Posts Tagged ‘Housing Market’
Buying a home may never get any cheaper than this. Several housing experts are predicting that this year will be the last chance for bargain hunters to cash in on the best deals of the weak housing market.
With home prices down 34% nationally since 2006 and mortgage rates at historic lows, homes have never been more affordable — but it won’t stay this way for much longer.
Stuart Hoffman, chief economist for PNC Financial Services, said he expects home prices to flatten out by the third quarter and start climbing by next year.
A number of factors will help bolster the housing market, he said, including a decline in the number of foreclosures and continued job growth. In addition, homebuyers will have better access to mortgages as they get their finances in order and improve their credit scores.
“This is a strong indicator that we will start seeing home price indexes, like the S&P/Case-Shiller, start to report home price increases this summer,” he said.
Prospective homebuyers who’ve been sitting on the fence shouldn’t worry if they aren’t quite ready to make the leap. Analysts are predicting that the initial price gains will be modest, at least, in most markets.
NEW YORK (CNNMoney) — Renting used to be cheaper than buying. But in many U.S. cities that’s no longer the case, as rents continue to climb and home prices stagnate.
While asking prices for homes declined 0.7% over the past 12 months through March, rents rose 5%, according to a report released Thursday by real estate listing site Trulia.
“Buying a home is more affordable than renting now in almost every part of the United States,” said Jed Kolko, chief economist for Trulia.
Several metro areas recorded double-digit percentage increases in rental rates.
In Sarasota, Fla., the average rent jumped 12.9% year-over-year, the biggest increase of any of the 100 largest metro areas Trulia surveyed.Miami and San Francisco saw the next biggest increases, with rent hikes of 12.1% and 11.1%, respectively.
The metro areas that sustained the highest rent increases were a decidedly mixed bag, but obviously shared one factor: rising demand for a limited supply of rental units.
The national vacancy rate for apartments fell 0.3 percentage points during the first quarter to 4.9%, its lowest point since late 2001, according to a separate report from Reis Inc., a real estate research firm. With such limited availability, it has put pressure on rentals of all types.
In cities like Miami that were hit hard by the housing bust and recorded a high number of foreclosures, all of the displaced residents have to live somewhere.
Other cities have put constraints on the construction of new multi-family housing, thereby limiting supply. For example, in San Francisco, where the median rent is a whopping $2,625, there are few tracts of land available to develop, raising demand for housing and pushing rents there higher.
Several Rust-Belt cities also saw large rent increases in the past year, including Indianapolis, where rents went up 9.7%, and Columbus, Ohio, where they jumped 9.3%.
These cities have seen big gains in the industrial sector, which have led to a growing number of jobs and higher rents, said Kolko. As hiring levels off, he does not expect the big rent increases to continue.
Meanwhile, asking prices for homes nationwide crept lower over the past 12 months, according to Trulia.
That, along with record low mortgage rates, has made buying a home more affordable than it’s ever been and a bargain compared to renting. However, many Americans will not be able to seize this historic opportunity to become homeowners, said Kolko.
Unemployed, too broke to come up with a down payment or with credit scores too battered to qualify for a mortgage, many people simply cannot qualify to buy a home right now, according to Kolko
With fewer consumers able to make the leap into homeownership, rents could continue to climb higher, he said. 
RIVERSIDE, Calif. — At least 20 times a day, Alan Hladik walks into a fixer-upper and tries to figure out if it is worth buying.
Alan Hladik, inspecting a home in California, uses an iPad to calculate the cost to renovate homes for rentals.
As an inspector for the Waypoint Real Estate Group, Mr. Hladik takes about 20 minutes to walk through each home, noting worn kitchen cabinets or missing roof tiles. The blistering pace is necessary to keep up with Waypoint’s appetite: the company, which has bought about 1,200 homes since 2008 — and is now buying five to seven a day — is an early entrant in a business that some deep-pocketed investors are betting is poised to explode.
With home prices down more than a third from their peak and the market swamped with foreclosures, large investors are salivating at the opportunity to buy perhaps thousands of homes at deep discounts and fill them with tenants. Nobody has ever tried this on such a large scale, and critics worry these new investors could face big challenges managing large portfolios of dispersed rental houses. Typically, landlords tend to be individuals or small firms that own just a handful of homes.
But the new investors believe the rental income can deliver returns well above those offered by Treasury securities or stock dividends. At the same time, economists say, they could help areas hardest hit by the housing crash reach a bottom of the market.
This year, Waypoint signed a $400 million deal with GI Partners, a private equity firm in Silicon Valley. Gary Beasley, Waypoint’s managing director, says the company plans to buy 10,000 to 15,000 more homes by the end of next year. Other large private equity investors — including Colony Capital, GTIS Partners and Oaktree Capital Management, in partnership with the Carrington Holding Company — have committed millions to this new market, and Lewis Ranieri, often called the inventor of the mortgage bond, is considering it, too.
In February, the Federal Housing Finance Agency, which oversees the government-backed mortgage companies Fannie Mae and Freddie Mac, announced that it would sell about 2,500 homes in a pilot program in eight metropolitan areas, including Atlanta, Chicago and Los Angeles.
And Bank of America said in late March that it would begin testing a plan to allow homeowners facing foreclosure the chance to rent back their homes and wipe out their mortgage debt. Eventually, the bank said, it could sell the houses to investors.
Waypoint executives say they can handle large volumes because they have developed computer systems that help them make quick buying decisions and manage renovations and rentals.
“We realized that there is a tremendous amount of brain damage around acquiring single-family homes, renovating them and renting them out,” said Colin Wiel, a Waypoint co-founder. “We think this is a huge opportunity and we are going to treat it like a factory and create a production line to do this.”
Mr. Hladik, who is one of seven inspectors working full time for Waypoint’s Southern California office, is one cog in that production line.
On a recent morning, he walked through a vacant three-bedroom home with a red tiled roof here about 60 miles east of Los Angeles, one of the areas flooded with foreclosures after the housing market bust. Scribbling on a clipboard, he noted the dated bathroom vanities, the tatty family room carpet and a hole in a bedroom wall. Twenty minutes later, he plugged these details into a program on his iPad, choosing from drop-down menus to indicate the house had dual pane windows and that the kitchen appliances needed replacing.
The software calculated that it would take $25,413.53 to get the home in rental shape. Mr. Hladik adjusted that estimate down to $18,400 because he deemed the landscaping in good shape. He uploaded his report to Waypoint’s database, where appraisers and executives would use the calculations to determine whether and how much to bid for the house.
With just three years of experience, Waypoint is one of the industry’s grizzled veterans. But critics say newcomers could stumble. “It’s a very inefficient way to run a rental business,” said Steven Ricchiuto, chief economist at Mizuho Securities USA. “You could wind up with an inexperienced group owning properties that just deteriorate.”
The big investors are wooed by what they see as a vast opportunity. There are close to 650,000 foreclosed properties sitting on the books of lenders, according to RealtyTrac, a data provider. An additional 710,000 are in the foreclosure process, and according to the Mortgage Bankers Association, about 3.25 million borrowers are delinquent on their loansand in danger of losing their homes.
With so many families displaced from their homes by foreclosure, rental demand is rising. Others who might previously have bought are now unable to qualify for loans. The homeownership rate has dropped from a peak of 69.2 percent in 2004 to 66 percent at the end of 2011, according to census data.
Economists say that these investors could help stabilize home prices. “If you have a lot of foreclosures in one community you will improve everybody’s home values if you take them off the market,” said Diane Swonk, the chief economist at Mesirow Financial. “If those homes are renovated and even rented, it is a lot better than having them stand empty.”
Until now, Waypoint, which focuses on the Bay Area and Southern California, has been buying foreclosed properties one by one in courthouse auctions or through traditional real estate agents.
The company, founded by Mr. Wiel, a former Boeing engineer and software entrepreneur, and Doug Brien, a one-time N.F.L. place-kicker who had invested in apartment buildings, evaluates each purchase using data from multiple listing services, Google maps and reports from its own inspectors and appraisers.
An algorithm calculates a maximum bid for each home, taking into account the cost of renovations, the potential rent and target investment returns — right now the company averages about 8 percent per property on rental income alone. By 5:30 on a recent morning, Joe Maehler, a regional director in Waypoint’s Southern California office, had logged onto his computer and pulled up a list of about 70 foreclosed properties that were being auctioned later that day in Riverside and San Bernardino Counties.
Alan Hladlik, an inspector for Waypoint Real Estate Group, looked at a property in Riverside, Calif.
Looking at a three-bedroom bungalow in San Bernardino, he saw that Waypoint’s system had calculated a bid of $103,000. Mr. Maehler, who previously advised investors on commercial mortgage-backed securities deals, clicked on a map and saw that rents on comparable homes the company already owned could justify a higher offer. The house also had a pool, which warranted another price bump.
By the time the auctioneer opened the bidding on the lawn in front of the San Bernardino County Courthouse at $114,750, Mr. Maehler had authorized a maximum bid of just over $130,000.
As the auction proceeded, Waypoint’s bidder at the courthouse remained on the phone with Mr. Maehler in the company’s Irvine office about 50 miles away.
“Stay on it,” Mr. Maehler urged as the bidding went up in $100 increments. The bidder clinched it for $129,400.
The sting of the housing collapse, driven in part by investors who bought large bundles of securities backed by bad mortgages, makes some critics wary of the emerging market.
“I don’t have a lot of confidence that private market actors who now see another use for these houses as rentals, as opposed to owner-occupied, are necessarily going to be any more responsible financially or responsive to community needs,” said Michael Johnson, professor of public policy at the University of Massachusetts, Boston. Waypoint executives say they plan to be long-term landlords, and usually sign two-year leases. Once the company buys a property, it typically paints the house and installs new carpets, kitchen appliances and bathroom fixtures, spending an average of $20,000 to $25,000. It tries to keep existing occupants in the house — although only 10 percent have stayed so far — and offer tenants the chance to build toward a future down payment.
Waypoint’s inspectors are evaluating hundreds of properties that Fannie Mae and Freddie Mac are offering for sale. Because the inspectors are not allowed inside these homes, they are driving by 40 of them a day, estimating renovation costs by looking at eaves, windows and the conditions of lawns.
Rick Magnuson, executive managing director of GI Partners, Waypoint’s largest investment partner, said “the jury is still out” on whether Waypoint — or any other investor — can manage such a large portfolio. But, he said, “with the technology at Waypoint, we think they can get there.”
By MOTOKO RICH
Published: April 2, 2012
Bank of America Corp. BAC +1.52% is launching a pilot program that will allow homeowners at risk of foreclosure to hand over deeds to their houses and sign leases that will let them rent the houses back from the bank at a market rate.
While the initial scope of the “Mortgage to Lease” program is small—the bank began sending letters Thursday offering leases to 1,000 homeowners in Arizona, Nevada and New York—it represents a big change in the way banks deal with borrowers who can’t afford their mortgages.
The new approach is unlikely to be expanded unless banks conclude that avoiding eviction reduces costs associated with taking back, maintaining and reselling properties. If a significant number of borrowers are willing and able to rent the homes, Bank of America could ultimately sell the properties to investors that agree to keep them as rentals.
Already, in a growing number of housing markets, investors are buying foreclosures and converting them into rentals, often filling them with families that have gone through foreclosure.
Executives last year began to ask themselves “isn’t there a way to sort of combine that whole process and keep the borrower in the property? It’s just better for the market,” said Ron Sturzenegger, the Bank of America executive who last summer was put in charge of the unit that handles troubled mortgages.
Bank of America became the nation’s largest mortgage originator after its 2008 purchase of Countrywide Financial Corp., but over the past year it has retreated from the mortgage market. The initial pilot is limited to loans that Bank of America holds on its books. Homeowners can’t apply for the program—only those who receive letters from the bank can participate.
Borrowers would agree to a what is known as a “deed-in-lieu” of foreclosure, where they essentially sign over ownership of the property to the lender. This is less costly to the bank and also does less damage to a borrower’s credit than a foreclosure. Borrowers selected for the program must be at least two months past due on their mortgage and face considerable risk of foreclosure.
In exchange, former owners would be offered one-year leases with options to renew the leases in each of the following two years at rents that the bank determines are at or below the current market price. Borrowers would have to demonstrate an ability to pay the market rent.
For example, based on a sampling of home values and rental rates in Phoenix recently, a consumer with a $250,000 mortgage and monthly payments of $1,600 could swap the house for a lease, renting the home for $900, depending on the condition of the property and the neighborhood.
Consumer advocates and some investors have long called for less disruptive alternatives to foreclosures, given the limits of loan-modification programs. “You still have a lot of people that are facing foreclosures, and this is a way to keep people in their homes that is obviously much better,” says Dean Baker, co-director of the Center for Economic Policy and Research.
Foreclosures, particularly if properties are vacant, can drag down housing values in a neighborhood.
Borrowers selected for the program must be at least two months past due on their mortgage and face considerable risk of foreclosure. Bank of America is reaching out to borrowers who have exhausted other alternatives to foreclosure or who haven’t responded to earlier solicitations. Homeowners with second mortgages or other liens won’t be selected.
Mr. Sturzenegger said the success of the current pilot would determine whether Bank of America expands the effort. “We’re optimistic but realistic. If we get a great takeup rate and the process works, we’ll roll it out,” he said.
The program is the latest example of how banks are experimenting with ways to deal with a large overhang of foreclosed properties. Some lenders have begun offering incentive payments of up to $30,000 to borrowers who agree to short sales.
Fannie Mae rolled out a “deed-for-lease” program in late 2009 but it hasn’t been widely used. Some industry analysts say that banks haven’t aggressively marketed the initiative.
Already, investors have approached Mr. Sturzenegger about purchasing pools of leased properties from Bank of America. One of those investors is Laurie Hawkes, president of American Residential Properties, a Scottsdale, Ariz.-based firm that has bought nearly 800 homes in the Phoenix area as rentals. If homes are realistically priced, Ms. Hawkes says her firm would “definitely” be interested in buying them.
Foreclosures have slowed sharply in some states amid heavy scrutiny of allegedly forged paperwork used by processing firms. Banks completed 860,000 foreclosures last year, down from 1.1 million in 2010, according to CoreLogic Inc.
“One of the outcomes of the ‘robo-signing’ scandal is that it is more difficult to foreclose,” said Mr. Baker. “It’s more worthwhile for banks to pursue alternatives.”
Write to Nick Timiraos at nick.timiraos@wsj.com
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.
Since the market downturn several years ago lawmakers in Washington have been talking about reforming the secondary mortgage market but nothing has come out of Congress yet. This year, though, a lot of progress is expected to be made toward reform, so it will be especially important for real estate brokers and sales associates to stay engaged in what’s happening, particularly this spring.
Although we’re still waiting for legislation to come out, lawmakers have been working on the issue quite a bit. Four bills have been introduced that would take a comprehensive approach to reform, including a bill by Rep. Gary Miller (R-Calif.) that very closely matches up with NAR’s priority, which is to encourage private investors to return to the secondary market while replacing Fannie Mae and Freddie Mac with an entity that continues to back conforming loans but as a nonprofit, not as a for-profit company.
NAR wants the federal government to keep a presence in the market out of a concern that mortgages remain available and affordable even in bad markets, when it’s too risky or not profitable enough for purely private participants to be counted on.
Sen. Johnny Isakson (R-Ga.) also has a bill out that matches up with NAR aims in many respects, and the association is working with the senator and his staff to refine his approach this spring. In a key point about his bill, it would define conforming loans as those that are based on sound underwriting, not on the amount of downpayment.
That’s important, because banking regulators have drafted Wall Street reform rules that would define conforming loans—what they call qualified residential mortgages (QRM)—as those that meet minimum downpayment requirements and other standards. NAR and others have been vocal about how bad that would be for the market, and the Isakson bill would address that.
In addition to these and a couple of other comprehensive reform bills, lawmakers have introduced 19 other bills that look at specific aspects of reform. NAR has never come out in support of any of these single-issue bills because it wants reform to be comprehensive, not piecemeal. All of the aims of these many bills will get looked at and, as NAR would like to see it, folded into a comprehensive bill where that makes sense.
So, a lot will be going on in the next few months, and NAR members can expct to hear more shortly. But whether all of this activity results in a single bill for a vote this year is uncertain. For one thing, starting around summer lawmakers will begin focusing on the upcoming national elections, so that could mean putting off a big vote like this until 2013, when the dust from the elections has settled.
But that’s all the more reason NAR members have to be engaged now. Because even if legislation takes until 2013 to pass, key decisions could be made in the next few months.
You can learn more about what to expect on reform in the 6-minute video with NAR analyst Tony Hutchinson.
After half a decade of withering sales and slumping prices, there are strong and diverse signs that the single-family housing market is poised for a rebound. In some metropolitan areas, the market has bottomed, with both sales and prices on the rise and foreclosures on the decline.
Industry analysts and players cite a number of reasons – some traditional (employment), others unique to the post-credit bubble era (foreclosures) Â - for the long-awaited sea change. An analysis of industry and government data also support the forecast.
Proponents admit that the nascent rebound could easily be derailed, but stress that after years of government efforts to support sales and prices as well as the volatile impact of foreclosures, the market has regained a measure of normalcy.
“With the exception of really hard-hit markets, the vast majority is ready to turn around,” adds Jerry Howard, president and CEO of the National Association of Home Builders, NAHB. “The Washington, D.C., area is not only ripe for recovery, they need to start building units.”
Nevertheless, skeptics overwhelmingly outnumber the optimists, given the false-starts of previous years, the economy’s sub-par performance, a new wave of distressed properties and the capacity for the European debt crisis to spook business, consumers and investors.
“I think it’s premature,” says Richard Smith, CEO of Realogy, the nation’s largest real estate company, whose brands include Century 21, Coldwell Banker and Sotheby’s International. “We see little indications here and there. Transaction volume is improving. Prices are still under pressure. This isn’t going to be one of those spiked robust recoveries.”
Smith is echoing the conventional industry calculus: that price increases follow sales growth amid consistently strengthening demand.
There’s been little conventional, however, about this housing slump, which is one reason it’s had so many false bottoms. Among its many firsts – housing starts fell through 1 million annual units, foreclosures topped 2 million in three consecutive years, and home prices declined on a national basis.
The catalysts to recovery are mostly the same: for potential buyers, residential rents have now risen enough to consider buying; existing-home inventory is the lowest in five years, while that of new homes is at a 40-year low; affordability is at a record high; delinquencies have peaked;consumer confidence is on the rise ; and job growth is accelerating.
For investors, with a continuation of the gold rally in question, real estate is beginning to look like a viable inflation hedge alternative, while rising rents mean greater profits.
That thinking may help explain why the iShares Dow Jones US Home Construction Index Fund(NYSE Arca: itb), a broad barometer for the housing market, is up some 38 percent from the stock market’s October bottom, while the S&P 500 is up about 21 percent.
Finally, there’s the intangible fatigue with bad news, and a desire to end the negative feedback loop.
“We believe there is sizable housing demand that could be released into the market,” says Lawrence Yun, chief economist of the National Association of Realtors, NAR.
The NAR is forecasting existing home sales will rise 5 percent in both 2012 and 2013; prices will edge up 2 percent in each of those two years, then 4 percent in 2014.
The NAHB is forecasting a 5.1-percent increase in new home sales and a 10-percent increase for new home starts in 2012.
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