Weekly Real Estate Market Commentary

Weekly Commentary

Let’s look at a few questions raised by this past week’s indicators.

1. The Existing Home Sales report contained an announcement that completed sales had increased in April by 7.6% month-over-month—23% above last year’s reading for April. One thing is obvious: This increase was fueled by homebuyers’ wish to take advantage of the $8,000 and $6,500 tax credit available to those who signed purchase documents by April 30 (and who close their transactions by June 30). One thing was not at all obvious: According to National Association of Realtors figures, sales varied greatly in different regions of the nation. Existing home sales (month-to-month) rose by a striking 21.1% in the Northeast, by 9.9% in the Midwest, by 8.6% in the South—but fell by 6.2% in the West.

All that can be said about this at the moment is that sales began to pick up in the West far ahead of the rest of the nation, especially sales of distress properties. Further, sales of distress properties have started to drop off in the West earlier than in the rest of the nation. And it is possible that the West is in an advanced stage of recovery, in which sales move to higher price levels and the market begins to look perhaps more “normal” than in the rest of the nation. None of this adequately explains why homebuyers didn’t rush out in large numbers to take advantage of the tax credit, however. Doubtless, we will all continue to seek an answer to this puzzle.

2. The Mortgage Applications Index surprised no one by running precisely counter to the Existing Home Sales Report. It was expected that the week in which purchase agreements had to be signed would also be the week in which loan applications would begin to fall off.

However, the 27.1% decline in the number of purchase money loans (with which homebuyers finance the purchase of their homes) was unsettling. The index figure of 192.1 is the lowest the index has reached during the whole recession. But if you look at how the index responded last fall to the assumed conclusion of the initial $8,000 tax credit program, you will find a great similarity between the moves of the index then and the moves of the index now. The shouting about a deep decline in real estate sales is overdone.

3. The week also brought us small disappointments. The number of claims for unemployment insurance rose, reversing a steady decline that had lasted for the past several weeks. And the Conference Board Index of Leading Indicators, which has been an enthusiastic indication of the recovery’s strength for months, fell for the first time in a year. Yes, it was only a 0.1% decline, but it seems to signal a slight slowing to the progress of the recovery. Moody’s Economy.com has been predicting this for some time—that the economy would slow, but continue to advance. If they prove to be correct (and they probably will), the slowing isn’t a big thing.

Phoenix Home Sales Show Promising Trends

Long-Term Buyers Return
by Catherine Reagor ~ The Arizona Republic ~ May. 22, 2010

April figures for existing-home sales in metro Phoenix reveal several promising shifts for those searching for signs of a housing-market recovery.

The overall number of home sales in the region continued to hover near record levels last month.

Beneath the sales figures were other encouraging numbers:

• Foreclosures did not dominate sales of existing homes in the Valley for the first time in more than a year.

• The number of investors purchasing homes from lenders dropped.

• More buyers purchased homes with the intent of living in them.

• More buyers financed their purchases with long-term mortgages.

April sales included the last wave of first-time home buyers who rushed to buy before a federal tax credit expired. Many did not want to purchase foreclosure homes.

More than 1.8 million people nationally, most of them first-time buyers, used the tax credit to purchase homes, according to early government- and housing-industry estimates. The figures haven't been broken down by state yet, but Phoenix-area real-estate agents have seen a significant increase in first-time buyers.

The return of average buyers to the market suggests more people are buying for the long haul rather than for a quick resale. The shift away from foreclosures also means more Valley homeowners were able to sell their houses last month.

"It appears foreclosures may have finally made their downward turn," said Tom Ruff, analyst for real-estate-research firm Information Market. "The number of home sales might drop now, but prices could go up."

The uptick in first-time buyers may be temporary. But the shift from a market dominated by foreclosures and speculative buying may be more lasting.

Foreclosures and pre-foreclosures in the Valley also fell in April. So far in May, the number of bank-owned home sales is down compared with April.

Ruff calculated April's buyers and sellers through an analysis of property records. Bank-owned foreclosure homes accounted for about 33 percent of all Valley home sales last month. Foreclosures accounted for more than 50 percent of Phoenix-area home sales during 2009.

These new trends could mean there are more long-term buyers vs. short-term speculators buying homes in the Valley now, which could lead to home-price increases in the future.

Here's the breakdown of metro Phoenix's 8,955 home sales in April:

• Only 650 were new-home sales, and the median price of those houses was $213,483.

• Regular sales of existing homes totaled 5,287. The median price of these houses purchased from homeowners was $150,000.

• The remaining 3,018 home sales from the tally were bank-owned foreclosures, which had an overall median price of $106,000.

• The overall median price for all homes sales was $135,000.

• About 34 percent of all homebuyers paid cash.

• About 15 percent of all homes were purchased by investors who signed real-estate documents saying they intended to rent the property to tenants. A year ago, 20 percent of all Valley homebuyers recorded as investors. The rate was 19 percent in January of this year.

• Nearly half of the 5,953 homebuyers who financed their purchase through mortgages used Federal Housing Administration loans, which are primarily obtained by first-time buyers.

Tax credit

The federal tax credit expired April 30, so most last-minute sales for people trying to beat the deadline closed last month.

First-time homebuyers were eligible for an $8,000 credit, and existing-home owners were eligible for a $6,500 credit. Buyers had to have signed contracts by the deadline to receive the credit but have until June 30 to finalize their purchases. Those lagging home sales will show up in Valley figures for May and June.

Real-estate agents say it appears that in Phoenix, first-time buyers were the biggest group to tap the tax credit because they didn't need to sell a home to buy another. But a drop in foreclosures means regular homes will be drawing more attention from buyers. More demand for non-foreclosure homes will drive up values.

Investors

Investor purchases are dropping along with the number of inexpensive foreclosure homes for sale.

Among those investors still buying homes, some have shifted to short sales, which are recorded as regular sales and fetch higher prices than foreclosure homes, real-estate agents say.

The number of actual investors in the Valley is always higher than the number tallied on real-estate documents. Some investors fail to disclose the home is not their primary residence.

During the height of the Valley foreclosure-sales boom in April 2009, more than 60 percent of all home purchases were made by investors, according to realty industry estimates. Then, there were 8,156 home sales in the region, and the overall median price was $126,000.

Vicki Cox Golder, president of the National Association of Realtors, said there has been a change in housing-market psychology. "Buyer confidence is back, and homebuyers have long-term views," said Golder, a Tucson real-estate agent. "The typical buyer plans to stay in their home for 10 years, so we've put the flipping mentality behind us."

End of Home Buyer Tax Credit Unlikely to Deter Most Real Estate Buyers

RISMEDIA, April 29, 2010

The expiration of the 2010 Home Buyer Tax Credits on April 30th is unlikely to put off Americans looking to purchase homes who believe now is a good time to buy and are confident that home prices will rise according to a survey released by Prudential Real Estate and Relocation Services, Inc., a Prudential Financial, Inc. company. The survey of 1,000 Americans between the ages of 25-64 with at least $35,000 household income was conducted during April 15-20, 2010.

More than 90% of consumers believe that the home buyer tax credits have helped both first-time home buyers and the U.S. housing market overall. Among consumers actually shopping for homes, 65% believe that the end of the tax credits will have little or no effect on their interest in purchasing a home.

While consumers remain unsure about the direction of the housing market, the survey reveals that they are optimistic about real estate values with 46% of consumers expecting real estate prices in their area to increase over the next year. Just 12% expect prices will decline. Over the next five years, 79% expect real estate prices to increase, with 20% expecting prices to increase substantially.

“The survey underscores the key role the federal home buyer tax credits played in stimulating residential real estate market activity and the U.S. economy,” said James Mallozzi, chairman and chief executive officer of Prudential Real Estate and Relocation Services, Inc. “It also shows that most consumers believe the market has hit bottom and are more optimistic about the future.”

Survey respondents identified concerns about rising mortgage interest rates and unemployment as the most important factors affecting their decision to purchase a home, along with more stringent lending criteria and fewer mortgage-backed securities purchased by the Federal Reserve. The expiration of the tax credits placed lowest on their list of concerns. Among those who have recently purchased a home, 61% cited low mortgage interest rates as “very important” to their decisions – an amount greater than either the tax credit or even cheaper prices. The 66% expecting interest rates to rise underscores potential headwinds for the market.

“The tax credits clearly helped stimulate the market when consumer confidence was low and housing inventory was high,” said Earl Lee, president, Prudential Real Estate and Relocation Services, Inc. “While the tax credit expiration is a concern for many, the bigger issues now are the availability and cost of financing as well as if they will have a job.”

Despite the significant downturn in the real estate market, the survey underscores that the dream of homeownership and the perception that owning a home is a good investment remain intact. Among current renters, 75% still believe owning their home is a better long-term choice for their needs than renting.

The majority of consumers also believe that homeownership is a better investment than individual stocks or bonds (75%), mutual funds (72%), or savings accounts (74%).

“The real estate market is precariously balanced. Consumers are clearly motivated to take advantage of the opportunities the current low interest rates and prices afford,” Lee notes. “While the market is picking up in terms of sales and confidence, and the majority still believe that owning a home is a good investment, the outlook for the market remains highly dependent upon the direction of the economy overall.”