Home Builders Forecast Improving Market

Housing will see gradual improvements in activity this year as the nation's economy and job market continue to move to higher ground, according to representatives of the National Association of Home Builders. Speaking at the NAHB International Builders' Show in Orlando last month, economists said they expect the momentum will lead to more considerable gains in 2012

"This year's spring selling season will be better than last year's," said NAHB Chief Economist David Crowe, who noted job growth is providing a stronger stimulus in the housing market than last year's tax credits for home buyers.

Crowe forecasted 575,000 single-family home starts in 2011, a 21 percent climb over an estimated 475,000 units started in 2010, which in turn showed a 7 percent gain from the 442,000 homes started in 2009.

Multifamily, which is poised to profit from a disproportionate number of Gen Y members moving into the housing market, has seen the bottom of the cycle, Crowe stated. NAHB expects starts will rise 16 percent this year to 133,000 units, with a further 53 percent increase in 2012 to 203,000 units.

Builders' access to the credit they need to start new homes remains the fragile component of the NAHB forecast, Crowe said. So far, small builders have experienced extreme difficulty in obtaining financing, and rectifying the situation as soon as possible is the top priority of the association.

More encouraging is a rebound in the confidence of consumers, who in mid-2010 "froze in place, faced with a lot of uncertainty," he reported. A recent pickup in durable purchases for such items as automobiles and furniture indicates that consumers are less afraid today of losing jobs and income.

The U.S. economy will receive a boost from the massive tax package enacted at the end of last year, including more income going into the pockets of wage earners thanks to a one-year 2 percent reduction in Social Security taxes. Crowe expects this will contribute to the gross domestic product strengthening from the 2.5 percent range to 3.5 percent to 3.8 percent by year's end.

New-home sales, Crowe projected, "will struggle" but begin following employment gains, reaching 405,000 for the year, up from an estimate of about 320,000 for 2010.

The housing recovery will start up slowly this year, he said, because it will be driven by the relatively low housing production Plains states, with Texas the most powerful of the bunch. Traditional bulwarks of housing activity such as California and Florida, on the other hand, will not be among the states whose housing markets recover the fastest.



In addition to stimulative fiscal and monetary policy, Freddie Mac Chief Economist Frank Nothaft said that housing affordability and demographic trends will help support growing housing demand

.

Citing research from the Harvard Joint Center for Housing Studies, Nothaft said that households should be growing at an average annual rate of 1.2 million to 1.5 million over the next five to 10 years, suggesting the need for a sharp increase in housing production; half of the 500,000 to 600,000 starts of the past two years were needed just to replace the number of homes being removed from the housing stock.

While there will continue to be supply overhangs in some important large markets, by and large the housing price slump should bottom out by the middle of this year, Nothaft said, noting price increases are already occurring in some local areas. He believes that should attract prospective buyers who have been procrastinating until they see prices hit bottom.

"Potential buyers who have resources to buy but want to buy at the bottom are likely to start coming into the market in the springtime," he said, which for fence sitters will be "the time to come into the market."

Freddie Mac's chief economist expects fixed-rate mortgages will move up from their current 4.75 percent to the 5.75 percent range by the end of this year. This will push total single-family mortgage originations down about 30 percent below the 2010 level as efinancing fall sharply in the face of rising mortgage rates.

While a 20 percent increase in housing production in 2011 is good news for housing, to put things in perspective, Nothaft said that this gain is from an extremely low level, with single-family production declining about 80 percent from peak to trough.

NAHB is a Washington, DC-based trade association representing more than 160,000 members involved in home building, remodeling, multifamily construction, property management, subcontracting, design, housing finance, building product manufacturing and other aspects of residential and light commercial construction.

Reforming America's Housing Finance Market

A just-released report issued by the US Treasury and Housing and Urban Development outlines a recommendation to Congress and the President for winding down Fannie Mae and Freddie Mac, the largest purchasers of mortgages in this country.

http://www.treasury.gov/initiatives/Documents/Reforming%20America's%20Housing%20Finance%20Market.pdf

Real estate market activity for Pierce, King, Snohomish, and Kitsap counties from Trendgraphix

As you can see from these graphs charting the market trends, we are seeing improvements in sales activity in our local real estate market but there is still a lot of standing inventory to sell

Number of Homes For Sale vs. Sold vs. Pended (Nov. 2009 - Jan. 2011)

Average Price per SQFT (Nov. 2009 - Jan. 2011)

Avg CDOM & SP/Orig LP % (Nov. 2009 - Jan. 2011)

Average Price of For Sale and Sold (Nov. 2009 - Jan. 2011)

Months of Inventory Based on Closed Sales (Nov. 2009 - Jan. 2011)

Motivated buyers returning to the housing market

Dramatic increases in open house activity and shrinking inventory are fueling optimism among members of the Northwest Multiple Listing Service. Commenting on the just-released MLS report on January's housing activity, one director stated, "There is a strong belief in the industry that the worst is behind us and we can look forward with confidence."

Darin Stenvers, managing broker at John L. Scott in Bellingham, who made that comment, also noted consumers are gaining confidence and buyers may be seeing what they believe is the bottoming of the market. "I'm very optimistic about the housing market for 2011 and the buyers and sellers should be as well," he exclaimed.

Year-over-year pending sales were down somewhat, the volume of new listings declined more than 23 percent, sales prices continued to slip, but the number of closed sales increased slightly across the 21 counties in the Northwest MLS service area.

Last month's pending sales lagged totals for the same month a year ago, but only by 186 units system- wide, a decline of about 3.3 percent. Northwest MLS director Matt Deasy, the broker at Windermere Real Estate/East in Bellevue, said he considered anything within 5 percent of a year ago when tax incentives were boosting sales a "home run."

Members reported 5,393 pending sales (mutually accepted offers) of single family homes and condominiums during January. That compares to 5,579 pending sales for the same period a year ago, and marked a big gain from both January 2009 (4,353 pending sales) and January 2008 (4,499 pending sales).

"I expect sales to be soft through April when compared to last year since first quarter sales volume was artificially inflated by the rush to take advantage of the tax credit that expired on April 30," said OB Jacobi, president of Windermere Real Estate Company. "A more apples-to-apples assessment of sales will be to compare first quarter this year with first quarter 2009," he suggested.

Closed sales rose a modest 2.1 percent from a year ago, increasing from 3,142 transactions to 3,207 sales. Prices on those completed sales were down about 6.3 percent. The overall median price for last month's closed sales of single family homes and condominiums was $243,500, which compares to the year-ago selling price of $259,903. For single family homes (excluding condominiums) the median selling price was $250,000, down about 5 percent from a year ago; for condos, last month's sales had a median price of $200,000, down 16.7 percent from twelve months ago.

Only four counties (Clallam, Cowlitz, Kitsap, and Okanogan) reported year-over-year price gains.

In King County, the median sales price on last month's sales was $333,500, a drop of 4.7 percent from twelve months ago when it was $350,000.

Brokers attribute part of the price drop to sales of distressed homes (in general, meaning homes under foreclosure or impending foreclosure).

"Distressed properties are making up an increasingly greater share of sales than a year ago, and that trend is expected to continue," observed Jacobi. Noting the sales price for distressed properties could be 20-to-30 percent less than for normal sales, he said "it's no surprise that a greater percentage of low-priced distressed properties is pulling down the median price."

Whether considering a property classified as distressed or a conventional listing, house-hunters can choose from 32,647 active listings in the Northwest MLS system at the end of January. That selection is 4.7 percent smaller than a year ago when there were 34,256 properties listed with member-brokers.

Not nearly as many newly listed homes were offered for sale last month compared to twelve months ago. MLS members recorded 8,556 new listings, which included 7,167 single family homes and 1,389 condominiums. The combined total is down nearly 24 percent from the same month a year ago when members added 11,206 new listings to inventory.

MLS director Bobbie Petrone Chipman said overall, January was a positive month around Pierce County, where her office is located. Noting that area experienced a 27 percent reduction of new listings, a 2.4 percent increase in pending sales and a 10.8 percent jump in closed sales, Petrone Chipman, co-managing principal broker at Coldwell Banker Bain Tacoma/Puyallup, said the month reflected "a bit more balance as we dip our toe into the new year."

Deasy also expects more balance, with sales more evenly distributed during the year, unlike 2010 when sixty percent of their sales occurred in the first half of the year. He also predicts closed sales will increase year over year, while at the same time pending sales might decrease year over year. This is the result of a higher percentage of pending sales actually closing, he explained, citing various factors. "Banks are better at short sales, brokers are better at short sales, appraisal issues are less frequent, and lending standards are becoming more stable."

Based on anecdotal reports of open house traffic, brokers are hopeful of upticks in sales.

"The buyer activity at open houses in the close in Seattle neighborhoods has increased dramatically in the past month, said Northwest MLS director Mike Skahen. "If there were more good new listings coming on the market there would be more sales," he suggested.

Skahen, the owner/broker at Lake & Co. Real Estate in Seattle, believes the shortage of new listings is causing an increase in multiple offers. As an example, he said a small Green Lake townhouse project that had been on the market for more than four months with no offers finally had one unit sell a few weeks ago. Last weekend four offers came in on another unit. "I have not seen buyers this motivated in three years," he remarked, adding, "Sellers should not wait for spring flowers to bloom to put their homes on the market as they usually do because there is much less competition now than there will be soon."

Industry leaders have recommendations to benefit both sellers and buyers.

Accurate pricing is paramount. "Sellers are learning there is a small window of opportunity to have consumers sees their home before ruling it out and moving on," suggested Stenvers.

"My advice to buyers in today's market is to get pre-approved prior to starting their home search in order to avoid any delays that might result from the new lending standards process," said J. Lennox Scott, chairman and CEO of John L. Scott Real Estate." This way," he explained, "buyers are ready to act quickly when they do find a home on which to make an offer."

As for sellers, Scott said pricing and presentation have never been more important. "Pricing must be comparable with the other properties that have recently sold in their local area and the home must be in pristine show condition from day one."

MLS director Pat Grimm, owner/broker at Windermere Real Estate/Capitol Hill, detected some hesitancy to list properties now. Distressed properties sell for less, but buyers face uncertainty and a long timeframe, he explained, noting the large percentage of distressed properties on the market has resulted in an interesting side effect: sellers of non-distressed properties are having an advantage.

"On one hand, I'm seeing sellers that are hesitant to bring their listings onto the market and compete with the price of short sale properties," Grimm commented. On the other hand, he said buyers are looking at all the inventory and, because of the complications of purchasing distressed properties, are favoring properties that are not short sales or bank owned.

In Seattle, Grimm said the sweet spot is homes priced $400,000-500,000, in good shape that are not distressed. "They appeal to both first-time buyers and downsizers," he reported, citing two examples:

A Capitol Hill home went on the market at $450,000, received seven offers and sold in a week for significantly more than asking price. In the second example, a View Ridge listing priced at $499,000 had 25 groups through an open house in a two-hour span. It has a view and a great location above the Burke-Gilman trail. "Both homes were in the $400-$500,000 price range, well maintained, and not distressed."

Several other NWMLS directors commented on the impact of distressed properties:

• "We still have the better part of the next five years to work through short sales and bank owned property but this is a start," commented Frank Wilson, branch managing broker at John L. Scott Real Estate in Poulsbo. He described January 2010 as an anomaly due to the tax credit, and said even though last month was down in many respects compared to last year, it better reflects the true market. "It is good to start a new year off without any government incentives and is hopefully the start of returning to normal."
• Some owners are opting to rent their homes as the market recovers. As demand increases and rents rise, investors are returning, said Stenvers. Also emerging is a new group of renters – past owners who lost their home to foreclosure or short sale, he noted, adding, "These renters are willing to sign long-term contracts so they can get their credit rating repaired." For example, Stenvers said his office recently listed a rental. The renters were a professional couple in the midst of a short sale in Florida. "They are looking at a very long term commitment to renting to help them save money and recover from their loss."
• "Buyers are reluctant to look at distressed properties not because of the characteristics of the property, but because of the process," said Grimm. He called the long delays with lenders regarding the sale of distressed properties "a major choke point." Grimm acknowledged there has been significant progress with the banks trying to figure out the situation, but stated, "We're still a long way from making it buyer-friendly."

Figures from the National Association of Realtors® show distressed homes rose to 36 percent of sales of existing homes in December, up from 33 percent in November and 32 percent a year ago. Such homes are typically discounted by 10 to 15 percent, according to NAR research.

Commenting on the volume of distressed homes on the market, Windermere's Jacobi said, "Hopefully new regulations requiring banks to speed up the sales process for distressed homes will help move that inventory more quickly."

Copyright © 2011 Northwest Multiple Listing Service

Distressed Inventory to Step Out of the Shadows

We are beginning 2011 with much more positive news about real estate than we have had in several years. The pending sales numbers (houses going into contract) have been climbing for several months. Last month’s Existing Homes Sales Report from the National Association of Realtors showed an increase of over 12%. Demand definitely seems to be increasing. Does that mean prices will begin to appreciate? Probably not. Though buyers have finally come out of hiding and started to purchase homes again, an increased inventory of distressed properties is also emerging from the shadows. These houses will impact prices.

Prices are determined not by demand alone but instead by the relationship of demand to the supply of inventory available. We are talking about the ‘shadow inventory’ of homes that will come to market at discounted prices when they are sold as short sales or foreclosures. This inventory has swelled to several million units.

When will this begin and what impact will it have on prices?

Over the last year, banks have been slowly releasing this inventory to the market being careful not to release too great a number in fear of driving down house values even further. Over 25% of all sales in 2010 involved a distressed property. The numbers increased as the year went on with 33% of all sales in November being in this category. In December, that number jumped to 36%! It now seems that banks are preparing to increase the flow of such properties to the market.

Last month, CNBC reported on economist Nouriel Roubini’s predictions on this issue:

“There has been an effective moratorium on foreclosure,” said Roubini.

And the beginning of the end of that moratorium means more housing supply is about to become available on the market.

“The shadow inventory of not-yet-foreclosed homes—due to the moratorium—will surge in the next year,” Roubini says.

Bank of America said:

…it resumed foreclosure sales in most states that have a non-judicial process, but the bank won’t restart sales in judicial states until sometime in the first quarter.

And Housing Wire reported last week that Fannie Mae “directed its mortgage servicers to delay scheduled foreclosure sales 45 days” for borrowers trying to get assistance through certain government programs.

What impact will this have on prices? Wells Fargo projected that house prices will drop 8% by mid-year. Fannie Mae and Bank of America have also predicted price depreciation for the first half of 2011.

Should I wait to purchase?

Not necessarily. Remember, sellers should sell now before prices do begin to fall. However, as a purchaser, you should look at cost. With interest rates on the rise, waiting may result in a higher monthly mortgage payment even with a lower sales price.

Bottom Line

If you are looking to sell, you probably want to do it before this ‘surge’ of discounted competition comes to market.