Posts Tagged ‘2012 real estate market’
Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the reasons: loosening credit.
The analytics firm notes the average credit score required to attain a mortgage loan is 700. While this is higher than scores required prior to the crisis, it is constant with requirements one year ago.
Additionally, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with the past three quarters.
However, other market indicators point not just to a stabilization of mortgage lending standards, but also a loosening of credit availability. Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.
Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.”
In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.
While credit conditions may have loosened slightly, some potential homebuyers are still struggling with credit requirements. In fact, Capital Economics points out that in November 8 percent of contract cancellations were the result of a potential buyer not qualifying for a loan.
Additionally, Capital Economics says “any improvement in credit conditions won’t be significant enough to generation actual house price gains,” and potential ramifications from the euro-zone pose a threat to future credit availability.
Retail sales for January enjoyed a slight gain to $401.4 billion, an uptick of 0.4 percent from the previous month, the Census Bureau reported last week. More encouragingly, this was 5.8 percent higher than January 2011, and total sales for the November 2011 through January 2012 period were up 6.3 percent from the same period a year ago.
Looking at categories, January’s retail trade sales were up 0.4 percent from December 2011 and 5.5 percent above last year. Food services and drinking establishment sales were up 8.2 percent from January 2011 and building material sales were up 8.1 percent from last year.
In fact, January retail sales pointed to growing underlying strength in the economy, given that core retail sales, which exclude auto, gasoline and building material sales, actually increased 0.7 percent, indicating increased consumption by Americans.
“[The] retail sales data are better than they look, but they don’t suggest that consumption growth is about to set the economic recovery alight,” wrote Paul Dales, an economist at Capital Economics, in a note to clients.
First-time claims for unemployment benefits placed in the week ending February 11 dropped to 348,000, a decrease of 13,000 from the previous week’s revised figure of 361,000, the Employment and Training Administration reported last week. The four-week moving average was 365,250, a decrease of 1,750 from the previous week’s revised average of 367,000.
The total number of insured unemployed workers during the week ending February 4 dropped to 3,426,000, a decrease of 100,000 from the preceding week’s revised level of 3,526,000, the Administration also reported. The four-week moving average was 3,492,500, a decrease of 8,250 from the preceding week’s revised average of 3,500,750.
Turning to real estate, building permits issued in January for construction of private housing ticked up to an annual rate of 676,000, which was 0.7 percent over December’s revised rate of 671,000, and 19 percent over the January 2011 estimate of 568,000, the Census Bureau and the Department of Housing and Urban Development reported last week. Permits for single-family homes issued in January were at a rate of 445,000; this is 0.9 percent above the revised December figure of 441,000.
Actual starts on construction of private housing initiated in January hit an annual rate of 699,000, which was 1.5 percent above December’s revised estimate of 689,000 and 9.9 percent higher than the January 2011 rate of 636,000. Starts on single-family homes in January declined to a rate of 508,000, which was 1 percent less than December’s revised rate of 513,000.
Completions of private housing in January were at a seasonally adjusted annual rate of 530,000, which was 12 percent below December’s revised estimate of 602,000, but 4.1 percent higher than the January 2011 rate of 509,000. Completions of single-family homes in January were at a rate of 389,000, which was 14.9 percent under December’s revised rate of 457,000.
Industrial production was unchanged from December to January, as a gain of 0.7 percent in manufacturing was offset by declines in mining and utilities for the month, the Federal Reserve reported last week. Looking at specific segments, the index for motor vehicles and parts jumped 6.8 percent and the index for other manufacturing industries increased 0.3 percent. The output of utilities fell 2.5 percent, as demand for heating was held down by temperatures that moved further above seasonal norms; the output of mines declined 1.8 percent.
This week sees an extremely light calendar of financial headlines due to the Presidents’ Day holiday, starting Wednesday with existing home sales for January form the National Association of REALTORS®. This is followed Thursday by initial jobless claims for last week from the Employment and Training Administration. The week closes with the University of Michigan’s consumer sentiment score for February and new home sales for January from the Census Bureau.
With 2012 nearly upon us, many of us will be spending this week reviewing the events of 2011 and setting resolutions, goals or visions for what we’d like to accomplish next year.
It will come as no surprise that the most common New Year’s resolutions fall into the categories of getting organized and getting fit — physically and financially.
Financial fitness includes getting your real estate business in order. But you can’t set up your real estate plans for the year in a vacuum. They must be done in context of what’s going on in the market. Here are four predictions about what that market context will look like in the coming year:
1. Even more foreclosures
While I’d like to claim crystal-ball credit for this one, it doesn’t take heightened powers of prediction to foresee an uptick in the rate of home repossessions in 2012. Last fall’s robo-signing debacle and the ongoing legal fallout from it created a massive backlog in the foreclosure pipeline, meaning that banks are taking many months, even years, to actually foreclose on mortgages in default.
Earlier this year, the New York Times reported that the additional hurdles New York state courts are requiring banks to leap in the wake of the robo-signing revelations, like additional settlement meetings with the homeowner to see if a modification can be brokered, have created a backlog of foreclosures that it would take 62 years to clear, at the current rate of foreclosure.
It’s pretty clear that in 2012 and beyond, the banks will work through those backlogs. The inevitable result will be an increase in foreclosures.
2. REOs and short sales will become the new normal
If you even know anyone who has house-hunted in the past couple of years, you’ve likely heard tales of the high-drama high jinks — super-long escrows, first-time buyers being bested by investors’ cash offers, banks resistant to negotiating for repairs — that take place in the course of a distressed property sale.
In the coming year, distressed home sales will continue to represent an increasing share of homes on the market. So, buyers will shift from considering whether to buy a short sale to understanding that they must be educated and prepared to do a deal with a seller, a bank (to buy an REO) or a hybrid of the two (to buy a short sale) to access the full selection of homes on the market.
This, in turn, will empower buyers to make smart decisions about what to offer and what to expect on any listing they like, as well as to set smart priorities and make realistic comparisons between listings based on their own personal priorities around timing, certainty and seller flexibility.
3. So-called ‘smart cities’ will do well
This year, a number of housing markets saw double- or even triple-dips in home values. In others, pricing stayed relatively flat. However, in areas where technology powers the economy, home values prospered along with the industry. Silicon Valley real estate, for instance, saw fierce competition among buyers as the young employees of companies that went public like used their newly stocked bank accounts to buy their first homes.
I recently talked with Jed Kolko, chief economist for real estate search site Trulia, and his 2012 forecast was that so-called “smart cities” will continue to have hot real estate markets next year. But Kolko defined smart cities much more broadly than the California tech hubs. Other tech centers like Austin, Texas, and the Massachusetts suburbs of Cambridge, Newton and Framingham all made Kolko’s list, as did Rochester, N.Y. (a town known for its highly educated, highly skilled work force).
4. Consumers will get ‘hopeless’
I mean hopeless in the best of all possible ways. For years, buyers and sellers have been waiting for that singular event to occur that would cause a quick market recovery. But 2012 will mark the fifth or sixth year of the real estate recession, depending on who you talk to. I predict that those consumers who have not already done so will drop unrealistic hopes for a fast return to the heady real estate fortunes of the subprime era. Instead, people will make their real estate plans based on:
- today’s low home prices, rather than the fantasy of what could happen if the market miraculously came back;
- assumptions of very low, or no, appreciation in home values for years to come; and
- very conservative estimates of their own finances and how they will grow.
As a result, buyers won’t break their necks to hurry and buy before prices uptick; rather, they’ll save and plan to buy when it makes the most sense for their finances. Homeowners will do the same; they will either refi, remodel and be content where they are for the long haul, or decide their homes no longer fit their lifestyles and their finances, divest of them and move on. But the good news is, people will make these decisions based on what is or is not sustainable for their lives and their finances, and not based on inflated hopes about what the market will or will not do.
Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.
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