Real Estate Information Archive

Low Inventories Indicate a Trend

Low inventory is a relative term depending on how you're comparing it.  Would the comparison be to total number of homes on the market last year, homes in a certain price range or homes in a certain area?  In some situations, it's a combination of all of those things.

In any given market, inventories will fluctuate based on area and price range.  The National Association of REALTORS® considers a balanced market to be six months' supply of homes.  If it takes longer than six months to sell, it is thought to be a buyer's market and less than six months, a seller's market.  Most buyers and sellers probably feel inventory equilibrium is more like three month's supply of homes.

Inventory has a direct impact on price.  During the housing bubble, demand decreased, supply ballooned to four million houses and prices dropped dramatically.  Increased inventories due to foreclosures, bank' revised lending practices and builder's lack of new housing starts each contributed to the dramatically lower prices.

As the market has recovered, economic conditions have improved, banks have loosened their requirements, interest rates have remained low, foreclosures have slowed and gradually, the inventory has been reduced to approximately two million houses.  When demand is constant but inventory is reduced, price tends to increase because the same number of people are trying to buy a smaller than normal number of homes.

Based on the low mortgage rates that have been inching up each week in 2013 and an improving consumer confidence level, most markets are experiencing some increase in demand.  With inventory decreasing, buyers in the marketplace can see that prices are increasing.

Just as signs of spring can be seen to be just around the corner, it should be recognized what direction prices will be moving.  Hindsight is 20/20 but we can't purchase or sell in the past.  We need to make decisions today on what we think will happen in the future.

If you're curious to know what inventory conditions are for your specific market, send me an email with the price range and area and I'll send you a report.  Mike@MikeParker.com

Home Prices Rise Across the U.S.
Bargain Hunting, Low Rates Drive First Gain in 3 Years; Double Dip Still Possible

This article was in the Wall Street Journal on July 29, 2009

By Nick Timiroas and Kelly Evans

Home prices in major U.S. cities registered the first monthly gain in nearly three years, according to a new report that provided fresh evidence that the severe U.S. housing downturn could be easing.

Standard & Poor's Case-Shiller index, which tracks home prices in 20 metropolitan areas, rose 0.5% for the three-month period ending in May, compared with the three months ending in April. It marked the index's first increase after 34 straight months of decline, and came after a variety of housing indicators has shown glimmers of hope for the past several months.

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Home prices remained down about 17% from a year earlier, according to the index. According to S&P/Case-Schiller's seasonally adjusted numbers, which it began reporting only earlier this year, prices in May posted a 0.2% decline.

But most Wall Street economists who discussed the survey focused on the April-to-May rise, saying it represents a significant change in direction. Home prices in 15 of the 20 areas in the survey rose or remained stable.

The results were also consistent with other recent housing data, these economists said. Sales of new and existing homes rose for three consecutive months through June. Housing starts were up in June, and an index of builder sentiment rose in July, though both remained at low levels.

May's uptick came in part as home prices in some areas fell enough for investors and first-time buyers to begin competing for bargains, helping to ease the backlog of unsold homes.

Other likely sales spurs included mortgage rates that fell to 50-year lows, an $8,000 federal-tax credit for first-time homebuyers and the ability of buyers to secure mortgages from the Federal Housing Administration with as little as 3.5% down.

The latest readings don't necessarily herald a full-blown recovery for the housing market or broader economy. Consumer confidence remains near record lows. The U.S. unemployment rate, at 9.5% in June, is expected to hit double digits before year end, making swift growth and an expanding labor force unlikely anytime soon.

The home-sale numbers surprised Robert Shiller, the Yale University economist who helped create the Case-Shiller indexes. "The change in momentum here is very significant," he said. Last month, Mr. Shiller forecast sustained home-price declines into the next few years, which he said now looks less plausible. He said he expects home prices to remain near current levels for the next five years.

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View Interactive

U.S. home prices have fallen by about one-third since their peak in the second quarter of 2006, according to S&P, and are roughly back at 2003 levels.

Some analysts warn that the home-price uptick could reverse as rising unemployment causes more Americans to fall behind on their mortgage payments and end up in foreclosure.

One factor that apparently drove the March-through-May uptick was a falling share of homes sold at distressed prices, through foreclosure and so-called short sales. Distressed sales accounted for 33% of existing home sales in May and 31% in June, down from a high of nearly 50% earlier this year, according to the National Association of Realtors.

The drop in foreclosure sales was likely the product of U.S. banks' moratorium on home foreclosures, which they undertook as the government launched a round of programs to modify and refinance loans for at-risk borrowers. Most banks ended their foreclosure moratoria in March.

Interest rates also hovered at or below 5% for most of the March-May period, before rising in June.

"Were it not for those rate reductions and the moratorium, you'd see prices down right now," says Ronald Temple, co-Director of Research at Lazard Asset Management. He expects the index to stabilize or increase in the short-term, but forecasts another 12-15% decline in prices thereafter.

Regardless, a combination of still-low interest rates and eager sellers continues to fuel competition for heavily discounted properties. Some buyers are finding that investors with all-cash offers are consistently beating them in bidding wars.

Stacy Watson, a 39-year-old human-resources manager in the Riverside, Calif., area, says she has made losing bids on at least eight homes since mid-June. On Tuesday, she says, she decided to increase her offer for a five-bedroom home in Perris, Calif., to $198,000, nearly $20,000 more than the asking price.

Ms. Watson and her real-estate agent say the bank-owned home has drawn more than 10 offers in less than a week on the market. "Everyone says it's such a great housing market for buyers," she says. "No. This is hard."

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Associated Press

Cleveland-area home prices rose 4.1% in the three months ending in May; a worker erecting a for-sale sign in April in nearby in Chagrin Falls, Ohio.

Would-be homeowners have benefited from government programs, including one that allows buyers of properties owned by Fannie Mae to receive mortgages from the government-controlled mortgage-finance company with down payments as low as 3%.

When Nelly Whiteman and her husband recently bought a house out of foreclosure from Fannie Mae, she figures they competed against at least two other buyers. The 27-year-old administrative assistant says they snagged their three-bedroom home in Orangevale, Calif., for $176,000, or about $5,000 more than the asking price. They now pay about $1,080 a month in mortgage payments, insurance and taxes.

"It's an extra bedroom for around what we were paying for rent," she says.

The budding housing recovery isn't being felt across the country. Prices increased in 13 of 20 surveyed markets, with the strongest gains coming in Cleveland, up 4.1% from April; Dallas, up 1.9%; and Boston, up 1.6%.

Home prices were flat in the New York and Tampa, Fla., areas. The survey doesn't track condominium or cooperative apartment sales, so it doesn't take into account the majority of housing stock in New York City.

Prices continue to fall in some markets, particularly overbuilt Sunbelt cities. Prices in Las Vegas declined 2.6% in May from April and were down 32% from a year ago, according to S&P/Case-Shiller. Phoenix prices declined 0.9% from April and were down 34% from May 2008. San Francisco, Miami and Detroit also continued to see year-on-year declines of about 25%.

"Is this just a spring bounce that was partly related to the drop in distressed sales?" asks Thomas Lawler, an independent housing economist based in Leesburg, Va. One key question, he says, is whether another wave of foreclosures could come along to offset the home-inventory decline that has boosted many markets.

In many of the hardest-hit cities, banks appear to be slow to put foreclosed homes on the market. In Las Vegas, for example, banks had taken title to 13,200 homes as of June. That surpassed the total number of homes listed for sale in Las Vegas last month, according to SalesTraq, which monitors inventory in Las Vegas. "Are the banks are intentionally holding back inventory? That's a question a lot of us have," says Larry Murphy, president of SalesTraq.

Some housing analysts say they expect falling prices on mid-to high-end homes to weigh on the Case-Shiller index. The supply of these homes has swelled in recent months as borrowers struggle to obtain financing.

Borrowers of "jumbo" mortgages, which are too big for government backing, face higher rates. Banks are also requiring bigger down-payments at a time when traditional "trade-up" buyers are finding that the equity in their homes has fallen.

"We think [the sales index] will look like a 'W,' where prices go up until the foreclosures at the higher end translate into another leg lower," says Ivy Zelman, chief executive of Zelman & Associates, a housing-research firm.

The improvement in housing likely gave a small boost to U.S. gross domestic product in the second quarter, economists said. After data showed construction of new homes was stronger than expected in June and was revised higher in April and May, Macroeconomic Advisers, a St. Louis-based forecasting group, ratcheted up its estimate of second-quarter economic growth. It now sees output shrinking at just a 0.5% annual rate in the second quarter, compared with declines of 6.3% and 5.5% in the previous two quarters.

The government will report its official estimate of second-quarter growth on Friday.

February’s Existing Home Sales Best In Two Years

This article was written by Denny Grimes, a friend of Mike's who is a real estate agent in Fort Myers, FL.   Denny Grimes is a real estate broker with Denny Grimes & Company

Robust sales leave market in dangerous territory

I have good news and bad news. Which do you want first? Let’s start with the good news.

Last month, over 900 existing homes went under contract, thus making February the best sales month in Lee County since March of 2006. In fact, February’s pending sales were up more than 60 percent from the same month in ’07.

We are on a 60-day winning streak. The first two months of ’08 show that single-family home sales are 36 percent ahead of ’07, and condominium sales are up 16 percent for the same time frame. Notice, I am talking about “pending” sales, which are contracts written and accepted, but not yet closed. Even though there will be sales that fail to close, we will still post a significant sales increase. So, for those that thought our market was flat-lining, put the body bag away, because it appears it has a pulse.

Before you roll the market out of ICU, let me give you the bad news. The bad news is that many people will misinterpret, dismiss or ignore this positive news. 

Sellers and agents may misinterpret this surge in sales and believe it signals the return of the glory days. If they do, they will react in a way that would be contrary to further recovery. This is my biggest fear.

Skeptics and nay-sayers may dismiss this information and file it in the folder titled “Propaganda to Trick Fence-sitting Buyers.” Many will even wonder how this tidbit of positive news made it past the good news censors, who seem to be working at every media outlet.

The die-hard wait-for-the-bottom buyers will chalk up this two-month trend as a seasonal blip. They believe sales will tank about the time the last snowbird’s taillights cross Lee County’s northern border.

The continuation of the market’s recovery beyond the winter season is directly related to the correct interpretation of this long-awaited surge in sales. Does it mean the market is fully recovered or that the market has bottomed? No. Does it mean that prices have stabilized? No. Does it mean agents can finally eat something other than peanut butter? That depends, do you like Spam?

The surge in sales was not caused by an influx of European or Canadian buyers. It wasn’t caused by sunburned snowbirds from Sheboygan, Baby Boomers or ball players looking for a spring training home. In fact, buyers did not cause it at all.  

Sales are picking up because sellers are getting closer to where the buyers are. After 30 months behind the wheel, sellers are finally driving their prices into the outskirts of buyer’s territory. This is dangerous territory for our market because some sellers will be tempted to slow down, stop or put the car in reverse and drive their prices back up, thinking that the buyers will follow them. All of these reactions will stall our recovery, and heaven knows we don’t need any stalling going on.

Our market began its recovery 2.5 years ago, when prices started falling back toward real values. It’s been a long journey, but we are finally beginning to see evidence that we are getting closer to our destination. We are now faced with the most important and difficult question since the recovery started, and that is “Will we have the fortitude to finish the trip?” We must press on to the final destination, the tipping point, which is the epicenter of the buyer’s territory.

Would you like to see our market fully recovered and prices stabilized? That will not happen until prices in each sub-market reach the point that makes that market tip back toward equilibrium.

So, it really isn’t a question if prices reach the tipping point, it’s a questions of when. For some market segments, like developer homes that can be bought below replacement cost, that’s just around the corner. Other markets should start counting cows or Burma-Shave signs, because there’s still a lot of road ahead.

Regardless, every market segment must meet buyers where they are. Therefore, the more downward pressure sellers keep on the gas pedal and prices, the sooner their journey will be over. Sorry, there aren’t any shortcuts.

Sellers, I know you are tired of driving, but don’t slow down now. There’s a lot of open road ahead because the traffic jam is behind you in seller’s territory. Over 900 sellers entered buyer’s territory last month and picked up a buyer. If you keep pressing forward, you will begin to see buyers thumbing for a ride. When that happens, stop and give them one.

Keep the Faith