E-Renter News

We’ve been reporting that the housing market is expected to improve in 2012, and it’s already showing some positive signs. Several reports this week indicate a market turnaround, as the one thing holding homebuyers back—continued high unemployment—appears to be easing. Combined with rock-bottom interest rates and low prices, better job numbers could be launching a recovery as we speak.

• CoreLogic released its MarketPulse report yesterday, saying that there is “a lot to be positive about” for 2012.
• The National Association of Home Builders reported that builder confidence rose to 25 in January. This is up from 21 in December—and it’s the highest level since June 2007. The confidence measure is up four months in a row.
• First-time claims for unemployment dropped by 50,000 in the week ending January 14 to 352,000—the lowest level since April 2008. The figure was below the 384,000 average forecast of 41 economists in a Bloomberg News survey. December jobless claims were at their lowest level since 2008.
• Freddie Mac’s U.S. Economic and Housing Market Outlook survey reported year-over-year home sales this year are expected to rise from 2 – 5%.
• The Mortgage Banker’s Association issued a new report in which 80% of households said now is a good time to buy a home. Only 7.6% of respondents said that now is a good time to sell.

The bottom line is that we may be right at the bottom of the housing dip, and now could indeed be a great time to add to your real estate investment holdings.

The contents of this article are intended for general information purposes only, and should not be relied upon as a substitute for obtaining financial investment advice applicable to your situation.

The third-largest U.S. homebuilder, Lennar Corp., announced today their third straight quarter of increased orders, and said the housing market is “bottoming out.” For the September to December period, Lennar saw a 20% increase to 3,027 new home orders.The news sent the Miami-based company’s shares up, along with other homebuilders, such as KB Homes PulteGroup and DR Horton.

Interestingly, a spokesperson said that high rental rates are to blame—or to thank, as the case may be—for the jump. Low prices and historically low mortgage rates were also helping consumers choose buying over renting, he indicated.

Lennar also reported:

• Net income of $30.3 million for the quarter, the company’s seventh straight quarterly profit.
• The average home’s sales rice rose to $243,000, up from $238,000 in the same period of 2010.
• The company’s backlog increased 35% to 2,171 homes.

Meanwhile, KB Homes, the country’s fifth-largest homebuilder, said their orders in December increased by 38%. Securities analysts were impressed with both companies’ performances, as they expected Lennar’s growth to top out at about 6%.

Other signs that the housing market is stabilizing:

• Pending home sales are at their highest level since April 2010.
• Homebuilder optimism has risen for three straight months.
• Housing prices could now be at or near the bottom, according to JPMorgan Chase CEO Jamie Dimon.
• Employment numbers are starting to increase, with an additional 200,000 jobs in December.

Homebuilders are an economic bellwether. While new homes represent only one-fifth of the market, each new home generates about $90,000 in taxes and creates an average of three jobs, according to the National Association of Home Builders.

And if homebuyers are starting to become active again, landlords should plan accordingly. Later in 2012, it may be time to maintain rents and offer good tenants incentives to renew leases.

After several years of booming construction, sales and increases in home prices, the housing market did a 180° turn from 2009 to 2011, and falling values, historically low interest rates and increasing foreclosure activity became the norm. But has the end of the toughest housing market in decades finally reached its end?

Of course, the answer depends on whom you ask. Economic experts are always making predictions. Based on indicators such as unemployment rates, factory productivity, retail merchant sales, construction spending, and of course, new residential sales and construction, they can predict what 2012 will bring in the housing market.

According to several economists, the market should begin to pick up in 2012, especially if jobs start growing again. Europe’s debt problems are an unknown, and could even tip the economy back into a recession, according to an economist with IHS Global Insight. Otherwise, the economy should grow at a rate of about 1.6%.

Prices should continue to decrease through 2012, as foreclosures begin to ramp up and distressed properties flood the market. Lower prices hurt sellers, but homebuyers could likely benefit from low-priced properties through the end of 2012.

Another economist, from the National Association of Home Builders, predicts that home construction will not return to “normal” levels until 2015, due to widespread job uncertainty. In 2012, builders are expected to to construct only about 40% of the units needed to keep up with population growth. By 2013, that rate should increase to about 60% of normal. The U.S. population grows by about 3 million a year, so the housing market needs about 1.5 million new homes per year. But builders won’t ramp up to that level until mid-2013, o4 2014, according to the IHS Global Insight economist.

Multifamily construction, however, is on the rise, in response to a high demand for rental housing. Millions of Americans abandoned homeownership and turned to renting, as the homeownership rate dropped from 2004’s 69.2% to 66.3% in the third quarter of 2011.

Did we hit bottom? Probably. Economists are saying that while the housing market should begin to see some activity in 2012, a significant rebound is not likely this year.

So, just what is going on in the housing market? The National Association of Realtors (NAR) realized this week it’s been overstating existing home sales. Instead of 20.6 million existing home sales from 2007 to 2010, there were actually 17.7 million homes sold. More surprising is that, in explaining the revisions, an economist for the NAR said, “from a consumer’s perspective, only the local marketing information matters.”

Oh, really? This widely reported and closely watched data affects any number of economic indicators, along with interest rates, investments and plans made by businesses and individuals. Consumers are greatly affected by this data.

Apparently, the data reported by the NAR started differing from independent researchers about a year ago. The way the NAR collects and analyzes data was reassessed and the group met with government and private housing experts and mortgage companies, along with CoreLogic, a data firm that first raised questions about the NAR’s sales figures.

The result of this revelation is that all of the experts are realizing that the housing market has been worse off than previously thought. But, the number of houses available for sale was also revised downward, so while sales numbers dropped, inventory did as well—meaning supply and demand didn’t change.

The NAR blamed the discrepancy on a number of factors, from more builders using the MLS service, which inflated sales figures, to regional overlap where more than one MLS system lists the same property.

Revisions by year:

• 2007    down 11% to 5.04 million
• 2208    down 16% to 4.11 million
• 2009    down 16% to 4.34 million
• 2010    down 15% to 4.42 million

After revising November’s housing market index from 20 to 19, the National Association of Home Builders reported it reached 21 in December—the highest point since May 2010. Despite the November revision, the index still increased for three straight months. It hasn’t done that since the middle of 2009.

What does this mean? Considering economists were expecting a 20, the surprise increase is a good sign that the housing market is seeing some areas of recovery. Still, the index has been in negative territory (below 50), where more builders see conditions as poor, rather than good, since April of 2006—and it will likely take an extended recovery to see a positive confidence reading again.

All three components of the builders’ index increased. Traffic from potential buyers jumped three points, while sales expectations for the next six months and builders’ assessment of current sales conditions also grew.

Foreclosed properties continue to bring down many markets. Meanwhile, consumer worries about the job market and selling existing homes are keeping many potential homebuyers from starting the building process. However, the 477 builders surveyed indicate they’ve seen more interest and inquiries in December than in previous months.

The South saw a four-point gain, from 21 to 25, while the West increased by one point. The Midwest index was unchanged, while the Northeast fell one point.

According to Freddie Mac’s Chief Economist, Frank Nothaft, U.S. housing prices are likely to continue on their downward trend, and bottom out in 2012.

The Freddie Mac Housing Price Index is expected to drop 1% in 2012 and move higher by 2% in 2013. In markets where some appreciation has begun, they will continue to see gains in 2012, while markets with higher vacancy rates and more foreclosure and short sales will see additional downward trends through 2012.

The strong rental market is predicted to prop up housing activity next year. New construction and home sales in 2012 are expected to be better than 2011—especially rental property starts. The improving rental market could also lead to an increase in refinancing and origination of multi-family loans. Single-family loans are likely to decline. Many borrowers are already locked into low rates or are underwater and can’t refinance.

Nothaft also predicted that economic growth will improve to about 2.5% in 2012, based on strong data over the past few months. Unemployment will likely remain above 8%.

Zillow, the home value and sales information site, came on the scene when the real estate bubble was still inflated. Countless homeowners enjoyed the novelty of plugging in their address each day to see if their home had increased in value over the day before.

Now, in most markets, Zillow’s home valuations (Zestimates®) don’t look as rosy as they once did. And human nature generally dictates that when your home is valued high, you don’t ask questions. But when your home’s value is underestimated, some homeowners have more reason for concern.

Zillow’s algorithms have been known to cause trouble for prospective home sellers, buyers and real estate investors alike. Since Zillow’s valuations are based on publicly available data, like square footage, the number of bedrooms and bathrooms, and the selling price of other area homes, the best house in the neighborhood could be dinged, while the worst could be overvalued.

ZIllow does not take into consideration variables such as upgrades, improvements, quality of construction or the condition of the house. The company offers many disclaimers, including that their Zestimates are not appraisals. Still, when negotiating on the sale of a home, it can be tough to convince a potential buyer to ignore an online valuation—especially if the asking price is above it.

Here’s an example of how Zillow can get it wrong. A 7,500-plus-square-foot home on five waterfront acres is listed for sale at nearly $6 million. However, the Zilllow valuation is $3.35 million less. Zillow’s algorithm doesn’t know that since the property was last sold for $1.25 million in 2008, the original structure was demolished and a new home was built.

Zillow is the go-to site for many people who are in the first stages of researching homes. And if they see a list price much higher than the Zestimate, they may not look any further. Real estate agents who know a local market find this frustrating; but listing agents may always add comments on a Zestimate page to point out features that warrant a higher listing price.

Whether you're buying or selling investment property, Zillow can be a good place to gather basic information on what's for sale and for rent in any city or neighborhood. But using a Zestimate as anything more than a starting point is, well, pointless.

September’s home price index show a fall of 0.6% from August, breaking a steady run of increases through the spring and summer. For the third quarter of 2011, prices were down 3.9% compared to the same period of 2010.

That’s a slight improvement from the second quarter, when the year-to-year drop was 5.8%. However, as banks return to their efforts in taking back foreclosed properties, the areas with larger concentrations of distressed homes will likely suffer big pricing drops in the coming months.

Atlanta (5.9%), San Francisco and Tampa, Fla. posted the biggest monthly price declines in the nation. And Atlanta, Las Vegas and Phoenix home prices hit their lowest points since the housing bubble burst four years ago.

Economists expect housing to stabilize and prices to increase, but warn that it will take time. “We’re working off the excess of a 15-year real estate binge in this country,” said one.

There were some positive indicators this week, such as in increase in consumer confidence, lower rates of homeowners falling behind on their mortgages, and an 11% increase in building permits last month.

In other housing marketing news, new home sales rose slightly in October, as continued unemployment and uncertainty over the economy caused many potential homebuyers to hold off, despite record-low mortgage rates.

New home sales increased by 1.3% from September to a seasonally adjusted annual rate of 307,000.

According to the National Association of Realtors, existing home sales rose 1.4% in October, to a seasonally adjusted rate of 4.97 million. That’s up from 4.9 million in September, and 13.5% above the 4.38 million-unit rate from October of 2010.

Investors purchased 18% of homes in October, compared to 19% in both September 2011 and October 2010.

Housing starts were down in October, but not by much. Builders broke ground on 628,000 units, which is down .3% from September. On the other hand, building permits rose nearly 11%, mostly because of a 30% surge in apartment permits – the highest level in three years.

Because more people prefer to rent in a shaky economy, multifamily housing is booming. Younger people are experiencing higher rates of unemployment, and are not as motivated to become homeowners as previous generations were. And others are not willing to take the risk on buying a home, when values continue to fall. Despite historically low mortgage rates and low prices, demand for new homes is still down, and homebuilders are competing with foreclosures and short sales.

New homes have a huge impact on the economy. Each one built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders. But when the median price of a new home is about 30% higher than that of a resale home, the new home is a hard sell.

It’s clear that the housing market is dragging the economic recovery. After previous recessions, housing accounted for 15% of economic growth. In this recession, it has accounted for only 4%.

Still, homebuilders are feeling slightly more optimistic, despite a lack of sales of new homes. The NAHB said Wednesday that its survey of industry sentiment rose this month to 20, which is the highest level since May 2010, and an increase from 18 in October. While there is still a long way to go to reach 50, which is the reading where more respondents feel conditions are good, builders are more optimistic about future sales.

In this rental market, landlords hold the strings—and maybe even the leashes. With vacancy rates low and rents growing, many landlords can afford to be a little pickier than usual when it comes to renting their properties.

While the law prevents discrimination against choosing tenants based on family status, race, gender, religion and more, there is no law against prohibiting someone from becoming a tenant because they have a pet—even if they think of the animal as a member of the family. And it could be that more landlords will begin to exercise that right.

When finding tenants is challenging, many landlords ease up on pet restrictions in order to attract more potentially good renters. But now, demand for rentals is high as more people put off buying a home in favor after being squeezed out of the housing market, due to foreclosure, job loss or inability to qualify for a mortgage.

Many of these would-be homeowners have families that include pets, so finding rental property is tougher for them. And even if they do find a pet-friendly rental, what if their dog is over the weight limit, which can be 25 or 50 pounds? And what about people with breeds such as Pit Bulls, Rottweilers, German Shepherds or Doberman Pinschers—often prohibited by even the most pet-friendly landlords?

When you own your home, you may have any type of dog you want—but not when you’re trying to find rent a place to live. As a result, thousands of these dogs could end up at animal shelters.

In this tough economy, millions of Americans are facing the loss of their jobs, which can lead to the loss of their homes, which often leads to making the tough choice between housing and their pet. Landlords who allow pets can ease this worry.

Every landlord must assess his or her own situation, preferences, and vacancy rates to determine whether accepting pets works. But pet owners tend to be loyal and appreciative tenants, who are happy to have a pet to come home to. With the right lease, security deposit arrangement and good communication, allowing pets can be a win-win situation!