Archive for May, 2012
NAR’s Pending Home Sales Index (which tracks signed contracts, but not closings) jumped 14.4% from April 2011 to April 2012. That’s good news.
Keep in mind, of course, that 1) this is an index, so that doesn’t mean that the actual number of signings jumped that much, and B) not every signed contract goes to closing. (Although I would think that if XYZ% went to closing last year, XYZ% would go to closing this year as well.)
Based on this, NAR updated its housing forecasts for 2012 and 2013: Existing-home sales are now expected to reach 4.66 million this year (they were 4.26 million in 2011), and 4.92 million in 2013.
NAR notes that the 2013 numbers would be much higher “If lending returns to normal,” but somewhat lower if Congress enacts “higher taxes and sharp spending cuts.” (Which seems to argue that a Reaganomics scenario — lower taxes and increased spending — would be best for housing.)
Finally, NAR also believes that median existing-home prices will “rise 2 to 3 percent this year and 4 to 5 percent in 2013, with wide local market variations.” And that will, as a side benefit, reduce the number of underwater homeowners.
Stevens also served as head of the Federal Housing Administration and as Assistant Secretary of Housing under President Obama.
Federal regulators look like they won’t require a 20 percent down payment for loans to qualify for federal protection. That was a proposal that’s been floating around Washington and getting lots of press.
But now the rumblings — and they’re just that, rumblings — are that the rules are going to be a bit more conducive to buyers.
First, the 15-second review:
The Dodd-Frank act requires federal regulators to come up with two sets of mortgage guidelines. The one we’re talking about is for Qualified Residential Mortgages (QRMs). This would be a reasonably tight set of standards for loans to meet if the lender wants them to be backed by the government. (Lenders are free to offer non-QRM loans, but they can’t expect Uncle Sam to help if things go south.)
Regulators have been working to set those standards. One idea that’s getting a lot of press would require lenders to hold onto five percent of the loan (“skin in the game”) and to require a 20 percent down payment.
Naturally, lots of folks saw that down payment requirement as excessive. Sure, it would help guarantee that borrowers could afford houses, but not a lot of borrowers could come up with that kind of cash. (Maybe you have 60 grand laying around, but not all of us do.)
So we (i.e., VAR and NAR, not to mention other organizations such as the Mortgage Bankers Association) have been putting pressure on regulators and policymakers to rethink that 20 percent proposal. And Congress, for the most part, is on our side.
Now all that lobbying, pressing, nudging, cajoling, and general shoe-leather work is paying off. (Yes, these are your RPAC dollars at work.)
According to a HousingWire story,
A group of federal regulators will likely lower the proposed 20% down payment requirement for home-loan lenders who wish to avoid holding added credit risk on the securitization of mortgages.
Rep. Barney Frank, D-Mass., was pretty straightforward: “They’re not talking about 20% anymore,” he said. And David Stevens, CEO of the Mortgage Bankers Association, also said that he expects those QRM standard to be lowered.
(For the record, the Obama Administration, through HUD, suggested a 10 percent down payment requirement.)
Now remember, this requirement is only for loans that lenders want to be backed by the government. There’s certainly an argument — as made by former FDIC chair Sheila Bair — that QRM standards should be high because the federal government shouldn’t be in the business of insuring private-sector loans.
But our position is that, right now, any impediment to home purchases is a bad idea, because we don’t want to risk derailing what’s becoming a solid recovery.
We’ll keep you posted. Meanwhile, click here to read more over at HousingWire.
We’re gonna keep saying it: The market is turning around, and more and more people are realizing (or admitting) it.
The Wall Street Journal’s Robbie Whelan writes about the recent Case-Shiller numbers in a piece titled, “Behind the Numbers: Does Case-Shiller Show a Market Bottoming Out?” (We wrote about that report as well, pointing out that despite headlines, it’s really good news.)
Tuesday’s S&P/Case-Shiller home-price indexes show a market in which U.S. home prices are still falling, but not as dramatically as in previous months. This is good news for homeowners and home sellers since it indicates that the market is bottoming out. It’s also a sign that the housing downturn, now in its fifth year, may be approaching the end.
It then proceeds to quote five economists and other such experts who tend to agree.
“The housing market is turning around,” writes one. “The big decline in house prices is now over, although prices could see small drops in the near term.”
“Are home prices still looking for a bottom?” ask two others. Their answer echoes our comment here yesterday: “It depends in where you are. Housing prices are still mainly driven by local forces such as job growth and the neighborhood foreclosure rate.”
There’s much more, and Whelan’s post is a good read. So go do just that.
Local real estate bloggers have been busy lately, apparently looking getting into the whole stats and figures thing.
Over on VA Real Estate Talk, Cindy Jones asks whether cash is really king in Prince William. “You’re looking for a new home in Prince William County and you’ve heard ‘cash is king’.” she writes. “Are you worried you might not have a chance against the investors?” Her answer: Not necessarily, but click here to read the details.
Meanwhile, Heather Elias at LoCo Musings offers a quick peek at what’s happening in Loudoun County, featuring three fancy, clickable, interactive charts showing price, days on market, and inventory levels for Sterling, Ashburn, and Leesburg.
And Joan Stansfield and Jennifer Klaussen in McLean showcase some hot (their word!) MRIS stats for Fairfax, Arlington, and Loudoun.
Those of us not in Northern Virginia might raise an eyebrow at J&J’s conclusion:
The market is hot – volume, units and prices are up, time to sell is down – all great news for sellers!! If you are in the market to buy, it’s not altogether impossible….
Not altogether impossible to buy. Same planet, different worlds, huh?
Finally, The Boss would kill me if I didn’t point out that if you really want to get a whole lot of housing stats, check out our monthly and quarterly Virginia Homes Sales Reports at VARealtor.com/homesales.
I am a fervent believer in always considering other points of view. I tend not to trust people who are so firm in their beliefs that they won’t consider the possibility that they may be wrong. (The obvious exceptions are point of view completely dissociated from reality — if you want to argue that the Earth is flat or that cavemen rode dinosaurs, go right ahead. I’ll just ignore ya.)
You learn a lot from hearing and considering The Other Side. If you’ve never said, “Hmm, you have a point,” then something’s wrong.
All that’s a preface to a piece called “Real Estate: The Great Lie” by financier/investor/portfolio manager Romeo Fayette on his site The Buttonwood Tree.
In it, he argues rather well that residential real estate is a bad investment.
His basic point is that, for the most part, real estate values remain pretty close to flat when you take inflation into account.
Real Estate & housing are not terrific investments. Most suggestions otherwise are a huge lie, perhaps The Great Lie. The Lie is perpetrated most in the commercialization of the “American Dream”: a white, picket fence for every man, woman, and family. Non-income-producing, residential real estate is broadly a money pit. For long-term holding periods (5-20 years), the value of this real estate is severely eroded by its cost of carry, including Taxes + Insurance + Maintenance.
In one example, he points out that if you assume that property values increase by two percent (over and above inflation), it will take 38 years for the value of the house to equal the amount of money — interest, principal, taxes, insurance — put into it.
He shares one of my favorite graphics, too, to make his point. It essentially looks at home prices adjusted for inflation vs. the actual dollar amount:
Unless there’s a bubble, home values pretty much hold a straight line (the black line), even as prices go up with the rest of the economy (the blue line).
So what’s the deal?
Mathematics vs. reality
Thing is, Fayette is right. He’s right, but. And that “but” is crucial.
Fayette is looking at property as strictly a financial investment — an object you purchase for X dollars, then sell later for Y dollars. From that narrow perspective, yes, on average a house isn’t a good investment. But a house is very different than other investments, and I don’t mean for touchy-feely reasons, either.
You can’t live in a stock portfolio, or in a gold brick, or in an oil future. A house has value beyond being a material object. In simple terms, you need to consider what it’s worth as a living space while it appreciates in value. Every dollar you don’t pay in rent, for example, counts towards a home’s worth.
Many investments gain value over time. But not many of them are usable while they grow; a house has value from appreciation and while it appreciates. Nothing else does that.
Imagine you could buy a car, make payments, and in 10 years sell it for a little more than you paid for it. Plus during those 10 years you used it to drive to work, for vacations, on road trips, and so on. Doesn’t that sound like a good deal? Yeah, you had to make payments, put in gas and oil, pay for repairs, and so on — but when you tally up what you eventually sell it for, plus all the use you got from it, you really can’t complain.
Which is why Fayette’s argument only works if you look at a house strictly as an investment — if it sits vacant for all those years. Then yes, there are probably better ways to invest your money. But for most people, that’s not what homes are used for.
More than bricks and mortar
Fayette also ascribes no value to the other aspects of home ownership.
You’ve seen the statistics: Homeowners’ kids do better in school, they’re healthier, they’re happier — and so on. No, you can’t put a price on those things, but that doesn’t mean they don’t have value. They certainly do. (Then again, if you’re looking at a house strictly as an unusable object like a gold brick you wouldn’t consider these ancillary benefits.)
Finally, he’s looking at nationwide medians. In some places — notably where there’s growth — property values will increase well beyond inflation. In other places values will drop. So broad statements don’t work except as an intellectual exercise. (Which is, in fact, a useful thing.)
It’s kind of like saying, “The median stock on the NYSE increased by only two percent last year, therefore stocks aren’t a good investment.” True in a broad sense, but that doesn’t mean that certain stocks aren’t very good investments.
Fayette certainly has a good mathematical point: The value of a given piece of property is not likely to increase much over time once you take inflation into account. But you cannot look at houses the way you would look at other investments — they aren’t like other investments.
Whether you’re buying one to live in, or to rent out, owning a home is more than owning an object. And when considering its value, you have to take that into account.
The good folks at Case-Shiller have finished crunching the first quarter numbers, and what they found was a little sour and a little sweet.
The bad news — although not unexpected — is that home prices continue to drop, and are once again hitting new post-bubble lows.
The national composite was down 1.9% from the first quarter of 2011, and the narrower 10- and 20-City Composites showed prices dropping by 2.8% and 2.6%, respectively.
OK, so prices are down between two and three percent. What’s the good news?
First of all, this isn’t a surprise. We’re recovering, sure, but prices still have a bit to go before they’re back to normal. (In fact, it wouldn’t be surprising to see them drop several more percent before leveling off.)
But the better good news is that, as the press release headline explains, although prices continue to drop, they’re dropping at a slower rate than they have been. That could mean they’re going to be ‘landing’ soon, but if nothing else it means no more headlines like “Home prices plummet yet again.”
Click here to go forth and read “Pace of Decline in Home Prices Moderates as the First Quarter of 2012 Ends” (PDF)
Always nice to start the week off with a bit of good news. In this case it’s gasoline prices — down yet again. The most recent peak was April 5 ($3.94), which was lower than last year’s spring peak ($3.99). The worst recent year was 2008, when spring prices hit $4.11/gallon.
There’s no predicting what will happen, of course. The biggest influence on prices is the price in Europe. Because we’re now exporting fuel, energy companies will (naturally) sell where the price is best — and that’s overseas.
But for now enjoy the lower prices.
25 May 2012
Posted by: Andrew Kantor in: The Buzz