Remember: Real estate markets are local! (video)

Remember: Real estate markets are local!

Good news about the housing market

Andrew Roberts

Given the good news about Boeing's new contract (many more jobs in our area) and the prediction that Tacoma is projected as the number one growth city in the nation, I am posting this reprint. Remember that all real estate is local. Our area is performing even better than those mentioned.

Thanks to Simon Constable of the Wall Street Journal. 

There might finally be some good news this year about the nation's dismal housing market. Or, at least, the bad news could stop.

Either way, it will be welcome relief for current homeowners as well as for potential real-estate investors. Reasons to be optimistic have been sadly lacking since the housing bubble burst in 2006.

For sure, last week we learned the widely watched S&P/Case-Shiller home-price index fell 1% in December, its fifth straight decline. The index tracks 20 major markets.

But that figure belies real reasons to be optimistic, according to some experts. If they are right, it might make sense to jump into real estate. The trick is avoiding getting burned again, and it doesn't necessarily mean owning a home.

First, let's recap the economic signs a bottom is close.

Houses Are a Good Deal

Housing is the most affordable it has been in decades, according to analysts at Moody's Analytics. They don't just look at house prices. They also look at incomes.

Nationally, the cost of a house is the equivalent of about 19 months of total pay for an average family, the lowest level in 35 years. Prices usually average close to two years' pay, although that varies nationally.

At the peak, midway through the last decade, a home in Los Angeles cost the equivalent of 4.5 years' pay. The average price has since fallen to just over two years' income now. That's well below its pre-bubble average of 2.6 years. This means average Los Angeles homes are cheaper in "real terms" than they were typically during the period 1989 through 2003.

The opposite is true around the Washington beltway, where it will take 26 months of pay to buy a home, versus the historical norm of 22 months.

In the end, it will be affordability that will drive people to buy homes.

"Pricing is down so much in some markets that when you analyze renting versus owning it makes much more sense to own," says Michael Larson, a real-estate analyst at Weiss Research in Jupiter, Fla.

It is definitely bullish. But what about timing?

"Housing prices will probably bottom in 2011," says Scott Simon, a managing director at money-management firm Pimco in Newport Beach, Calif. He foresaw the housing crash, helping his firm dodge losses that plagued Wall Street.

Mr. Simon says prices might dip another 5%. Still, in the scheme of things, that's small. Consider this: In some markets, home prices have fallen by half or more since 2006.

For instance, in once-hot Miami you can snap up an average house for under $166,000, according to recent data from the National Association of Realtors. That's down from $371,000 in 2006. Another 5% drop would take it to $158,000.

Investors Stepping Up

Here's another sign the market is nearing a bottom: Investors have started to buy up houses and condos, in some instances paying entirely in cash. That's a far cry from the heady bubble days when borrowed money seemed the key to riches. The bubble-era speculators who got burned tended to buy at the peak and borrowed heavily to do so. When the crash came, they quickly saw their wealth erased.

Take Miami again. Last year, more than half of all transactions were made entirely in cash, according to a recent report in The Wall Street Journal. That compares with 13% of deals in the last quarter of 2006, the height of the bubble. Similarly, in Phoenix 42% of sales in 2010 went to all-cash buyers, up threefold since 2008.

It's a sign that these investors are betting on a rebound. Investors buying at current prices are looking for deals, or so-called bottom fishing. They typically like to pay entirely in cash (or with a relatively small loan) to speed up transactions. That can be vital for an investor wishing to lock in a deal fast.

If this is a turn in the market, then it might make sense to go out and buy a home. But, warns Pimco's Mr. Simon, "buy in areas you really know."

Plan to Stay Put

Buy and hold. While the good news is that the worst of the housing crash might be over, the bad news is that the fast gains of the glory days of 2005 and 2006 won't be back any time soon. So to cover the costs of buying and selling, and what could be a prolonged recovery, plan to own for more than 10 years, explains Jack Ablin, chief investment officer at Chicago-based Harris Bank.

Also remember that borrowing money to buy a house can still be risky. If you pay for a $100,000 property with $20,000 cash and borrow the rest, a dip in the value of $20,000 would leave you with zero equity. On top of that, you'd have to pay to maintain and repair the property, something not necessary when renting.

—Simon Constable is author of the forthcoming book "The WSJ Guide to the Fifty Economic Indicators That Really Matter: From Big Macs to 'Zombie Banks,' the Indicators Smart Investors Watch to Beat the Market." simon.constable@dowjones.com

Related articles

• U.S. Economy: Existing Home Sales Climb to Eight-Month High (businessweek.com)

What about 2010?

Here is a very positive prediction for the 2010 housing market: Robert Hagar audio clip

Thanks to NPR

More good news!

All the leading indicators say housing is definitely on the mend, economists reported in advance of the official release of several pieces of good news expected this week.

Bloomberg News surveyed 53 economists and asked them where they expected the numbers to fall. Here are their predictions:

• Construction starts in September are expected to hit a 610,000 annual rate, the most since last November. 
  
• Sales of existing homes are likely to rise to a two-year high.
  
• Because of fear of a relapse, the Federal Reserve is predicted to leave interest rates low for a few more months. 
• Building permits, a sign of future growth, probably rose to a 590,000 annual pace, also the highest level since November, the Commerce Department is likely to announce.
  
• The National Association of Home Builders/Wells Fargo index is expected to rise to 20 from 19, the economists say.

Google Inc. plans to resume hiring and acquisitions after its third-quarter sales beat analysts’ estimates. CFO Patrick Pichette says: “We weathered what is an incredible recession. If you have all this behind you, the only outcome you should have as management is: ‘OK, let’s build now.’”

Source: Bloomberg, Courtney Schlisserman (10/18/2009)

Should you wait for rates to fall before you buy?

Our friend Hannah Swihart, a Lafayette, IN colleague shared these thoughts:

So how do we answer the question... "I heard rates are going down to 4.5%?"

1. Every year there is always a forecast of how rates will be incredibly low. Usually this doesn't occur,  BUT now might be different.

2. Remember housing started the economic cycle and therefore housing WILL have to be the one item that pulls us out.

3. Yes, there is more talk than usual of having the Fed's help create lower mortgage rates.

4. Creating lower mortgage rates is difficult and will take very smart people to figure that out and the cost could be staggering.

In the meantime if you are a buyer hitting the brakes and saying "I'm waiting for my personal bailout with the 4.5% mortgage rates"

This might be a bad idea. Remember to look at all options.

1. IF rates fall to 4.5% - what happens... Demand will go up, FAST!

2. If demand goes up fast - what happens... Supply will go down, FAST!

3. What happens when the demand goes up fast and the supply goes down fast...Prices will rise!

So, what is the smart thing to do?

A.) You could buy a home now (American Real Estate for the first time has a was / now price just like a clearance sale at the mall...used to be $380,000 NOW only $245,000)

B.) Use the low rates we just inherited (mid 5% for many buyers)

This is the guarantee part - buy home now at low price with low rate!

Just remember we never really know when the bottom will hit but what goes down must go up and once it hits bottom it will rise faster than it went down.

Thanks, Hannah!

NAR fighting to reinvigorate housing market

NAR Urges Passage of 4-Point Housing Stimulus Plan and Return of Congress for Lame-Duck Session

WASHINGTON, October 15, 2008

The National Association of Realtors® will offer a four-point legislative plan to reinvigorate the housing market, calling on Congress to act during a lame-duck session. NAR believes the plan will give a boost to the economy and help to calm jittery potential homebuyers.

The plan features such consumer-driven provisions as eliminating the repayment of the first-time homebuyer tax credit and expanding it to all homebuyers, making higher mortgage loan limits permanent, pushing banks to extend credit to Main Street, and prohibiting banks from entering into real estate.

“Housing has always lifted the economy out of downturns, and it is imperative to get the housing market moving forward as quickly as possible,” said NAR President Richard F. Gaylord. “It is vital to the economy that Congress take specific actions to boost the confidence of potential homebuyers in the housing market and make it easier for qualified buyers to get safe and affordable mortgage loans. We are asking Congress to act right away.”

Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said NAR, as the leading advocate for homeownership and private property rights, believes it is important for Congress to address the concerns and fears of America’s families, much in the way it has addressed Wall Street turbulence. “Housing is and has always been a good, long-term investment and a family’s primary step towards accumulating wealth,” Gaylord said.

NAR recommends Congress pass new housing stimulus legislation that includes the following priorities:

1. Remove the requirement in the current law that first-time homebuyers repay the $7,500 tax credit, and expand the tax credit to apply not only to first-time buyers but also to all buyers of a primary residence.

2. Revise the FHA, Fannie Mae and Freddie Mac 2008 stimulus loan limit increases to make them permanent. The Economic Stabilization Act, enacted in February, made loan limit increases temporary, and subsequent legislation reduced the loan limits and made them permanent. This has broad implication for homebuyers in high cost areas.

3. Urge the government to use a portion of the allotted $700 billion that was provided to purchase mortgage-backed securities from banks to provide price stabilization for housing. The Treasury department should be required to use the newly enacted Troubled Assets Relief Program to push banks to:

• Extend credit down to Main Street, making credit more available to consumers and small businesses;

• Expedite the process for short sales;

• Expedite the resolution of banks’ real estate owned (REOs) properties.

4. Make permanent the prohibition against banks entering real estate brokerage and management, further protecting consumers and the economy.

Gaylord said that NAR will strongly pursue those proposals and is calling on Congress to return to enact housing stimulus legislation in a lame-duck session after the national elections in November.

reprinted by permission of the National Association of Realtors

Is the housing market causing the slumping economy?

By: David Gibbons, Director of Community Relations, Zillow | September 30, 2008



FOX Business posed this question to Zillow’s CFO, Spencer Rascoff and Chip Cummings, Northwest Financial Group President. They also discuss the failed bailout and its intended impact on the housing market.

Who will buy your apple?

Here's what we see in a buyer's market, but to try to look at it objectively, let's get the discussion away from housing for a moment and think about apples. Let's say there's one store in town, and let's say that all it sells is apples. Red, yellow, green, Delicious, Granny Smith, Fuji, just apples.

Now group the red Delicious together, the Granny Smiths, the yellows. Put prices on individual apples. Stick with the reds for now: all the apples look more or less the same, but the price on each apple is different. $1.25, $1.05, .88, .49. Which apple would you buy, all other things being equal? So someone else buys the 49c apple and suddenly the price on the $1.25 apple (which is withering a little) is changed to $1.10. Will it sell next? (No.)

Replace the prices and apples with prices and homes. The principle is the same. If you want to sell your home without having to wait for all the other homes to sell first, price it properly. And price it right from the beginning. Consult with a professional and remember that the current market will ultimately dictate the selling price.