Article of the Day

Economists Don't Foresee Home Price Appreciation Until After 2013

12/23/2011 By: Carrie Bay

Home prices in the U.S. are expected to post a decline of 1.57 percent for the fourth quarter of 2011, after falling 0.4 percent through September, according to more than 100 economists and housing experts surveyed by Zillow.

Prices are forecast to decline until the market’s bottom is reached in late 2012 or early 2013. After 2013, the panelists expect a relatively steady annual appreciation rate of roughly 3 percent through 2016, which is slightly below appreciation rates experienced during the pre-bubble years.
“There is a consensus among the nation’s top housing experts that we have not yet reached a bottom and are instead working through a prolonged bottoming process,” commented Dr. Stan Humphries, Zillow’s chief economist.
According to Humphries, negative equity, unemployment, and low consumer confidence remain the key factors delaying a true recovery in the housing market.
Terry Loebs, founder of Pulsenomics LLC, the firm that conducts the survey for Zillow, says the latest results

suggest expectations for recovery are no longer eroding, as has been evident in past studies.
“This is encouraging,” Loebs said, “but the average survey data are still consistent with a sluggish recovery scenario where eventual price increases will be less than those thought of as normal during the years preceding the national housing bubble.”
Looking at the expected housing market performance through the five year period ending in 2016, there continues to be significant variation among the panelists regarding their individual home price forecasts.
The most optimistic quartile of panelists projects nearly 18.3 percent price growth over the next five years, while the most pessimistic quartile projects a 1.4 percent decline.
“Given the current economic climate and uncertainty around the government’s future role in housing, it’s not surprising to see such a wide dispersion in long-term forecasts,” Humphries said. “As the market starts to stabilize, we should see individual forecasts start to converge.”
In the December survey, the panelists also offered their views on last month’s increase to loan limits for Federal Housing Administration (FHA) mortgages, as well as their assessments of the likelihood that the FHA would require a federal government bailout within the next two years.
The panelists were almost equally split on the loan limit increase, with 51 percent opposed and 49 percent in favor of it. Twenty-eight percent of the 91 panelists who expressed a view indicated the likelihood of a bailout of the FHA by the federal government within the coming two years as “high” or “very high.”

Article of the Day

Freddie Mac Expects Low Mortgage Rates Through Mid-2012

12/23/2011 By: Carrie Bay 

 

Mortgage rates will likely remain very low, at least through mid-2012, according to Freddie Mac.

Rates on 30-year conforming mortgages have hovered around 4.0 percent or lower for the past quarter. The GSE says that in large part due to the Federal Reserve’s program for extending the maturity date for mortgage securities it holds. This program is expected to continue through the middle of next year.
This should keep fixed-rates for 15- through 30-year mortgages relatively low during the first half of the year, with rates edging up during the second half, Freddie Mac said in its latest market outlook.
In addition, the GSE says the Fed’s guidance that it will likely keep the target range for its benchmark federal funds rate near zero though mid-2013 ensures that initial

interest rates for adjustable-rate mortgages (ARMs) will also remain extremely low throughout 2012.
Freddie Mac also said in its outlook forecast that housing activity will be better in 2012, but not robust. The GSE says to expect fewer single-family originations but more multifamily lending next year.
Looking at the macroeconomic picture, Freddie expects stronger growth, in the range of 2.5 percent in 2012. While the national unemployment will decline going forward, the GSE expects it to remain above 8 percent through next year.
“While the headwinds remain strong going into 2012, there are indications the economy and the housing market are gaining ground, albeit slowly,” commented Frank Nothaft, Freddie Mac’s chief economist.
Nothaft says sustained and increased job growth are essential to move the recovery forward – and by that he means monthly payroll gains well above the 130,000 average seen in 2011.
In housing, Nothaft says to look for the rental market to lead the way and for some improvement in the single-family space to pop up in parts of the country.
While green shoots of recovery appear to be beginning to take hold, the industry shouldn’t set expectations too high.
“All told, next year will be another bumpy ride,” according to Nothaft.

Article of the Day

Study Finds 38% of Homes Purchased in 2011 Bought with Cash

12/23/2011 By: Carrie Bay 

Despite record low mortgage rates, 2011 has seen a surprisingly high level of cash home purchases, according to the real estate research firm Hanley Wood Market Intelligence.

Jonathan Dienhart and Ken Lee, two analysts with the company, say between tight lending standards and a desperate search for yield by investors, cash purchases of homes – particularly for distressed properties – became even more common in 2011 than last year.

The two discovered that 38 percent of homes purchased in 2011 were bought with all cash. That’s up from 34 percent in 2010, and double the 19 percent rate in 2006.
According to Dienhart and Lee, this trend is likely to continue in the near term. They note that cash-paying investors are responsible for an increasing share of home purchases nowadays as prior homeowners abandon the ownership market and head back to rentals.

Article of the Day

Housing Market Strengthening But Long Road to Recovery Lies Ahead

12/23/2011 By: Krista Franks 

The year 2011 is ending on a high note as economists anticipate some signs of recovery ahead. Prices appear to be reaching their trough, visible supply is on the decline, and banks are beginning – just slightly – to loosen lending standards, according to a fourth-quarter report from Capital Economics.

However, Capital Economics warns these positive signs do not point to an immediate recovery.
Taking into account the historic ratio between disposable income and housing prices, homes were undervalued by 23 percent in the third quarter. Homes have not been this undervalued since at least 1975.
Since 2006, prices have declined 33 percent, countering the sharp increases of the boom years. Therefore, “[it is clear that prices don’t need to fall further,” Capital Economics says.

Nondistressed home prices in particular seem to have bottomed out. While home prices declined 4 percent this year, prices of nondistressed homes fell only 0.5 percent.
Having reached the bottom, however, prices will not jump far in the new year. Capital Economics predicts national home prices will remain unchanged over the next two years before seeing positive movement – a 2.5 percent increase – in 2014.

This past year has seen some positive movement in housing inventory with a 20 percent decrease in the number of homes listed for sale over the year. However, supply will remain an obstacle moving forward as the current shadow inventory is estimated at 4 million.

Demand will also continue to be an issue. However, the report notes the market has seen a slight increase in home sales, which it attributes to first-time buyers.

Banks are contributing to rising demand and supply absorption by allowing loans with loan to value ratios of 80 percent or even slightly higher, something that has not occurred since mid-2008, according to Capital Economics.
The overall economy will not help boost the housing market in the coming year as the U.S. will continue to be affected by the euro-zone crisis.

The rental market will continue to be the best-performing segment of the market.

Article of the Day

Study: Twin Cities rank among best regions for business

Minneapolis / St. Paul Business Journal by Ed Stych, Web Producer

Date: Wednesday, December 14, 2011, 9:59am CST

 

A new study says the Twin Cities is the fourth-best region for business.

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The Twin Cities area is the fourth-best community for business in the nation, according to a new study that measures the regions with the highest concentration of business and the strength of their economic output.
Washington, D.C.; Boston; and Des Moines, Iowa, ranked ahead of the Twin Cities in the list compiled by MarketWatch, a division of The Wall Street Journal.
In the bottom 10 of the 102 largest communities in the country were five California cities, three Florida cities and two Ohio cities. Stockton, Calif., finished last.