Entries Tagged '2008 Real Estate Predictions' ↓

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“There are some incredible buys out there for first-time home buyers.”

When you start seeing quotes like the one in the headline, you know we are getting near the bottom. In the middle of a gloom and doom report coming out of Florida, and it is very rough there right now, a nugget pops out that starts to say the conventional wisdom may be starting to lag the market.

And like any market, when prices drop far enough, consumers re-enter and start buying. When enough buyers drop in we get a firm bottom. At that stage word starts to filter out to those who have been waiting on the sidelines and the market starts  to turn upwards.

And then 6 months later the conventional media will have a string of articles asking if we have hit bottom.

Sandra Israelson, an agent with Michael Saunders & Co., had bank-owned listings that included a two-bedroom one-bath home on Baldwin Avenue in Sarasota listed for $114,000 and a luxury Siesta Key penthouse in The Pointe that was going for $437,000.
In both cases, the bank asked that the homes be priced at a point that allowed them to sell within 30 days.
Apparently, Israelson struck the right prices. She received four full-price offers for the Siesta Key penthouse within one week, and the pending sale is set to close next month.
The starter home on Baldwin also found an interested buyer, who has made an offer and is waiting to hear back from the bank.
“There are some incredible buys out there for first-time home buyers,” she said. “These homes we’re seeing are the type of houses that would be perfect for them.” via  HeraldTribune.com

The real estate world has always protected their MLS data like it was gold, and to them it is. Go to almost any real estate office and see the security that is put on the MLS computers. If you think of Fort Knox you are not far off. But the protection of the data that the MLS thinks is what gives the power to the real estate agent is breaking down.

With the advent of online listing services the data is being put out there many different ways. The agents realize that their worth is not being the conduit of the information as it was in the past, but rather the services, support, and institutional knowledge they offer to their clients.

Will this lower commissions, sure, but not that much. I would be worried if I was an agent that thought that putting a sign in a lawn was marketing a home.

Professionalizing the industry and weeding out the dabbling agents is the benefit of breaking the walled garden mentality of data protection. Once the data is available to all then the true worth, knowledge, and skill of an agent will be the defining criteria for paying a commission.

Selling a home is a complicated and difficult process. The buyer and seller can do somethings alone, but there will be a large part of the population that will need the help that a trained and caring real estate professional can offer.

The idea that an agent can hold the 6 percent commission hostage is long gone, but an effective agent will find that being a true professional they will bring enough benefit to the public to have a long and prosperous career.

The triple threat of a weak market, legal pressure and increasing competition has compelled real estate professionals to offer their information more freely online, putting cracks in a walled garden of data that stood strong while the industry enjoyed its breakaway growth. It also presages an end to the days when sellers must list their homes with a broker so buyers can see them.

The trend revolves around the nation’s roughly 900 multiple listing services, or M.L.S.’s, where local brokers post information about homes they are selling. In years past, these services were highly restrictive about where and how that information could be distributed — for instance, frequently not permitting Web sites to display M.L.S. listings alongside for-sale-by-owner homes, bank foreclosures or other properties not represented by real estate agents. via the New York Times

The tide is turning in San Francisco too. As we talked about earlier with Karl Case of the Case Shiller index saying the statistics indicate we have hit bottom in the market. Now word come from the SF Gate that the sentiment in the San Francisco Bay area is that the deals now are too good to pass up.

Consumer sentiment plays a huge part in the real estate market. Which is why we get the bubbles and the downturns. When the herd of buyers that have been sitting on the sidelines re-enter the market, the supply will dissipate rather quickly.

Then we will come back with a normal market for a period of time until speculators and buyers push the pricing beyond the comfort zone. And then guess what, we will have another downturn.

Markets are so interesting unpredictable yet utterly predictable at the same time.

Those in San Francisco may look up there real estate agents number and take a peak at what is out there. You may be in for a deal.

Not so, according to some individual investors, who think the market slump has made selected pockets of the Bay Area more desirable than they’ve been in years.
“Look at this,” said Dan Shiner of Mill Valley, one such investor who was en route with his agent to visit properties for sale in Santa Rosa last week. “This duplex sold for $599,000 two years ago and now it’s listed for $414,900. That’s why people like me are coming out of the woodwork.”
Shiner, who works in finance, said he avoided investing in local real estate for years because prices were so ridiculously high. But the current market has drawn him back in because suddenly he sees relative bargains. Last week he looked at a dozen Sonoma County duplex and triplexes, and had offers accepted on two.
“The way prices have come down is absolutely amazing,” he said. “I think it’s a phenomenal opportunity for the small investor to buy their first rental properties.” via SF Gate

According to Wellesley University professor and housing market guru Karl Case, that may very well be the situation we are seeing. The historical trends and demographics of new home starts and sales data are showing what has in the past 40 years show the bottom of the housing market.

Now, I profess to have all the knowledge that Karl Case has on this, and to be honest the housing index he is associated with, that Case Shiller thing that his partner is always shilling, I have never been a huge fan of. However, it seems like Robert Shiller is the poster child of talking the market down. Now Karl Case comes out of the shadows and tells us that the bottom is upon us.

I tend to listen to the quiet guy when he speaks.

Case is basing his optimism, which stands out in a sea of gloomy predictions, on a key economic indicator. It’s not the first time he’s courted controversy. Back when real estate prices were headed skyward, Case was a lone voice predicting a painful real estate downturn.
“Every single time we have gotten to this point, at this time, almost to the exact decimal point, things start to rebound,” Case said.
According to Case, the decline in housing starts nationally has reached a key threshold, dropping below the 1 million mark last month.
Over the past 30 years, this has signaled the end of a real estate market downturn. Housing construction rebounded sharply in the ’70s, ’80s and ’90s after reaching this low point, Case said. via the BostonHerald.com

In one of the best written articles on the housing market problems and how the Federal Governments intervention could make it worst has now been written by J.D. Foster. If you have a few minutes please read it. It is one of the most succinct articles on how much damage the meddling of our government can do to the housing market.

Stop the housing bailout before it undoes all of us – Federal plan could unravel effective private efforts 

I tried to excerpt the best part of the editorial but it is such a solid piece that I can not do it justice by pulling one part of it.

Borrowers by the millions are falling behind on their mortgages. The problems are most severe in a few states. Some, such as Nevada, California and Florida, enjoyed a huge, multiyear speculative bubble that’s now popped in spectacular fashion. Others, such as Ohio and Michigan, are seeing home prices decline because of more fundamental weaknesses in their economies, in some cases significantly exacerbated by extraordinarily foolish state fiscal policies. Yet just about every state is experiencing a housing problem: unusual numbers of borrowers who are delinquent or soon will be, home prices falling a little or a lot and contraction in construction.
Fortunately, the mortgage industry isn’t waiting for Congress to get its act together. Spurred on by the Treasury Department through a program called Hope Now, the industry — supported by services, counselors and community non-profit organizations — is actively seeking creditworthy borrowers who are or are likely to get into financial trouble. Why? To find a way to rework the mortgage or the payment schedule so the borrower can stay in the home.
Since last summer, the industry has successfully reworked more than a million mortgages, and is reworking hundreds of thousands more every month. via the Houston Chronicle.

Sam Zell, billionaire and commercial real estate maven, is predicting that commercial real estate is coming back, albeit slowly as the credit market is loosening up. The city center is the strongest market and there is great risk in the “ex-urban, the glass-block commodity office building” sector.

Overall though Zell seems very bullish on the market and with his track record I would pay attention.

“I believe the overall market has already started to ease,’ Zell, chairman of Equity Residential, the largest U.S. apartment owner, said in an interview in New York. “Is it in large volumes? No. Is it the first natural step in the evolution? Yes.’
For the first time since July, when credit markets froze in reaction to rising home-loan defaults, investors are starting to move their money from Treasury bonds, whose returns are below the inflation rate, and into commercial mortgage-backed securities. Insurance companies and pension funds need to earn at least 6 percent to cover their liabilities, Zell said.  Bloomberg.com

The head of Fannie Mae is predicting a slow real estate market spanning through 2009 as indicators such as the Case Shiller report as showing even greater weakness in the market. Daniel Mudd predicts the slowdown lasting longer than many other prognosticators, but interesting enough recognizes that he is guessing as forecasting housing is not an easy job.

This is a great point. We all would love to know the date of the turnaround. But the complex formula of consumer sentiment, finances, macro economics, local economics, and government fiscal policies will make it very hard to determine when and where the bottom will be. Add to that different local and socioeconomic groups may react differently to market conditions you have to remember the classic adage.

All real estate is local.

So before you get all bothered by this report, watch the indicators. The  best example of this are  the charts that are on Doug Quance’s site  for the different towns in Atlanta. Some are showing increases over the past couple of months of 10 percent while others right next door are showing declines. If you did not know any better you never would know all these communities were in one metro region! 

“We think at Fannie Mae that ‘08 is going to be a tough year, kind of a continuation of the end of 2007; ‘09 will be similar,” said Daniel Mudd, the company’s president and chief executive, who spoke at a business journalism conference in Baltimore.

Fannie Mae, which buys and repackages loans to sell to investors, claims about half the market for newly issued securities backed by single-family homes.

Forecasting the bottom of the housing slump is a tricky business, with the many conflicting predictions by economists as proof, he added. He said he has seen recent improvement in the capital markets, which play an important role in the mortgage products and rates that borrowers can get, but a housing-price index released yesterday showed accelerating declines across the largest metro areas. via the baltimoresun.com

Local government officials must be getting nervous if they are reading this story. New York City is one of the few hot warm spots in the real estate market and is showing a significant weakness in tax revenue collection. What are the mayors of Stockton and San Diego thinking as they try to keep all the bloated city services going?

So many local governments allocated their real estate tax surpluses to special vote buying constituent services that made the voters feel good without fulfilling their basic needs.  Now they will fight to keep these services going even after the real estate tax well has run dry.

The true catch 22 of the matter is when the homeowners realize they are being assessed for much more than their properties are worth and start mass appealing their assessments. That will be fun to watch as the politicians start scurrying.

Both of New York City’s underpeforming real estate tax revenues are based on sales of offices, warehouses, apartments and single-family homes. The number of deals has slowed, though with some properties, such as Manhattan apartments, prices still rose substantially in the last quarter.
Real property transfer taxes fell 12.7 percent, or nearly $162 million, from the same period a year ago, according to Democratic Comptroller William Thompson. At the same time, mortgage recording tax collections were down 20.1 percent, or $234 million. The Guardian

Into the gloom and doom of the housing market comes this tidbit of knowledge from one of the founders of K&B Homes. Eli Broad is thinking that home prices could drop another 20 percent over the next couple of years.

I bet the folks in the corporate offices of K&B are grumbling a bit over that quote as they try to sell their inventory right now.

“I don’t think we’re anywhere near a bottom in housing,” Broad told Bloomberg TV at the Milken Institute Conference in Beverly Hills, California. “We’re going to have a big inventory of unsold, unoccupied homes that’s going to take three or four years to clear out.”

Homebuilders, hurt by banks’ stricter requirements for granting home loans and concern over the rising number of homeowners failing to pay their mortgages, have begun work on the fewest number of houses since 1991, according to the U.S. Department of Commerce.

“People were using their home equity as really an ATM machine,” Broad said, referring to an automated teller machine. “They were spending more money than they were earning by taking equity out of their home. That couldn’t go on indefinitely. We’re now paying a price for that.”  via Bloomberg.com

The United States real estate market has an inventory problem. When there are over 18 million empty homes across the country we have no reason to continue to build new homes. If this were a logical marketplace we would tell builders to take a 2 year moratorium until absorption met demand.

Instead we have builders building 2.1 million homes last year. Yikes! And of those homes almost half of them are now sitting empty. The speculative years between 2000 and 2005 drove construction of homes not based upon need in the marketplace but demand created by speculators. When that demand dried up many of these homes are sitting empty and forlorn.

Now we see in the first quarter of 2008 construction is down significantly which is a great thing. The key thing is to get rid of this overhang in inventory and fill up some of the homes. Once that occurs the market can regain it’s equilibrium and prices will stabilize.

The homeowner-vacancy rate rose to a record 2.9% in the first quarter from 2.8% in the fourth quarter, about 1 percentage point higher than normal. The vacancy rate has jumped in all four regions of the country, as well as in cities, suburbs and rural areas since the housing bubble exploded.

The total U.S. housing stock increased by 2.1 million to 129.4 million in the past year, with about half of that gain accounted for by the increase in vacancies. Much of the newer stock of housing is vacant, the data show.

Of all housing units built for owner-occupancy since April 2000, 10.2% were vacant, up from 8.8% in the fourth quarter and 4.7% two years ago.

While the vacancy rate for single-family homes has risen to 2.5%, the most dramatic increase in vacancies has been in smaller condominium projects. via Marketwatch