A Good Week for Housing

monopoly-houseThe housing recovery showed signs of strengthening this week, as two new reports showed home sales and prices on the upswing.

Existing-home sales have soared nearly 8 percent from a year ago, the National Association of REALTORS® reported this week. Meanwhile, the new-home market also is showing signs of recovery, with starts rising 29.1 percent over year-ago levels, according to the Census Bureau.

What’s more, home builders are getting more confident about the market with recent sales, future sales, and buyer traffic. Homebuilder confidence reached its highest level since the housing-boom time of June 2006, according to this month’s index of homebuilder sentiment.

Also this week, fixed-rate mortgages this week were at all-time record lows or near it, helping to keep home buyer affordability high, Freddie Mac reported in its weekly mortgage market survey.

With a drop in inventory of for-sale homes nationwide, many markets are also seeing an increase in home prices. The median home price is $187,400, a 9.5 percent increase over year-ago levels. Also, “that marked the sixth consecutive month of price increases, the first time that has happened since May 2006, near the very peak of the housing price boom,” CNNMoney reports.

“We have a real housing recovery taking root, and that has positive implications for the broader economy,” Sal Guatieri, senior economist at BMO Capital Markets, told the Associated Press. “If home prices continue to rise, so, too, will household wealth and consumer confidence.”

Source: “Housing Recovery Blossoms,” CNNMoney (Sept. 19, 2012) and “Housing Recovery Stirs in August,” Associated Press (Sept. 19, 2012)

Harvard University: Echo Boomers to Drive Recovery

HarvardThe Joint Center for Housing Studies of Harvard University just released their annual State of the Nation’s Housing 2012. In the report, Harvard explained that, starting this year and continuing over the next twenty years, the echo boomers (born in the late 1970s and early 1980s) will drive the housing market.

“After several false starts, there is reason to believe that 2012 will mark the beginning of a true housing market recovery.”

As we reported in our InfoGraphic on Friday, adults under the age of 35 have decided to stay at home with their parents instead of purchase their own home. As the Harvard report states, it is not because they don’t believe in the value of homeownership:

“Although young households have increasingly opted to rent in recent years, most still aspire to homeownership. The late-2011 Fannie Mae National Housing Survey found that 86 percent of renters aged 18–34 believe they will ultimately own homes. In addition, close to 70 percent of respondents to both the Fannie Mae survey and the University of Michigan Survey of Consumer Attitudes felt that it was a good time to buy. In fact, the monthly mortgage payments for the typical home currently compare more favorably to rents than at any time since the early 1970s.”

The report projected the impact of these echo boomers over the next two decades

Over the next 10 years…

“… the most important drivers of household growth are the size and age structure of the adult population. Assuming the economic recovery is sustained in the next few years, the growth and aging of the current population alone— including the entrance of the echo boomers into adulthood— should support the addition of about 1.0 million new households per year over the next decade.”

Over the next 20 years…

Over the next 20 years, the echo boomers have the potential to spur new home demand to an even greater extent than their parents did beginning in the 1970s. The good news for housing production is that this new generation already outnumbers that of the baby boomers at the same ages. With even a modest lift from immigration, the echo-boom generation will grow even larger as its members move into the prime household formation years.”

As housing affordability reaches historic lows, we believe more and more of the echo boomers will take the plunge into homeownership

by Steve Harney

Housing recovery optimism outpacing market reality [SURVEY]

dreamTrulia Chief Economist, Dr. Jed Kolko notes that renewed optimism is not without reason, but the pendulum may have swung to far as expectations do no meet the market’s reality.

Trulia’s American Dream Survey

Trulia released the results of its American Dream Survey Wednesday, tracking American attitudes toward homeownership since 2008, revealing that 58 percent of Americans think prices will return to their peak within 10 years, 78 percent of renters plan to buy someday, and interest in supersized homes (3,200+ sf) nearly doubled in the last year.

Trulia’s Chief Economist, Dr. Jed Kolko projects that at its current pace of recovery, the housing market will be back to pre-recession normal by 2016, as will the turnaround rate for renters waiting to become homeowners.

Despite recent reports that the recession cut Americans’ net worth in half, Dr. Kolko reports that there is renewed optimism “for a good reason,” even if there are unrealistic price expectations in the market, particularly in the hardest hit areas. The top three key optimism drivers for consumers are lower foreclosures and delinquencies (which have dropped 24 percent from its worst point during the recession), increased sales (up 10 percent in the last year), and lower vacancy rates (rental vacancies have hit ten year low).

“Optimism is essential for housing recovery,” said Dr. Kolko, “but too much optimism could lead to next bubble. Right now, optimism is outpacing the reality of what is on the market.”

Optimism outpacing the market realities

Trulia reports that sales prices of homes on their site have risen quarter over quarter in 86 of the 100 largest U.S. metros as of May, and cites that 61 percent of Americans believe home prices in their local market will rise in the next year.

“American’s hope for a real estate market bounce-back may be too high,” the company reports. “Even though prices in many markets reached unprecedented and unsustainable levels during the boom, 58 percent of Americans believe home prices in their local markets will return to their previous high in the next 10 years.”

Supersize me

During the recession, Americans got quite realistic about what their next home looked like, and as housing shows signs of improvement, even though slight, the affinity for big homes is on the rise.

According to the survey, more than one in four Americans who believe home ownership is part of achieving their personal American Dream said that their ideal home size is over 2,600 square feet – up from 17 percent in 2011. In fact, interest in homes of more than 3,200 square feet nearly doubled in the last year from 6 percent in 2011 to 11 percent in 2012.

Dr. Kolko noted that “developers are on top of this trend and are responding” by increasing the size once again of new homes being built. We have not seen a dramatic increase in the size of homes built this year, but Dr. Kolko points out that builders are shifting their plans.

Starter home reality check

Homeownership remains central to the American Dream. Fully 72 percent said owning a home is part of achieving their personal American Dream, and the number of renters saying they’ll never buy a home has fallen.

This take us back to unrealistic optimism, as future homeowners were asked what would make them fall in love with a home if they were in the market for a home today. The top amenities were a master bathroom (62 percent), walk-in closet (56 percent) and gourmet kitchen (50 percent), but only 26 percent of homeowners said that they had an en-suite master bathroom in their first home, while just 35 percent had a walk-in closet and 9 percent had a gourmet kitchen.

It is our assertion that these expectations could be set not only by optimism about housing, but with the improving multifamily units coming online, as renters in many markets are getting used to luxury amenities, and wishing for them in their first home. Additionally, overall optimism is naturally fueled by the bargains being found in short sales and foreclosures, setting consumers’ expectations high that they too will get a good deal, then wait out the recovery to gain equity.

Returning to normal by 2016?

“As the economy recovers, people are dreaming bigger, but most won’t realize their dreams anytime soon,” said Dr. Kolko. “Few homebuyers – and even fewer first-timers – can afford 3,000 square feet and a gourmet kitchen. Buyers need to take a hard look at what they can actually afford, and give themselves some cushion in case a Euro crisis or federal budget battle pushes us back into recession.”

Trulia reports that a year ago, housing was at 20 percent of its normal, pre-recession rate, which has risen to 37 percent this year. At the current pace, Trulia predicts a housing recovery, or a return to “normal” to be achieved by 2016, but cautions that the hardest hit cities like Las Vegas may not match the national norms.

Additionally, 78 percent of renters plan to buy someday, but when exactly is “someday” for them? New data from Freddie Mac reveals that 1.5 million households moved to rental units in the last year, and as rents rise, vacancies continue to drop, so how will the market recover as we become a renter nation?

Dr. Kolko tells AGBeat, “Credit is still tight and rising rents are hurting renters’ ability to save for a down payment. Recovery is several years away, and the turnaround rate [for renters to become homeowners] is closer to 2016 as well.”

American Dream Survey

Below are some of the key findings of Trulia’s American Dream Survey:
fuel of optimism Housing recovery optimism outpacing market reality
price stabilization Housing recovery optimism outpacing market reality
supersized homes Housing recovery optimism outpacing market reality
disparity Housing recovery optimism outpacing market reality
dream home amenities Housing recovery optimism outpacing market reality
when buying Housing recovery optimism outpacing market reality
prices rising Housing recovery optimism outpacing market reality
barometer Housing recovery optimism outpacing market reality
recovery Housing recovery optimism outpacing market reality

About the survey: Harris Interactive conducted this online survey on behalf of Trulia among 2,205 U.S. adults, age 18 and over, between May 22 – 24 and among 2,230 U.S. adults, age 18 and older, between June 4-6, 2012.

by AGBeat

Will 2012 See a Housing Turnaround?

Despite mixed results in the housing sector, many homebuilder stocks are outperforming the overall market by a large margin.

A new report released Thursday showed that U.S. housing starts in December were worse than expected, posting a 4.1 percent decline after rising 9.1 percent in November.

On the other side of the spectrum, the National Association of Home Builders (NAHB) announced last week that its housing market index beat expectations and rose to its highest level in 4 and a half years.

Following last week’s positive news, the PHLX Housing Sector Index closed at an 11-month high of 117.56.

Could all this be perceived as the dawn of a recovery for the country’s battered housing market?

The verdict is still out. Confidence remains low from a historical perspective, although the numbers show the HGX is off to its best start ever this year — up more than 14 percent.

Nonetheless, the HGX has ended four of the past six years in negative territory, witnessing its worst loss in 2008 when the index closed down more than 40 percent.  Will this be the year of a turnaround in housing?

Will 2012 See a Housing Turnaround?” was provided by CNBC.com.

What home feature adds $43,000 to its price, what reduces it by $24,000?

The average new home is 2,150 sf

In a Southern suburb, a home’s value increases by around $43,000 by having a third full bathroom in a single family home, according to the National Association of Home Builders’ updated home price estimator and economic model that compares the four regions in America to enable home buyers, home builders, home owners and developers to compare the impact of physical features on a home’s price.

The results of the national economic model are interesting – the “standard” new single family home has 2,150 square feet, has three bedrooms, two and a half bathrooms, garage, fireplace, central air, separate dining and three miscellaneous rooms in a neighborhood where groceries are within 15 minutes from the home.

New home prices are typically higher in the Northeast and West than the Southeast and Southern regions and the lowest prices tend to be outside of a metro area, but according to the NAHB, “In general, the estimator finds that suburbs show higher prices than their companion central cities, which include the areas inside the city limits and not just a central business district or downtown area.”

How features impact a home’s price

Take for example a standard new home in a suburb in the South- it costs on average $203,874. Put that home on the waterfront and the price jumps by $90,000. Put the home near public transportation and you add another $26,000. Add 500sf of living space which adds an average $13,000 to the home price, but adding another bedroom or miscellaneous room adds less than $10,000 in value.

What can hurt a home’s price? Take out that fireplace of that Southern suburban home and you’re looking at reducing a home’s value by an average (and shocking) $24,000. Foreclosures are having an impact on home values without a doubt- an abandoned building within half a block knocks $28,000 off of a home’s value. Without shopping nearby, metal bars on windows, poor roads or bad smells can hurt a homes value by more than $6,000.

Cheat sheet:

Below is an easy to read summary of the information above (remember, all of this serves as an example of a Southern suburb for illustrative purposes). Visit the NAHB’s home price estimator and economic model to learn more about feature values in your market.

  1. The average new single family home has 2,150 square feet and is a 3/2.5.
  2. The average new home has a garage, fireplace, separate dining and three miscellaneous rooms.
  3. The average new home is in a neighborhood where groceries are within 15 minutes.
  4. A full third bathroom adds $43,00 to a home’s value.
  5. The average new home in a Southern suburb is $203,874.
  6. Being waterfront adds $90,000 to a home’s value.
  7. Being near public transportation adds $26,000 to a home’s value.
  8. Adding 500sf of living space adds $13,000.
  9. BUT, if that extra space is a bedroom or miscellaneous room, it adds under $10,000.
  10. Removing a fireplace reduces home values by $24,000.
  11. An abandoned building within half a block reduces a home’s value by $28,000.
  12. Without shopping nearby, metal bars on windows, poor roads or bad smells can hurt a homes value by more than $6,000.

See what you can get in Bellevue.

America’s Housing Report Card: Where does your state rate?


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