Housing Bubble:Is there a new one forming?

The housing market is recovering so nicely that it has caused some to wonder whether a new housing bubble is forming. Today, we want to explain that the fear of a new pricing bubble in real estate is unwarranted.

Trulia revealed some great data on this point in a recent blog post. They explained that, even with the recent price increases, national home prices are still 7 percent undervalued. Trulia explained:

“Home prices nationally remain undervalued relative to fundamentals and much lower than in the last bubble. That’s why today’s price gains are actually still a rebound, not a bubble.”

Prices are below their fundamental value in the vast majority of the country (91 of the 100 largest metros). Even in the parts of the country that are now overvalued they come nowhere near the percentages we saw in 2006-2007. For example, let’s look at the two markets that are most overvalued today. In Orange County, California prices are currently overvalued by 9%. In 2006, prices in the region were overvalued by 71%! The second most overvalued market today is Austin, Texas at 5%. Texas real estate prices did not skyrocket as they did in many other parts of the country during the last boom. Austin prices were shown as being 12% overvalued at the time.

Again, prices are still undervalued in 91% of markets and, even in the markets that are overvalued, they are nowhere near the numbers of the 2006-2007 bubble.

Jed Kolko, Trulia’s Chief Economist, explained:

“So are we in bubble territory? No. Bubble-phobes can rest easy. Even with recent sharp home price increases, prices are still low relative to fundamentals and are far below bubble levels.”

Dr. David Stiff, chief economist for CoreLogic Case-Shiller agreed in a recently released report on prices:

“Even if double-digit price appreciation were to continue in former bubble metro areas, there is no reason to believe that new home price bubbles are forming. That’s because single-family homes in these markets are still very affordable, even after last year’s large price gains.”

Three reasons there will NOT be another bubble

Prices are determined by the ratio between supply and demand. Here are three reasons a bubble will be avoided.

1. Supply is beginning to increase. A lack of inventory is creating a market of multiple bids which has caused prices to rise. The National Association of Realtors (NAR), in their latest Existing Home Sales Report, revealed that the months’ supply of inventory has increased from 4.3 to 5.2 months since January.


2. Demand will decrease in certain demographics. For an example, investors have been a large part of the housing market over the last several years. As prices continue to rise, a certain percentage of these buyers will back off.


3. As mortgage rates increase, buyers will be able to afford less. The Mortgage Bankers Association, Fannie Maeand NAR have all projected an increase in mortgage rates over the next year. Buying power will decrease as borrowers can no longer afford the same price point as monthly payments will increase.

For these reasons, we believe the fear of a new housing bubble are currently unfounded.

 

Again, NOW is the time to BUY

Mortgage Rates Projected to Increase-BUY NOW!

The Mortgage Bankers Association, Fannie Mae and the National Association of Realtors have all projected that the 30-year mortgage rate will be at least 4% by the end of 2013. If we assume that rates will still be at 4% in twelve months, here is the difference a buyer will pay if they wait.



 

Impact of Homes Sales on the Economy

Recently the research team at the National Association of Realtors (NAR) looked at studies done by the Bureau of Economic Analysis, the Census Bureau, Macroeconomic Advisors and the Joint Center for Housing Studies at Harvard. After reviewing the data, they determined the total economic impact of a typical home sale in each state.

 

Ada vs. Canyon Counties

I found some interesting comparisons between Ada and Canyon counties.

Share of April Home Sales under $70,000    Ada   1.1%              Canyon   10.8%

Share of April Home Sales over $200,000   Ada   43.6%           Canyon   12.6%

There was very little difference between the counties on length of time a home was on the market before selling: Ada at 55 days and Canyon at 60 days, reversed for new homes with Canyon 52 days on the market and Ada 62 days.

The increase in  percent of newly built homes sold in April.

Ada   34% to 153 Homes and        Canyon up 105% to 43 Homes.

One of the most interesting tidbits to me is in comparing April 2013 to April 2012.  While Ada County's sales volume increased from 658 units to 705 units, a 7.14% increase, Canyon County's units decreased to 230 units from 266 the previous year.

And month to month median price increases were negligible in Ada county at .13%, from $186,750 in March to $187,000 in April.  Canyon County however took a pretty good hike rising form $110,500 to $124,950, an increase of 13.08%.

So we have Canyon County prices increasing with sales dropping.

Another Take My Breath Away Winner

I had to stop and take a quick photo of this take "My breath away" winner last week.

Congratulations to this Nampa winner!

Boomerangs and Zombies

Over the last few years, new words have become part of our real estate vocabulary when discussing distressed properties. Terms such as ‘shadow inventory’, ‘cure rate’ and ‘short sales’ were introduced. Other words like ‘underwater’ and ‘upside down’ took on totally new meanings.

Today, we want to add two additional words that we will be hearing often over the next year or so: ‘zombie foreclosures’ and ‘boomerang buyers’.

Zombie Foreclosures

Bankforeclosuresales.com explains the term on their website:

“A zombie foreclosure or zombie home is a property that the homeowner has abandoned and assumed the home has become the property of the lender. Essentially what happens is the homeowner leaves the property after receiving a notice of sale from the lender, and then the home is left empty until the bank acquires the property. This acquisition can take longer than desired and during the period in which the home is not yet owned by the bank, technically the homeowner is still responsible for the property.

Sometimes the homeowner thought the property was foreclosed upon and therefore became the property of the bank. However, they occasionally find out (often years later and without notification) that the bank never took possession of the property and instead the homeowner (who thought they were no longer attached to the home) is notified that they are still responsible for the property legally.”

This situation is occurring in many markets right. The impact of the resolution of this situation is still to be determined.

Boomerang Buyers

In a article late last year, the Wall Street Journal coined the term ‘boomerang buyer’ to categorize a segment of the home buying population who have lost homes to foreclosure or short sales or have gone through a bankruptcy and are again eligible for a new mortgage. There are hundreds of thousands of buyers in this category currently in the market.

Both ‘zombie foreclosures’ and ‘boomerang buyers’ will be part of many real estate conversations moving forward.

 

NATIONAL HOME PRICE INDEX THE HIGHEST SINCE MARCH 2006

National home prices in March were 10.5% greater than a year ago based on CoreLogic’s Home Price Index report. This figure included distressed sales and was only slightly lower than the 10.7% increase in home appreciation excluding distressed sales. In a month-over-month comparison, including distressed sales, home prices rose by 1.9% in March over February while excluding distressed sales, the increase was 2.4%. Mark Fleming, chief economist for CoreLogic explained, “For the first time since March 2006, both the overall index and the index that excludes distressed sales are about 10 percent year over year. The pace of appreciation has been accelerating throughout 2012 and so far in 2013 leading into the home buying season.”

Including distressed sales, Idaho ranked in the top five states that had the highest year-over-year home price appreciation in March at +14.5%. Home price appreciation in the Gem State also saw a 2.8% increase on a month-over-month comparison. Montana, Washington and Wyoming also saw increases in their home price appreciation on an annual and monthly basis when including distressed sales. Montana saw a 7.6% increase year-over-year and a 2.4% increase over last month. Washington saw an 11.6% increase from a year ago and 3.1% increase from February. Finally, Wyoming’s home price appreciation was 7.2% higher than March 2012 and 2.4% higher than a month ago.

 

Own vs. Rent

Every potential home buyer has to stop for at least a moment and consider this question. Today, we want to look at one of the many financial reasons to buy instead of rent: the housing expense moving forward.

According to the latest Existing Home Sales Report from the National Association of Realtors, the median sales price of a home in the U.S. is $184,300. The mortgage payment (principal & interest) on that purchase would be $661.89 assuming a 20% down payment and a 3.5% mortgage interest rate. Currently, the median asking rent in the U.S. according to the Census Bureau is $717 a month.

We realize that the two payments do not necessarily reflect the housing cost on a similar residence. However, that is not the point of the post. All we are saying is that the monthly housing expense on a median price home is $661.89 and the median rent is $717. We now want to discuss what will happen to these costs over time.

The principal and interest portion of the mortgage payment is locked in for the next 30 years. We know real estate taxes may be included in the payment and will increase to some degree over that time. We also acknowledge that the homeowner will have occasion to spend money on repairs. They also receive many tax advantages as a homeowner.

However, the actual monthly housing expense remains the same for the next 30 years.

Now, let’s look at what happens to a rent payment. The best thing to do to predict the future is to study the past. Here is a graph of the median asking rent since 1988 based on Census Bureau data:



We believe rents will follow their historically pattern and increase dramatically over the next 30 years. Buyers have a choice: either lock in your housing expense or deal with the uncertainty of rental increases.

 

Ada County Market Report

Single family home sales in April 2013 were 705 in Ada County, an increase of 7% compared to April 2012. Year-to-Date sales in 2013 are 2,109; up 3.8% over YTD 2012 sales of 2,033. Dollar volume for April was up 26% to $155 Mil. Days on Market averaged 55 in April. On average a home sold in nearly two week’s less time in April than in March.  For the first four months we averaged 62 days-on-market. New homes sold in April totaled 153, an increase of 34% compared to new homes sold in April of 2012.  Sales of existing homes were up 1.5% in April; reversing the trend of the first three months in which existing sales lagged behind 2012. Historically, April sales increase by 9% from March. April 2013 sales increased by 27% compared to March 2013. This is the strongest April over March sales increase since 2001.  Note: The second strongest is a tie between 2012 and 2004 (25%).  This could be a key indicator for the rest of this year. Of our total sales in April… 21% were distressed (148 total sales)….up 4% from March 2013. In April 2012, 35% of our sales were distressed.  In April 2013 44% of distressed properties were REOs (65 total sales ) and 56% were short sales (83 total sales). This is thirteen months with short sales being the larger percentage of distressed properties sold.  There were some reports in April about an increase in notice of defaults in Idaho. The only “good” news associated with that is that the number is so much smaller that it was a year ago that its not likely to have a significant effect on the overall market. Pending sales at the end of April were 1,441; up 13% from March. In general pending sales in May are the highest of the year; and June the second highest.  Pending sales at the end of April are the highest in four years! The percentage of pending sales in distress decreased 5% from March, totaling 14% overall.  Perhaps the increase in distressed properties sold in April was a “blip” and will fall back below 20% in May. Of Pending sales in distress, short sales outnumbered REO’s 1.4 to 1. At the end of April, we had 21% more sales pending than at the end of April 2012. April median home price was $187,000; up 18% from April 2012. Median home price is above $180,000 for four months running.  We continue to outpace our national recovery; according to NAR’s most recent report; national median price is $184,300, up 12% from March 2012. New Homes median price for April was $262,415; up 35% from March 2012. For Existing homes the increase is 19%.  I know of at least one builder who recently increased base price because of soaring materials costs. The number of houses available at the end of April increased 4.5% from March 2013 to 1,868.  This is 7% less than last year at this time. Since January we have increased the number of single family homes for sale by 12%.  This is what is allowing us to sustain our YTD sales increase. The overall increase in active listings continues to be driven by the addition of existing homes to the market; increasing 18%. The number of New Homes available has increased only 1%. With Existing Home’s median price up 21% YTD it’s clear that more owners are getting their relationship with their mortgage “right side up” and electing to list their homes for sale. At the same time, the percentage of distressed active listings decreased 4% to 17% overall. Last month we predicted that this indicator would be “under 20%...by the end of April”.  It’s sure fun being right about good numbers… With an inventory increasing and the percentage of distressed inventory decreasing; median home price will continue to strengthen well into 2013. Of our Distressed Inventory 82% is Short Sales (260 homes) and 18% is REO (57 homes). Available inventory decreased at all prices below $200,000. Everything above $200,000 increased in April. The price range adding the most homes to the market…$200,000 - $250,000 with an increase of 40 homes.   The number of New Homes increased by 30 in the $250,000 to $300,000 price range. In Ada County we now have three months of inventory on hand. The price category in shortest supply is <$159,999 where we have 1.5 months. All price points up to $400,000 have a <4 month’s supply. Based on April sold data, our most desirable price point is $160,000 to $200,000 which was 23.1% of total sales. The next largest price point sold is $120,000 to $160,000 at 22.9% of all sales. Coming in a strong third are the three price points between $200,000 - $400,000 which were 12% each. The category most improved is $250,000 - $300,000 which was up 35% from March to April.

 

Nothing Else Needs to Be Added

Gallup just released its poll, American Dream of Owning Home Lives On. Their conclusion?

“Gallup data on homeownership provide strong support for the idea that the American Dream of owning a home continues to be alive and well.

The majority of Americans who own a home plan on continuing to do so in the future, and most of those who don’t own a home plan on buying one.”

 

Features Home Buyers Will Pay Extra For

Some home shoppers say they are willing to spend thousands of dollars above the price of the home in order to have certain interior features.

The most coveted home features tend to center around the kitchen, such as stainless steel appliances and a kitchen island, says Errol Samuelson, president of realtor.com.

24/7 Wall St. used data from the National Association of REALTORS® to determine some of the most desired home features. Here are eight features that made the list and how much extra, on average, buyers say they’re willing to pay for having that feature in a home:

• Central air conditioning: $2,520


• New kitchen appliances: $1,840


• Walk-in closet in master bedroom: $1,350


• Granite countertops: $1,620


• Hardwood floors: $2,080


• Ensuite master bath: $2,030


• Kitchen island: $1,370


• Stainless steel appliances: $1,850

Source: “11 Home Features Will Pay Extra For,”  24/7 Wall St. (April 28, 2013)

 

Five tips for NEW home buyers!

Buying a first home can be a scary, confusing and stressful process. Many would-be buyers are understandably nervous at the prospect of making the largest purchase of their lives. Rather than diving in and hoping for the best, you should prepare carefully before you begin the house search.

Following some useful tips will help you turn an overwhelming and intimidating experience into an exciting search that yields the right home!

1.) Establishing a Realistic Price Range

A common mistake among first-time home buyers is purchasing more house than they can afford. You should not rely on banks to determine what you can comfortably spend on a new home. Banks are adept at determining the amount of monthly debt in the form of mortgage, insurance, credit card, student loan and auto loan payments. They have no way of knowing, however, what you spend each month on groceries, entertainment and utilities.

You should make a list of all monthly expenses, excluding rent or your current mortgage payment. Whatever is left after monthly expenses is the amount available for a mortgage payment and housing expenses such as taxes, insurance and home maintenance. Carefully consideration of your budget saves time by weeding out homes that you cannot afford and guards against overspending.

2.) Seeking Pre-approval

Getting pre-approved for a mortgage prevents a deal on a dream home from falling apart due to failure to obtain financing. You should compare loans from several lenders to see which one best suits your needs. A pre-approval letter will give you some power to negotiate on a home’s price because the seller will view a pre-approved offer more favorably than an offer that comes without lender pre-approval.

Keep in mind that pre-approval is different from pre-qualification. During pre-qualification, the lender estimates what you can afford. Preapproval is a more involved process in which the lender looks at your credit report and performs an extensive financial background check. At this point, you will get a good idea of the mortgage interest rate as well.

3.) Setting Priorities

You should compile a list of what you need and want in a house. Needs might include the number of bedrooms, square footage, high-quality schools and commute time. These needs are aspects of the house that either cannot be changed or cannot be changed without substantial cost to you.

Wants, on the other hand, are something you would like and that can be changed. Wants may include a pool or hot tub, landscaping, finished basement or hardwood floors. Making a list of wants and needs helps you focus on what is really important in a house, narrowing the list of prospective homes. Ideally, the new house will include all of the needs and a few wants.

4.) Choosing the Right Neighborhood

Crime statistics, insurance rates, property taxes and school quality are important considerations for you. Because the neighborhood makes up a large part of a home’s value, take your time to find exactly what suits your needs. You should also consider job commute, traffic during rush hour and proximity to amenities such as shopping, churches and libraries.

Driving through the neighborhood at various times during the day and night will provide a more complete picture of the location. Don’t forget to talk to potential neighbors, who can be a good source of information regarding the neighborhood and residents in the community. Take note that bad neighbors can bring down the value of a house.

5.) Finding the Right Home Inspector

You will also need a professional home inspection. Even new houses may present costly problems evident only to a home inspector.

You should talk to several inspectors before hiring one. You should ask about the inspector’s qualifications, scope of the inspection, how long it will take and the nature of the report you will receive at the end of the process. Main areas covered by the inspection should include quality of construction, integrity of the foundation and condition of plumbing, electrical, heating and cooling systems. If the inspection uncovers serious issues, such as cracks in the foundation, you may decide to back out of the contract or ask the seller to repair the problem.

 

Busy, Busy, Busy

Well it has been quite a while since I posted, the last couple of weeks have been extremely busy. I have had a couple of listing in that "hot" zone where as soon as it hits the MLS the phone rings off the hook and multiple offers start flowing in. It is a good problem to have but it can take up some time and energy.

I also listed a beautiful new construction home in Saguaro Canyon, I was going to post some photos of it but it is already pending. Some people took a look at it and fell in love! However,  they had a house they needed to sell, so I listed that and received an offer in a day and was able to get their offer accepted on the new construction.

Maybe I will post photos of both.

Above is that new construction home.And above is the home I sold so the sellers could purchase the new home. AND I saved them both money on commissions!  Call me, I can save you money to!