.org

Modest Recovery for Existing-Home Sales in 2008 as Credit Crunch Subsides

LAS VEGAS, November 13, 2007 -  A modest recovery for existing-home sales is expected in 2008 as the impact of the credit crunch subsides, while pending home sales indicate near-term stability, according to the latest forecast released here today at the National Association of Realtors® Conference & Expo. Lawrence Yun, NAR chief economist, said the housing market will improve from a steady unleashing of pent-up demand, and from a wide abundance of safer mortgage products. “The level of pent-up demand reaching the market next year is a bit uncertain, and it is possible for even higher home sales activity than we’re forecasting if buyers regain their confidence about the long-term benefits of home ownership.  Over the near term, home sales are likely to be fairly flat as the lingering impact of the credit crunch filters through the system through the end of the year.” The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in September, rose 0.2 percent to a reading of 85.7 from an index of 85.5 in August. It was 20.4 percent lower than the September 2006 level of 107.6. “Even with relatively low fourth quarter sales, 2007 will be the fifth highest year on record for existing-home sales. The median existing-home price in 2007 will have fallen by less than 2 percent from an all-time high set in 2006,” Yun said. The PHSI in the Midwest rose 5.4 percent in September to 82.3 but is 14.4 percent below a year ago.  In the South, the index increased 1.5 percent to 99.3 but is 19.7 percent lower than September 2006.  The index in the West slipped 0.1 percent in September to 80.5 and is 25.6 percent below a year ago.  In the Northeast, the index dropped 10.1 percent in September to 69.5 and is 23.1 percent below September 2006. Existing-home sales are projected at 5.67 million this year, edging up to 5.69 million in 2008, in comparison with 6.48 million in 2006 which was the third highest year on record.  Existing-home prices are expected to decline 1.7 percent to a median of $218,200 for all of this year and hold essentially even in 2008 at $218,300. “Some markets are still going strong, such as Austin and Raleigh, while others are showing early signs of recovery, like Denver and Boston.  However, a vast portion of the nation’s mid section is under priced in relation to income, and prices in some markets could rise notably with good local job gains,” Yun said. “At the same time, a significant rise in foreclosures in some areas could delay the recovery.” New-home sales will probably total 796,000 in 2007 and 693,000 next year, below the 1.05 million last year; no real improvement is seen for new homes until 2009.  Because builders have rightly made drastic cuts in production, housing starts, including multifamily units, are forecast at 1.35 million this year and 1.14 million in 2008, down from 1.80 million in 2006.  The median new-home price is estimated to drop 1.6 percent to $242,500 in 2007 before rising 0.4 percent to $243,600 in 2008.  “Contrary to perceptions, conventional mortgages are widely available at favorable interest rates for the bulk of home buyers,” Yun said.  “The pricing and availability of jumbo mortgages has improved, and FHA loans for home purchases – up 58 percent in the third quarter – are replacing sub prime mortgages to serve the needs of low- and moderate-income buyers.” The 30-year fixed-rate mortgage should rise slowly to the 6.6 percent range by the end of next year, although cuts in the Fed funds rate will help short-term interest rates.  “Home buyers in it for the long haul nearly always come out ahead in building wealth. Given the leverage in purchasing a home, the average return on a 5 percent down payment over 10 years is usually three to five times greater than stock market returns,” he said. “When people compare investment returns, they often overlook the power of leverage in the housing market.” Yun said a $10,000 down payment on a median-priced home, at a typical appreciation rate of 5 percent, would be worth $110,000 after 10 years.  That same amount invested in the stock market for the same amount of time, assuming 10 percent annual appreciation, would be worth $23,600. “That’s why housing is the best long-term investment most families ever make – the longer you own, the better your investment,” he said. Growth in the U.S. gross domestic product (GDP) is seen at 2.1 percent in 2007, down from a 2.9 percent growth rate last year; GDP growth is projected to improve to 2.8 percent in 2008. The unemployment rate will probably average 4.6 percent for 2007, unchanged from last year, but edge up to 4.9 percent in 2008.  Inflation, as measured by the Consumer Price Index, is likely to be 2.8 percent both this year and in 2008, compared with 3.2 percent in 2006. Inflation-adjusted disposable personal income is forecast to grow 3.5 percent in 2007, up from 3.1 percent last year, and then ease to 2.4 percent in 2008. The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries. # # # *The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing. The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales.  In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months.  There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales. Existing-home sales for October will be released November 28; the next Forecast / Pending Home Sales Index will be released December 10. Information about NAR is available at www.realtor.org. This and other news releases are posted in the News Media section.  Statistical data, tables and surveys also may be found by clicking on Research.

© Copyright NATIONAL ASSOCIATION of REALTORS® I Headquarters: 430 North Michigan Avenue, Chicago, IL 60611
DC Office: 500 New Jersey Avenue, NW, Washington, DC 20001-2020 I 1-800-874-6500

Here is an interesting excerpt from the otherwise depressing article issued October 24, 2007 by the California Association of Realtors.

• Statewide, the 10 cities and communities with the highest median home prices in California during September 2007 were: Newport Beach, $1,435,000; Los Gatos, $1,228,000; Cupertino, $1,050,000; Danville, $1,004,000; Redondo Beach, $847,500; San Clemente, $830,000; Yorba Linda, $825,000; Arcadia, $805,000; San Rafael, $797,500; and Santa Monica, $796,500.
• Statewide, the 10 cities and communities with the greatest median home price increases in September 2007 compared with the same period a year ago were: Tustin, 19.7 percent; Los Angeles, 18.2 percent; Arcadia, 14.2 percent; Carlsbad, 11.1 percent; Laguna Niguel, 10.1 percent; Diamond Bar, 8.7 percent; Cupertino, 8.4 percent; Redondo Beach, 8 percent; Reedley, 7.1 percent; and Newport Beach, 6.3 percent.

This is just another indication that prices of property located in desirable areas are holding steady or increasing even during the current real estate downturn.

To help undecided Buyers formulate their purchasing plans, the following October 10, 2007 article from the National Association of Realtors® Research Department is presented in its entirety.

The Forecast

Waiting Room
by Lawrence Yun, Vice President, NAR Research

Several positive developments in the credit market will pave the way for improving housing market conditions going into 2008. The worst of the credit crunch concerns we saw in August are clearly over. A bold move by the Federal Reserve in cutting the federal funds rate by 50 basis points helped liquidity. Even more importantly, the Fed’s action bolstered the confidence of financial investors that the Fed will not permit a freezing of credit in the marketplace. Consequently, markets have settled down and mortgage rates are now more favorable compared to those in August.

But it’s interesting to note that credit in the conforming loan market (those loans under $417,000 and those that meet the guidelines of Government Sponsored Enterprises like Freddie Mac and Fannie Mae) has been widely available throughout the recent crisis. It was the jumbo loan market that was particularly hard hit, with the spread over conforming loans rising to over 150 basis points, rather than the historic average of 20 to 30 basis points. The spread as of early October (as this is being written) was down to 70 basis points – still not back to normal, but at least it is moving in the right direction. Many home buyers in the high-cost regions who have been frozen out of jumbo loans will now be able to return to the market.

And the subprime market? Well, we certainly don’t expect the level of subprime lending to return to where it had been a year ago. That is a good thing. While some subprime loans make sense, the vast majority of subprime borrowers likely did not know what they were getting into. Low-and-moderate income families will (and should) now look to safer FHA loans. These loans carry much more favorable interest rates and they have the infrastructure already setup for counseling and loss mitigation.

Taking Inventory

Though the credit problems appear to be over, there is an overhang that looms large that could hamper the recovery of the housing market. Inventory is high – very high. There were a record 4.58 million homes on the market at the end of August. That’s a 10 month supply. But the number of total listings appear to be topping out. A significant portion of the existing supply of homes is old inventory that has been sitting for several months due to lower sales activity. If one looks only at the fresh listings, a total of 596,000 existing homes came on to the market in August. That is the lowest number of fresh listings for the month of August in eight years. The typical number of new listings reaching market over each of those eight years had been 720,000. Also keep in mind that many people still live in the homes that are listed for sale. These people are home sellers as well as home buyers – except for those probably few who want to move into renting. From a supply and demand point of view, it is a wash.

The bigger concern over inventory is with newly constructed homes because they are vacant. For builders, carrying a vacant home is an expensive proposition and, hence, they will be forced to provide more incentives and price cutting to attract buyers. Interestingly, the inventory of newly constructed homes has been falling for the past five months thanks to major cut backs in construction by homebuilders. Inventory looks to be further shaved based on trends from single-family housing starts (down 43% in August from two years ago) and single-family housing permits (down 46%).

If in fact the inventory has maxed-out, then the downward pressure on home prices may not be as severe. After all, while we currently have high inventory, home price declines have actually been in the modest single-digits for the country as a whole. And some areas report price increases. In the latest NAR survey of metropolitan area home prices (through the second quarter of this year), more than half of the metro areas in the nation posted price gains – despite the high inventory.

Brighter Days Ahead

One principal reason underlying those price gains or minimal price losses is our fundamentally sound economy. The unemployment rate is low at under 5%. Job gains continue with 110,000 additions in September on top of 89,000 job gain in August. (The initial read of August job creation showed a net loss before being revised to that 89,000 positive figure.) Over four million net new jobs have been created in the past 24 months — the time period since home sales began to decline. Recall, the last cycle when inventory rose to comparably similar heights was back in the early 1980s and early 1990s, both corresponding to years of job cuts. The current high-inventory condition is unique in that respect and untested in history.

Based on record stock market valuation and strongly rising exports, and the fact that most of the negatives of housing have already occurred, the economy will grow a bit faster next year. More active economic activity will not necessarily mean a higher inflation. In fact, inflation is projected to decelerate – from 2.8% this year to 2.4% in 2008. That is good news because inflation will be the key in holding down rates on 30-year mortgages. The Fed interest rate cut helped with adjustable rates, home equity loans, and in lessening the burden on re-setting rates. But the Fed does not have direct control over 30-year rates. Rather it is the expectations for inflation that truly impact those rates. With inflation coming under better control, mortgage rates will remain low.

Housing figures for September and October look to be weak (we’ll see those numbers well into late November), and they will reflect the lingering impact of the August credit crunch. However, the recovery is underway. 2008 will be better than 2007.

Copyright National Association of REALTORS®, Reprinted from REALTOR.org with permission.