The housing market recovery

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1 Real Estate Digest 275 Mundy Street, Suite 202, Wilkes-Barre, PA Smooth Sailing as Uptrend Expected at Least Through 2014 The housing market recovery should continue through the coming years, assuming there are no further limitations on the availability of mortgage credit or a new fiscal cliff, according to forecasts from a number of industry sources. Existing-home sales, new-home sales and housing starts are all recording notable gains this year in contrast with suppressed activity in the previous four years, and all of the major home price measures are showing sustained increases, said Lawrence Yun, chief economist of the National Association of Realtors. Disruption from Sandy and the stormy winter will likely be temporary, notably in New Jersey and New York, but the market is likely to pick up speed within a few months with the need to build new homes in damaged areas, Yun added. Yun sees no threatening signs for inflation in 2013, but projects it to be in the range of four to six percent by Rising rents, qualitative easing (the printing of money), federal spending outpacing revenue, and a national debt equal to roughly 10 percent of Gross Domestic Product are all raising inflationary pressures. Mortgage interest rates are forecast to gradually rise and to average 4.0 percent next year, and 4.6 percent in 2014 from the inflationary pressure. Real estate will be a hedge against inflation, with values rising 15 percent cumulatively over the next three years, also meaning there will be fewer upside-down home owners, Yun said. Today is a perfect opportunity for moderate-income renters to become successful home owners, but stringent mortgage credit conditions are holding them back. Existing-home sales this year are forecast to rise 8.7 percent to 5.05 million in 2013; a total of about 5.3 million sales are expected in 2014.

2 Unless building activity returns to normal levels in the next couple years, housing shortages could cause home prices to accelerate, and the movement of home prices will be closely tied to the level of housing starts, said Yun. Regardless, Yun said that four years from now there will be an even greater disparity in wealth distribution. People who purchased homes at low prices in the past couple years, including many investors, can expect healthy growth in home equity over the next four years, while renters who were unable to get into the market will be in a weaker position because they are unable to accumulate wealth, he said. Not only will renters miss out on the price gains, but they ll also face rents rising at faster rates. TRENDS Rising Rents Press More Americans to Make Big Decision Fifty percent of Americans recently surveyed say they expect home rental prices to rise in the next year, and it s making them lean more toward home ownership, according to a recent Fannie Mae National Housing Survey. This has been a year of steady growth in the percentage of consumers with positive home price expectations, says Doug Duncan, Fannie Mae s senior vice president and chief economist. Increasing household formation, encouraged by an improving labor market, is adding additional momentum to the housing recovery and putting upward pressure on rental price expectations. Expected increases in both owning and renting costs may encourage more consumers to buy and add further strength to the housing recovery already under way. Rental price expectations continue to rise and are much higher than home price expectations, according to Fannie Mae. More Americans say that with rising rents, home ownership is looking like a better option. Seventy-two percent of those surveyed say that now is a good time to purchase a home. Eighteen percent say it s a good time to sell. Still, the optimism over the direction of the housing market is met with some caution and predictions of a slow recovery not a high-speed one, according to Fannie. Potential Homebuyers See Strengthening Market A survey of homebuyers shows that buyers have increasing confidence in the market. According to the survey by Redfin, 79 percent of buyers believe prices will increase in their neighborhood in the next 12 months, and 22 percent believe prices will rise a lot. However, the survey found that 40 percent of potential buyers felt it was a good time to buy a house, compared to 48 percent in the last quarter. About half of respondents agreed that now is a good time to sell a home, compared to only 27 percent last quarter; and 66 percent of potential buyers said they considered a lack of inventory to be a problem.

3 MARKETS Two-Thirds of U.S. Markets Now in Recovery Mode The newest list of improving markets shows 259 communities on the rebound, including hard-hit Albuquerque, according to the National Association of Home Builders (NAHB). In January, the NAHB list included 242 cities. A year ago, the number was about 100. When the Improving Market Index was created in 2011, there were only 12. There are 361 communities surveyed for the index. The IMI identifies metro areas that have shown improvement from their respective troughs in housing permits, employment and house prices for at least six consecutive months. The continued expansion of improving housing markets should help convince those who have been considering a home purchase that now is the time to go forward with those plans, said Kurt Pfotenhauer, vice chairman of First American Title Insurance Company. Confidence in Senior Housing Market Slowly Improving A Home Builders survey that focuses on housing in the 55+ age range indicates builders are gaining more confidence that the market is improving, but has a long way to go. The 55+ confidence index in the fourth quarter of 2012 reached 28 in the single-family home segment. Any index number below 50 indicates that more builders view conditions as poor than good. The index measures builder sentiment based on a survey that asks if current sales, prospective buyer traffic and anticipated sixmonth sales for that market are good, fair or poor (high, average or low for traffic). Like the overall housing market, the 55+ segment of the market is undergoing a slow but steady recovery, said NAHB Chief Economist David Crowe. New York Wants to Buy Up, Tear Down Sandy Homes New York Gov. Andrew Cuomo wants to spend up to $400 million to buy homes and other properties destroyed by Hurricane Sandy so the properties can be cleared and the land permanently set aside as undevelopable coastline. The measure is an effort to never again have private properties jeopardized by massive storms or waves. Under the proposal, property owners would receive the pre- Sandy value of their homes and in flood plains, bonuses would be offered as an incentive to get people to leave. Buildings would be leveled and, in some cases, replaced with flood barriers and dunes. The plan would have to be approved by the federal government before being implemented.

4 Eight Most Diverse Cities in the U.S. What is the most diverse neighborhood in the country? Perhaps surprisingly, it s in Irving, Texas, where the racial makeup is 26 percent Asian, 25 percent black, 23 percent Hispanic, and 23 percent white, according to a trend report by Trulia. The following are the most diverse neighborhoods in the country, according to the report: 1 Irving/Dallas (ZIP: 75038) 2 Queens Village/New York (ZIP: 11428) 3 Treasure Island/San Francisco (ZIP: 94130) 4 Lakemont/Houston (ZIP: 77407) 5 Wahiawa/Honolulu (ZIP: 96786) 6 Kahuku/Honolulu (ZIP: 96731) 7 Rainier View/Seattle (ZIP: 98178) 8 Dorchester/Boston (ZIP: 02125) According to HousingWire, diversity can be good for housing markets. When comparing diverse neighborhoods no racial or ethnic group accounts for more than 50 percent of the population the more diverse, the higher the population growth and stronger the housing price growth, reports Christina Mlynski. MORTGAGES Down Payments Fall to Three-Year Low for first-time buyers to 13 percent for repeat buyers. The median down payment was the lowest since 2009 but still far above the levels during the housing boom, when nearly half of first-time buyers made no down payment at all. First-time buyers who financed their purchase used a variety of resources for the down payment: 76 percent tapped into savings; 24 percent received a gift from a friend or relative, typically from their parents; and 6 percent received a loan from a relative or friend. Eleven percent tapped into a 401(k) fund, and six percent sold stocks or bonds. Ninety-three percent of entry-level buyers chose a fixed-rate mortgage, reported the National Association of Realtors. Forty-six percent of first-time buyers financed with a lowdown payment FHA mortgage, and 10 percent used the VA loan program with no down payment requirements. Forty-two percent cut spending on luxury items to buy their first home; 35 percent cut spending on entertainment; and 27 percent cut spending on clothes. In 2005, the median first-time home buyer scraped together a down payment of only two percent to buy a $150,000 home. After lenders tightened standards in the wake of the housing crash, the median down payment soared, reaching 11 percent in First-time buyers put about five percent down in Repeat buyers, pooling equity with savings, typically put down about 15 percent. Investment and vacation-home buyers have been paying higher down payments than those buying a primary residence. The median down payment for both was 27 percent, according to NAR s 2011 Profile of Investment and Vacation Buyers. The median down payment made by all homebuyers in 2012 was nine percent, ranging from four percent

5 INDUSTRY Newspaper Says Fannie Mae May Be Killing Its Own Deals The San Diego Union-Tribune newspaper reports a growing number of real estate brokers and sales associates are seeing deals dissolve because Fannie Mae is overpricing properties. The newspaper quotes sales agents as saying Fannie is trying to help homeowners avoid foreclosure by encouraging short sales, but it also is trying to keep prices up to protect neighborhood values, as well as its investors who want profitable deals. The Union Tribune quoted California Realtors President Don Faught as saying Fannie Mae would agree to start the short-sale process, but would then price homes 20 to 40 percent above comparable sales often killing the deal. This is a problem because the agent has to (re-)market the property with the Fannie Mae property price, Faught told the paper. And often, there s no time to re-market the property before a foreclosure auction date. Realtor Groups Speak Out against Bulk REO Sales The California Association of Realtors (CAR), among others, is calling for a change in leadership at the Federal Housing Finance Agency, mostly stemming from its pilot bulk sales foreclosure program. CAR has called the program harmful to the housing recovery. CAR s latest objection stems from the federal government s recent sale to investment firm Colony Capital, which took ownership of 970 foreclosed homes in California, Nevada, and Arizona in a recent auction. Colony Capital had the winning bid of $176 million for the Fannie Mae properties. Fannie Mae and FHFA s decision to move forward with the REO bulk sale in California amounts to another gift to Wall Street at the expense of taxpayers, says LeFrancis Arnold, CAR s president. The deal, which calls for the sale of more than 400 foreclosed homes in Los Angeles and the Inland Empire, not only hurts taxpayers and prospective home buyers, but will also delay a full recovery in the housing market. FHFA, which oversees Fannie Mae and Freddie Mac, initiated the bulk sales program to help unload the high number of foreclosed homes in its books. The NAR and additional state associations have spoken out against the bulk sales program. They have argued that with inventory levels of for-sale homes so low and home buyer demand increasing such a program is unnecessary. AGENTS CORNER Learn How to E-Leverage the Trends in Your Market If you want to kick up your lead generation, try dialing into what s happening in your market and have that reflected on your Web site and social media pages.

6 Five years ago, many of us were focused on working niche markets like new homes, but when the market shifted, the new home market fizzled out. Now the market is shifting again with news on the street that there is going to be less REO inventory and more short sales, said Tricia Andreassen, CEO/founder of Pro Step Marketing. Here are seven key things to pay attention to in order to find the emerging trends in your market and create marketing momentum behind them. Y Study your market. The MLS has so many tools and resources to help you learn what is going on in your market. Run reports of what is selling in your market, what price point is moving and where the movement is happening. Sort the data so you can see if there are particular neighborhoods that are moving, as well as what types of properties are selling more actively (i.e., condos, short sales in the move-up price range, investor market, etc.). Y Button up your home page. It s important that when visitors land on your site, they can see in a matter of seconds the things that they re interested in. For example, if you see HUD properties moving, have that button dominant on your front page so visitors can click right into the information, said Andreassen. Y Incorporate compelling informational pages. Once visitors click on the main button of your home page, have a developed content page that serves as a point of education and place where they can get more information. Include at least words for the search engines so that it is targeted content. Y Offer additional value. You ve driven someone from the main button on your home page. They ve clicked through and seen the information (content). Now you need to partner that with a call to action that will compel lead capture. Offer things like click here to see listings in this neighborhood, access the 14 costly mistakes when selling your home e-book, or access our market reports, advises Andreassen. Y Buy domain names that match local trends. For example, if you re working the investor market right now, buy a domain name that speaks to that market, such as Alerts.com. Y Create stand-alone landing pages that can be advertised separately from your site. This will attract the consumers who might not want to work with you just yet, but who want to get information on their terms. An example is Y Evangelize. Sprinkle in your offers on various offline and social media channels to drive visitors back to your site and help you capture the lead. Says Andreassen, These days it s all about leveraging your marketing message to all channels. Got One of these Passwords? You Might Want to Change it SplashData, a password management tool developer, recently published the scariest passwords, those most at risk of being discovered by hackers. Here are the 10 worst passwords that made its list: 1 Password, , , 4 abc123, 5 qwerty, 6 monkey, 7 letmein, 8 dragon, , 10 baseball To prevent a security breach from one of your passwords, security experts recommend that you never use the same password for any of your important accounts. more on next page

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