Four Factors to Watch in the Housing's Rebound

For the past year, more U.S. housing markets have had the feel of a blowout flea-market sale.

Prices were low and financing—while hard to get—was cheap for those who could get it. Once it was clear prices had found a bottom, bidding wars broke out as buyers competed over a shrinking supply of homes to get a good deal.

That sent prices up—sharply, in many markets—and for a while, buyers didn’t much mind. Falling interest rates made it possible for buyers to offer slightly higher prices without raising their monthly ownership costs.

But now, mortgage rates are up by a full percentage point over the past four months, and affordability has taken a hit, prompting concerns about a short-term “soft patch” as buyers and sellers adjust. Here’s a look at four keys to the housing puzzle:

1. Housing became less affordable in a short span. Typically in a recovery, sales pick up and then prices follow. But the current recovery has been “flip-flopped,” said Ivy Zelman, chief executive of Zelman & Associates Inc., a research and advisory firm. “We’ve had pricing accelerate out of the box” as builders took advantage of rising demand and low interest rates while adding little in the way of new construction. “That’s not typical of an upturn.”

Now, with prices up by double-digits from one year ago, rising rates have been “almost like a red light on the frantic price inflation,” said Ms. Zelman. A Zelman report last week showed that new home orders in August rose by just 1% from one year earlier, compared to year-over-year gains of 11% in July and 25% during the second quarter. “I hear more often now from builders, ‘We pushed prices too far,’” she said. “Consumers got sticker shock.”

2. Inventories are still depressed. Demand is only part of the equation of course, and some real-estate agents say the biggest drag on sales continues to be the lack of homes for sale. While the number of listings in August was up by 20% from the beginning of the year, the supply of homes for sale is below the already-depressed levels of one year ago. “There’s just not enough inventory to justify price declines,” said Ms. Zelman.

Buyers are also being pickier today because they’re looking for a home that they can live in for a long time, said Jim Klinge, a real-estate agent in Carlsbad, Calif. “Buyers want the right house,” he said. “They’ll pay more for it, and they’ll pay a higher rate.” But if it’s not available, they’ll wait.

Data tracked by John Burns Real Estate Consulting shows that in the vast majority of the nation’s 20 top markets, demand exceeds supply. In Phoenix, new-home sales are being hindered by a lack of supply, said Mike Orr, a housing analyst at Arizona State University in Tempe, Ariz. “There’s not any new homes in the places where people want to live,” he said. “People are frustrated.”

3. This should help quiet the bubble talk. Earlier this year, some worried that the housing market was back in a bubble. Any cooling down should soothe those worries. “I was more scared of the market at the beginning of the year than I am right now, because I knew that was not sustainable,” said Greg Markov, a real-estate agent in Phoenix, a market at the center of the home-price rebound over the past year.

“People were behaving irrationally, and it set us up for more ups and downs,” said Glenn Kelman, chief executive at Redfin, the real-estate brokerage.

While incomes have been growing at roughly 1% a year, home prices have been rising much faster—by around 12% nationally. Some of this happened because home prices had fallen below their traditional relationship with incomes. But a 12% pace of growth was “simply too high and not sustainable,” said Chris Flanagan, a mortgage analyst at Bank of America Merrill Lynch in a recent report.

4. How smooth a hand-off? As rising prices ease investors out of more markets, there will be less competition for some homes, slowing the pace at which prices are going up. The key going forward is how well owner-occupant, mortgage-dependent buyers are able to pick up the slack from investors, especially in an environment where rates are rising.

Unemployment is still high, especially among younger workers who would normally be first-time home buyers. Mortgage credit remains tight, and many borrowers may already have high debt loads or irregular incomes that make them marginal candidates for a loan anyway.

When interest rates normalize, “any future improvement in housing will be entirely dependent on the jobs picture,” said Jeffrey Otteau, chief executive of Otteau Valuation Group, an appraisal firm in East Brunswick, N.J. The key, he adds, is how many jobs are being added “and are they part time temporary contract workers at the bottom of the income ladder or are they the high paying jobs we need to sustain a housing recovery?”

The answer to that question will go a long way towards clarifying how fast housing heals.

The answer to that question will go a long way towards clarifying how fast housing heals.

Story by Nick Timiraos of The Wall Street Journal

Sacramento Weekend Happenings. June 12th-14th!

		Hey Sacramento! These are just but a few of the wonderful happenings in our area! Also, don't forget! It is 2nd Saturday this weekend! Another hot spot is the Antique faire on Sunday located under the x street bridge! Have a Beautiful Weekend Sacramento! Yoli and Sharon, Your favorite Realtors!

Sacramento Real Estate on the Rebound?

As a couple of very active agents here in the Sacramento area, we will have to agree with this recent post in the New York times. Sharon and myself have been been out there in the "trenches' and have been chasing properties with our buyers. All offers have been competing against multiple bidders. For the past couple of months it has been insanely competitive and we have been educating our buyers to concentrate on homes 15 thousand to 20 thousand dollars lower than their price range. We are advising them to do this because more than often, they are going to have to outbid other buyers when placing an offer on a current and new listing. Look out Sacramento, "things are a changing!"

Here is what the New York Times has to say.

By DAVID STREITFELD
Published: May 4, 2009
SACRAMENTO — Is this what a bottom looks like?


This city was among the first in the nation to fall victim to the real estate collapse. Now it seems to be in the earliest stages of a recovery, a hopeful sign for an economy mired in trouble and anxiety.
Investors and first-time buyers, the traditional harbingers of a housing rebound, are out in force here, competing for bargain-price foreclosures. With sales up 45 percent from last year, the vast backlog of inventory has diminished. Even prices, which have plummeted to levels not seen since the beginning of the decade, show evidence of stabilizing.
Indications of progress are visible in other hard-hit areas, including Las Vegas, parts of Florida and the Inland Empire in southeastern California. Sales in Las Vegas in March, for example, rose 35 percent from last year.
“It’s fragile, and it could easily be fleeting,” said an MDA DataQuick analyst, Andrew LePage. “But history suggests this is how things might look six months before prices bottom out.”
Hope for housing was on full display in the stock market on Monday. News that pending home sales rose in March instead of falling, coupled with improved construction spending, propelled a strong rally. One broad market average, the Standard & Poor’s 500-stock index, is now in positive territory for the year, after being down 25 percent on March 9.
No one in Sacramento is predicting that local housing prices, which have been cut in half from their mid-2005 peak, are going to reclaim much of that ground anytime soon.
Instead, this is what passes for wild-eyed optimism: a belief that things have finally stopped getting worse. “A period of price stagnation would boost a lot of spirits,” Mr. LePage said.
When a market bottoms, foreclosures usually stop piling up and banks become more willing to make loans, confident the collateral backing them will not fall in value.
Nationally, signs of progress in real estate are still faint at best. Existing home sales in March were down 7 percent from last year, according to the National Association of Realtors.
The supply of unsold homes was about 10 months, a number that has changed little over the last year and is abnormally high. But first-time buyers were an impressive 53 percent of the market — and that was largely before a first-time buyer’s tax credit of $8,000 became available.
With the tax credit in place and interest rates low, the pace of sales may be picking up. The Realtors’ group said Monday that the number of houses under contract in March was up 1 percent from a year earlier. Those pending deals will be reported in the existing-home sales for April and May.
Sales volume tends to recover long before prices. In fact, some analysts think price declines in many markets are accelerating. First American CoreLogic, a real estate data firm, reported that “the depth and breadth of price declines continued to worsen in February.” Fitch Ratings recently revised its estimate of future declines to 12.5 percent, from 10 percent, saying the drop would extend to the end of next year.
Amid the uncertainty, Sacramento is drawing scrutiny as a test case. The area boomed in the first part of the decade; the population of Sacramento County increased 10 percent, to 1.4 million, as San Franciscans sought cheaper places to live.
When the market peaked and the ability to refinance all those costly mortgages dried up, the carnage began. There have been 28,898 foreclosures in Sacramento County since 2005.
Sales in the top half of the market remain slow. The Federal Reserve reported on Monday that half of all banks recently tightened their lending standards on prime mortgages. Many would-be buyers, here as elsewhere, simply cannot get financing.
Sellers, meanwhile, are reluctant to lower their prices, preferring to bide their time. New construction is nearly nonexistent.
What drives the market here, then, are all those foreclosures. Two-thirds of the 2,092 existing single-family houses and condominiums sold here in March were bank repossessions, up from 8.5 percent two years ago, according to MDA DataQuick, a real estate research firm.
These cut-rate properties are engendering the same frenzy and frustration that symbolized the boom, as Rebecca and Chris Whitman discovered when they started looking for a house in December. Ms. Whitman’s new job as an athletics director at Sacramento State required an immediate move from Chico, two hours north.
In two months the couple looked at 100 houses, nearly all foreclosures priced under $200,000, making verbal offers on 20. Only rarely did they get a response. Banks trying to unload large numbers of properties are less interested in traditional transactions with individuals than all-cash offers from investors.
As interest rates fell, the Whitmans were able to increase their price limit. They ended up buying from investors. A syndicate had bought a three-bedroom foreclosure on a cul-de-sac in eastern Sacramento last fall for $172,000, made a few improvements and was flipping it — another boom-era element that is back. The Whitmans bought it three weeks ago for $224,500.
“We think we got a good deal,” said Ms. Whitman, 31. Their monthly payment, including property taxes, will be about $1,200. Renting an equivalent house, with space for their two dogs, two cats and the baby they are expecting, would have been hundreds of dollars more.
When buying is cheaper than renting, markets begin to turn. At the current rate of sales, there is less than three months of inventory in the Sacramento market. In normal times, that would indicate a seller’s market.
Except these are not normal times. The unemployment rate in the county is 11.3 percent, the highest in decades. That will prompt more foreclosures all by itself. Furthermore, banks have lifted various processing moratoriums that lowered foreclosures last fall.
These two factors yielded a rise in the number of default notices filed in Sacramento County in March to 2,819, a record. Thousands more bank-owned houses are likely to come to market this summer and fall.
“That will stall any progress toward stability,” said Michael Lyon, chief executive of Lyon Real Estate. “The prospects for a recovery are fool’s gold.”
Mr. Lyon expects further price declines and slowing sales. But David Berson, the chief economist for the mortgage insurer PMI, argues that such bleakness from the people whose livelihood is selling houses is itself a positive sign. “Things are awful at the bottom, and we’re at the bottom,” Mr. Berson said. “No question about it. But the trend going forward should be higher sales, and that will eventually affect prices.”