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: When estate vaues rise again, tax bills liely to rise faster

When real estate values rise again, tax bills likely to rise faster

By Loretta Kalb
lkalb@sacbee.com

Published: Tuesday, Aug. 23, 2011 - 12:00 am | Page 1B

Hundreds of thousands of Sacramento-area residents have experienced one upside of falling real estate prices: lower property taxes.
When the market recovers, however, their tax bills could rise much faster than they fell.
That's because the normal limits on tax increases established by Proposition 13 no longer apply as long as a property's assessment remains below its maximum taxable value, generally its last sales price plus annual inflation.
In good times, Proposition 13 allows the assessed value of a property to rise by no more than 2 percent a year – even though the actual market value may have gone up much more. There are no such limits on properties worth less than taxable value.
How much could taxes rise?
That's not a question people are in hurry to ask. Home prices in the region are about 50 percent below the peak of 2006, and most resales in the Sacramento market are bank-owned or short sales. Recovery still seems out of reach.
Real estate sales data so far signal that property taxes will likely go down again, or remain flat, for the 2012 tax cycle, said John Solie, assistant assessor for Sacramento County.
When taxes do rise later this decade, the shock to owners will depend on the pace of recovery. In a slow upswing, owners might not notice, at least, not right away.
Over time, however, the shift to higher taxes is likely to produce a slew of appeals, assessors say.
"After the last recession we were going into a real estate market that was increasing 10 to 20 percent a year," Yolo County Assessor Joel Butler said. "People really felt it, and they talked to us about it.
"This recession is so different than anything we've ever experienced. I don't see us coming out like a lion, as we did last time."
In the 1990s, when the real estate market took a long dive, nearly a third of all Sacramento County properties had lowered assessments.
This time, the share exceeds 40 percent in Sacramento County, and it's still climbing.
Already in the four-county region – Sacramento, Yolo, Placer and El Dorado – the volume of reduced-tax properties exceeds 300,000.
"This is pretty unprecedented for property taxation since Proposition 13 passed, in any number of ways," said El Dorado County Assessor Karl Weiland.
"We've had three (significant) years of negative values," he said. "That has never happened."
Weiland said he believes assessors will take a conservative approach in restoring taxable values.
"This has been a topic of discussion among all assessors," Weiland said. "We're simply trying to formulate some idea as to how we're going to deal with this.
"Everybody is scratching their heads and saying, 'OK, we've dealt with the decrease in values, and we've followed the market down. Now we've got to figure out how we follow the market up."

Read more: http://www.sacbee.com/2011/08/23/3854636/when-real-estate-values-rise-again.html#ixzz1VzEh0010

If you live in the Greater Sacramento and surrounding areas, and would like a current estimate of value on your property, email us with your address, and we will be happy to send you copy based on Metrolist.  (same stats that appraisers use)

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.”

California Market Flash For The Month of July

JULY MARKET FLASH

SUMMER IS A-COMIN’ IN

Intro: Spring’s enthusiasm was certainly a relief from the gray, congealed market of last winter. As spring moves into summer, we don’t know quite what to expect—far, far too many factors are in play to encourage confident prediction—but we do know this: those who are prepared will profit most from whatever direction the market does take. Read on.

Statistics:

Statewide: The median resale price of a single-family detached home in California for May was $384,840, a decrease of just over 35 percent from May 2007 and almost 5 percent from last month. Unsold resale inventory represented an 8.4-month supply, compared to 10.7 months for the same period a year ago. Median number of days till sale was 50 in May, almost unchanged from 51 in May 2007.

County Statistics: (Med = median, Ac = activity, MOM = prior/this month, YOY = prior/this year)

	CurrMed	MedMOM	MedYOY	CurrSls	AcMOM	AcYOY
Alameda County	$475,000	0.26%	-19.18%	1,186	-4.35%	-27.28%
Contra Costa County	$387,000	-2.03%	-34.41%	1,206	-4.66%	-11.71%
El Dorado County	$365,000	-3.69%	-25.05%	191	24.84%	40.44%
Marin County	$899,000	12.38%	5.76%	200	-7.41%	-44.29%
Monterey County	$350,000	-6.73%	-41.67%	232	9.43%	n/a
Napa County	$474,000	-4.24%	-24.16%	92	-8.00%	-17.86%
Nevada County	$360,000	-16.28%	-21.74%	97	5.43%	n/a
Northern California	$337,870	-2.42%	-12.44%	n/a	n/a	n/a
Placer County	$338,000	-3.29%	-20.47%	489	-1.01%	32.88%
Sacramento County	$225,000	-3.02%	-35.53%	2,028	10.16%	116.90%
San Benito County	$332,500	-12.90%	-43.64%	40	-13.04%	17.65%
San Francisco Bay	$517,000	-0.19%	-21.67%	6,216	-1.49%	-23.07%
San Francisco County	$799,500	4.24%	-4.25%	484	-20.00%	-21.43%
San Mateo County	$699,500	4.40%	-13.64%	444	-22.51%	-41.81%
Santa Clara County	$630,000	0.08%	-12.50%	1,173	-18.54%	-46.17%
Santa Cruz County	$543,750	-9.98%	-24.79%	156	2.63%	n/a
Solano County	$300,000	-6.25%	-31.66%	440	2.56%	-7.56%
Sonoma County	$414,000	0.12%	-20.31%	409	-7.47%	-29.24%
Yolo County	$308,750	2.07%	-27.35%	212	34.18%	89.29%

Alameda County: Though down from December, median held up for the month of May. This market may be reaching a price point that’s attractive to the general prospect, since May sales almost equaled April’s surprising surge and are more than double the recent low in January.

Contra Costa County: Median lost a sliver this month and continues at less than two-thirds of its recent record in June 2007. Sales are at levels not seen in the last year, driven by sales of steeply depreciated homes in attractive neighborhoods.

El Dorado County: Sales have exceeded the August 2007 peak of 185 and seem poised to crack 200. Median has lost roughly $100,000 in the last year but has more or less stayed stable since the beginning of this year.

Marin County: Sales seem to have shaken off winter doldrums and returned to the level of fall 2007. Some constraint is exerted by the region’s lowest proportion of foreclosure sales, about 6%, and by still-restricted availability of jumbo mortgages. Median has surged to within a hair of $900,000, but we must remember that Marin’s median has been relatively bulletproof in the current crisis; historical low of $750,000 came in January 2006, and since then it’s scarcely been below $800,000.

Monterey County: Median has shrunk by almost half in a year—from $600,000 last June to $350,000 today. But how much of this is depreciation and how much is due to high-end properties not moving the way they once did, we’re not sure. On the other hand, sales are now at their highest point in our records after essentially doubling since January.

Napa County: Sales have recovered from January’s scary low of 37 and are now flirting with the triple-digit levels of last summer.

Nevada County: Sales have a way to go to match last summer’s levels, but have been increasing without pause since January. Median was holding up well as recently as April, but then declined by $70,000 in May.

Placer County: Consistent sales of almost 500 demonstrate a welcome recovery from last September’s 216. Median, after being essentially flat for the last half of 2006 and first half of 2007, has declined steadily for the last year and lost a little over $80,000—possibly converging on a new price stability along with the rest of the Sacramento Region.

Sacramento County: Current median of $225,000 is the lowest we’ve ever seen, but the resulting affordability seems to be provoking a recovery. From a low of 751 in January 2007, sales have nearly tripled as of last month and doubled in the last four months. Perhaps prospects and buyers (largely investors) will push Sacramento out of its slump.

San Benito County: After a recent sharp rise, sales have regained the levels of 18 months ago, though median has fallen by a third in the last year.

San Francisco Bay: The Bay Area enjoyed a $660,000 median all last summer, but has fallen $150,000 since then. On the other hand, sales have risen by 50% since February.

San Francisco County: May sales declined about 20% from an April peak but are still at last fall’s levels, even with relatively few foreclosure sales. Median has been climbing steadily since December and is now, again, happily knocking on the door of $800,000.

San Mateo County: Median is down by about $100,000 in the last year. One figure or the other may improve in the near future, but the market must recover more generally for both to improve at once.

Santa Clara County: Even after a slight retreat in April, sales are double what they were in January. As jumbo loans become more available, this situation will improve further. Median has only dropped by about 10% in the last year.

Santa Cruz County: Sales almost doubled between March and April, then built on that gain in May. But a decline of $60,000 in median for the month means a loss of $180,000 for the year. This county is looking a lot better than it did over the winter and there’s hope it will regain the eminence it enjoyed when the market was hot.

Solano County: Sales have nearly doubled in the last three months, driven by foreclosure resales accounting for almost 60% of transactions. On the other hand, median has declined by a third since March 2007. Like many rural counties, Solano will probably participate strongly in the general recovery when it comes.

Sonoma County: Three months of increases have at least brought the median back above $400,000 and a sustained increase in sales has brought activity back to the levels of last summer. Sonoma, together with Solano and Contra Costa counties, is an affordability champ for the region this month. (And incidentally, Sonoma city took CAR’s Most Improved Median in May with a 61% improvement year-over-year.)

Yolo County: Yolo’s loss of over $110,000 in median for the year makes it look superficially like a lot of other counties—but exciting things are happening in the shorter term; since January, sales have doubled while median has actually increased. Happily, this county will have its share in the greening of greater Sacramento.

Interest Rates: 30-year fixed, 6.26%; 15-year fixed, 5.78%; 30-year nonconforming, 7.32%. A spread of more than 1% between 30-year fixed and 30-year jumbo underscores the difficulty of finding loans appropriate to California’s coastal markets. 5/1 ARM is exactly the same percentage as 30-year fixed, which is one reason (the other being borrower wariness about resetting loans) that the proportion of new 5/1 ARMs in the market is dropping.

During the third week in June, Freddie Mac was deeply concerned that if rates rose even slightly on conforming loans, sales would slow drastically as prospects had less incentive to look for bargains. Since then, pressure has eased as 30-year fixed has backed off about 20 basis points, but we all know that’s only a breather. Affordability in Northern California is still so fragile that if inflation—or, for that matter, Federal Reserve conservatism—kicks rates higher, the market’s current guarded optimism may collapse again. Cross your fingers.

Inventory: What you see is what you get. Availability now is unpredictable depending not only on location, but on the type of buyer (first-time, move-up, rental property, overseas) who may be interested in the specific area. Foreclosures are flooding some neighborhoods with properties, but hardly touching others. Overall, inventories still won’t be one of your major concerns, but they’re bound to figure into your calculations more than they did six months ago.

Overall Assessment: Optimism feels so good and for the first time in months, we’re feeling optimistic! Bargains abound, especially in areas away from the coast. The Bay Area’s average monthly mortgage amount has shrunk by 30% since its recent peak two years ago. Thirty year fixed mortgage rates were inching up for a while, but now seem to be retreating towards 6% rather than lunging for seven. In many parts of Northern California, for the first time in years, an attractive home can be called affordable. Remind your prospects of a contradiction that works in their favor: right now they may be facing a very brief opportunity to purchase a home that will suit them for a very long time.