E-Renter News

The economic analysts at Barclays Capital say that the housing market is no longer dragging down the U.S. economy, thanks to the strong rental market. They also paired economic data with the latest round of homebuilder results and decided they are more bullish on housing.

Others paying attention to economic news today weren’t as optimistic. Jobs numbers for April were disappointing, with only 115,000 jobs added. That news sent the stock market down.

Barclays analysts look to the nation’s strong rental market as proof of an improving overall housing market. Multifamily construction starts doubled over the past two years, and permits continue to be issued—an indicator that future demand and growth will continue.

Single-family housing demand is still weak, due to high inventories and lower demand—possibly due to a weaker-than-expected jobs market. But a recovery could be coming there, too. New single-family home sales were revised in March to 328,000. New home inventories dropped to 144,000 units, or 5.4 months of sales. This is lower than the average of 4.5 months before the bubble burst.

Homebuilders saw a 22% growth in orders in the first quarter, and even hard-hit areas are seeing prices begin to rise. Some economists say that housing will again soon be a boost to economic growth.

Two reports this week reveal a mixed message about the housing market in the U.S. The first, the S&P/Case-Shiller index of home prices came out on Tuesday, and reported that home prices in major metropolitan areas had fallen in February by an annual rate of 3.6%. While this figure reflects dips in some areas to new lows, it’s still an improvement over January (-4.1%).

The details reveal some bright spots and some dark ones: Phoenix, which was hit hard by the housing crisis, has posted two consecutive months of positive annual returns, and five consecutive positive monthly returns. On the flip side, Atlanta had a double-digit negative annual return of -17.3%—its fifth in a row. While only five of the 20 metropolitan areas studied had positive annual returns, 15 of the 20 saw improvements in February over January. So, while things are still down, they’re not as bad as they were.

In February, nine metropolitan areas: Atlanta, Charlotte, Chicago, Cleveland, Las Vegas, New York, Portland, Seattle and Tampa, hit new lows since the housing bubble burst.

Another report, from the Federal Housing Finance Agency (FHFA), said that home prices were up .4% in February 2012 over February 2011. This is the first time since July 2007 that this index has shown an annual gain. It was also up .3% from January to February 2012.

The FHFA numbers only include mortgages backed by the government’s Fannie Mae and Freddie Mac. These loans typically have lower defaults and foreclosure rates, so the home prices they reflect are more stable, according to economists. Still, this index is 19.4% below its April 2007 peak, and at the same level it was in January 2004.

On Wednesday, Zillow released data that indicates home values were up .5% in March over February, though still down 3.1% from a year ago. Phoenix and Miami saw strong gains in the first quarter, while Denver, St. Louis and Dallas appear to be closer to recovery. Atlanta and Chicago, along with Las Vegas and Sacramento, continue to see falling prices as a result of weaker economies, higher foreclosure rates and overbuilding.

Bloomberg reported today that as many as 1.25 million homes in America are heading for auction. They’ve been off the real estate market for more than a year, while investigators probed into leading bank’s foreclosure practices.

One expected outcome of the sudden glut of homes entering the market is a nearly 3% drop in home prices in the 20 biggest U.S. metro areas, according to a housing economist with Moody’s Analytics. Another possible result is a backslide from the economic recovery we’ve seen over the past several months. Nervous about falling home prices, potential homeowners may hold off on building or purchasing a home.

One impact on rental housing: fewer reasons for renters to transition into the home buying market should keep demand for rental housing high. In addition, the large number of foreclosed homes entering the market will mean additional opportunities for property investors to scoop up some deals on rental housing.

A March 15 report by the Federal Reserve Bank of Cleveland said that foreclosed homes held off the market for less than a year sell for about 35% below the value set by lenders. At two years, the sales price is about 60% below value. Many foreclosed properties are in disrepair and have deteriorated as they've remained vacant. Up to 25% may need to be bulldozed, according to he Cleveland Fed.

Several economists say the U.S housing market won’t hit bottom until the supply of foreclosures clears. The investigation into so-called “robo-signing” foreclosure practices merely delayed the impact for a while. Soon, we’ll have to go through it. These foreclosed properties have long been expected to go back on the market; the impact they’ll have on home prices and the economy as a whole is yet to be seen.

A new report by the National Association of Realtors points to an increase in the number of renters, as well as a transition in their demographics, in the United States. According to census data, 34% of households are now renting, compared to 29% five years ago. Not only are there more renters, but perhaps surprisingly, they’re not all young people just establishing their first households.

Proportionally, there are more renters in the 30- to 64-year-old age group. The economy, bursting of the housing bubble, foreclosures and job losses have all contributed to the increase in older renters. In fact, there has also been an increase in renters older than 65, both because that population itself is increasing, and because of lifestyle choices of this group. They are downsizing, traveling and many wish to be free from the responsibilities of homeownership.

One group is missing from the new renters: the very young. Twenty-somethings are having a difficult time getting started on their own. Many are moving home after college, and waiting until they find stable employment before leasing their own apartments. In fact, five years ago, 1 million new households were formed every year; now, that number is down to 500,000.

What does this mean for landlords? Your typical tenant is changing. What works for young people might not work for a couple in their 50s. Plus, the pent-up demand could mean a very healthy rental market as the economy continues to improve. Are you ready?

In most U.S. cities, home prices dropped in January, for the fifth straight month. The Standard & Poor’s/Case-Shiller home-price index, released yesterday, showed declines from December to January in 16 out of 19 cities.

The numbers indicate that the housing market is still suffering, despite the best winter in five years for home sales and an improving job market. Still, economists say that home prices and sales will be moving up throughout 2012. Home prices tend to follow sales by about six months—so prices should start rising in response to stronger year-over-year sales.

Home prices in eight cities are at 2000 levels:

• Atlanta
• Chicago
• Cleveland
• Las Vegas
• New York
• Portland
• Seattle
• Tampa

The steepest declines were in San Francisco, Atlanta and Portland, while prices in Miami, Phoenix and Washington, D.C. increased.

In other housing market news, Freddie Mac’s latest report says that improving economic conditions have put the U.S. housing market on the edge of recovery. In its March economic and housing market outlook, the mortgage giant says that declining unemployment, increasing rental construction and overall increasing home prices point to a stabilizing market.

New rental construction could increase to its highest point since 2005, at the present rate of activity. Foreclosures, strict mortgage guidelines and credit issues continue to push more people to rent, rather than own a home. Still, in a survey released by Fannie Mae on Tuesday, two-thirds of renters polled said they intend to buy someday.

Last week, Bank of America announced a new program that took many by surprise. Its pilot “Mortgage to Lease” program will enable some homeowners at risk of foreclosure to stay in their homes as renters.

Program qualifications:

• Homeowners must have their mortgage through BofA;
• They must be more than 60 days late on their home loan;
• With no other liens on their property, and
• A high loan balance to property value ratio.

In addition, those chosen for the program must have an income high enough to afford the rent on their former home.

The bank will be selecting homeowners to participate in the limited pilot program. Up to 1,000 homeowners in Arizona, Nevada and New York will be eligible. If the program is a success, it could be expanded. Homeowners may not apply for the program; they will be selected by the bank.

How the program will work:

• The homeowner transfers the title to their property to the bank.
• The bank forgives the outstanding mortgage debt.
• The former homeowners may lease their home for up to three years at current market rents.
• BofA will retain ownership at first, but will eventually transition ownership to investors.
• Property management companies will supervise the rental properties.

But, what happens after three years? Does the house then get sold to an investor? Do the tenants get kicked out of their home? Are they allowed to extend their lease? Can they buy their home back from BofA?

Has BofA come up with a way to earn income for three years while waiting for the market to improve, so they can sell at a profit?

New home sales slowed a bit in February from January. Sales of new homes dropped 1.6% to a seasonally adjusted annual rate of 316,000. January’s figure was revised from 321,000 down to 318,000.

Many economists had expected a rate of 330,000. It appears that the number of foreclosed homes on the market continues to plague new home sales, and will continue to be a drag until those inventories are depleted.

Regionally, differences in home sales were dramatic. Northeast sales jumped 14.3%, while the West sales gained 8%. However, in the South, sales dropped 7.2%. Warmer weather could have contributed to the Northeast’s performance, while in the South, weather was not a factor.

Median sales prices jumped 8.3% in February to $233,700, which is the biggest rise in 14 months, and the highest level since last June. Median prices rose 6% over February 2011.

As for existing home sales, the National Association of Realtors said this week that sales fell from January to February, but were up 8.8% compared with February 2011. Existing home prices were also up year-over-year, for the first time since November 2010.

This week, Bank of America announced a plan to help delinquent homeowners avoid foreclosure, by turning over their title and renting their home from the bank for up to three years at or below market rates.

Are homebuilders betting on a stronger market coming up soon? New data released today seem to indicate so. The U.S. Commerce Department said that builders broke ground on fewer homes in February, but requested lots more building permits, which could mean increased activity a year from now.

Housing starts were down to a seasonally adjusted annual rate of 698,000 homes last month. That’s a 1.1% reduction from January’s revised level of 706,000, which was the highest since October 2008. But permits jumped 5.1% to 717,000, to the highest level since October 2008. And two-thirds of permits requested were for single-family homes, while the remaining one-third are for multifamily housing.

While the pace of construction is barely half of what is considered to be a healthy rate, economists see good news in this figure, along with builder confidence, which has increased in five of the last six months.

New homes are only about a fifth of the overall housing market, but construction of new homes is an economic indicator, since each home built creates an average of three jobs for a year, and generates about $90,000 in taxes.

Builders continue to struggle to compete with a high inventory of homes for sale, foreclosed homes coming back on the market, and low prices on existing homes. Still, brighter job numbers and low mortgage rates are sparking interest in new homes.

Patrick Newport, an economist with IHS Global Insight, said he expects to see a better year for home construction this year, with about 745,000 starts. Two-thirds are likely to be apartments and condos, to meet demand that’s been building as young people begin to transition from living with their parents to moving out on their own.

The National Association of Home Builders reported its builder sentiment index for March is the same as February’s revised rating of 28. The leveling-off followed five straight months of increases to the highest level it’s been since June 2007. Some economists had predicted a reading of 30 for this month.

Builders expressed higher confidence in sales for the next six months. That separate index rose from 34 to 36, for the sixth straight month.

Builders continue to struggle with competition from foreclosed homes, which have driven demand for new homes down. Home prices continue to fall in many markets, forcing builders to slash prices, as well.

Other issues facing home builders are slow sales of existing homes and low appraisals that affect completion of new sales contracts. Many people are canceling deals after receiving a low appraisal on their existing homes, or holding off on new home contracts because they can’t sell their current home.

Overall, it looks like builders remain cautious but have a sense that many local housing markets are starting to move forward, and prospects for future sales are good. Still, an index of 28 is well below the 50 mark, which is where negative sentiment about the housing market turns positive.

The next housing market indicators to come are new home construction on Tuesday, existing home sales on Wednesday and new home sales on Friday.

According to a story in the Los Angeles Times, new data show high demand for rental housing is an early indicator of a housing market recovery.

We’ve been reporting for months that the foreclosure crisis was creating new households of renters, who are putting a squeeze on markets where little to no new construction is taking place.

A stronger job market is also contributing to demand for rental houses and apartments, as the newly-employed are able to move into their own housing, rather than doubling up with roommates, family or friends. A third group is limited to renting by difficulties in obtaining a mortgage, due to stricter lending guidelines.

The chief economist of Zillow, a real estate website that tracks rental housing and home sales, said that while home prices declined 4.6% nationally from January 2011 to January 2012, median rents actually rose 3% in the same period. In California, some markets saw flat rents, while Orange County rents increased 13.2% in the one-year period. One factor for Orange County’s big jump is a stronger employment market—unemployment there is 8%, compared to 11.8% in Los Angeles.

Other economists speculate that rising rents are a result of damaged credit from the housing crisis, which can mean tenants are required to pay a premium to secure a lease.

Investors are buying up foreclosed properties, including a recent announcement of a $450 million fund established by Carrington Holding Co. of Santa Ana, which is intended to buy distressed single-family homes to convert to rentals And the Obama administration is ready to make good on its plan to sell large pools of foreclosed homes owned by mortgage giant Fannie Mae, with the intention they will become rental housing and help to stabilize housing markets. About 2500 homes owned by Fannie Mae were recently listed for sale in some of the hardest-hit markets in the U.S.