May 12, 2014

Investors Faced With Rising Prices They Helped Create

A report from the Coloradoan. “Doug Dohn of Dohn Construction, one of Fort Collins’ largest contractors, said he doesn’t have one job that is adequately staffed with the trades. That means construction companies are forced to increase both wages and what they bid for construction jobs. That translates into higher construction costs and higher home prices for buyers. In certain segments, like apartments, construction costs have gone up 25 percent in the past year, Dohn said. And in a city with rock-bottom vacancy rates and rising rental and home prices, a 25 percent price hike is unwelcome news. ‘Affordable housing is a thing of the past,’ he said. ‘The costs don’t work.’”

The Gazette in Colorado. “The Pikes Peak region’s recent housing slowdown continued in April. Sales have declined for six straight months on a year-over-year basis, according to a report by the Pikes Peak Association of Realtors. Meanwhile, the median price - or mid-point - of homes that were sold in April dipped 0.7 percent to $213,500, the association’s report shows. Prices have declined for two straight months after having risen each month for nearly two years.”

“While state and federal employment numbers have improved, the Pikes Peak region still has a ways to go in terms of creating jobs, said Rick Van Wieren, a real estate agent with Re/Max Properties in Colorado Springs. ‘We’re still feeling the effects of a very slow economic recovery,’ he said.”

Arizona State University. “Phoenix-area home prices quickly rose from a recession low point in September 2011 until last summer, when the jumps slowed down. Then, this January and February, we saw the first two back-to-back monthly drops in the area’s median single-family-home sales price. This March, we saw that dip erased, but probably not for long. ‘The bounce is a normal effect of the busy spring sales season, combined with a lot more high-priced homes in the current sales mix,’ says the report’s author, Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business.”

“We no longer have a tight supply of homes for sale like we did at this time last year. Supply stabilized in March, with 64 percent more listings this April 1 than last April 1. However, low demand continues to be a problem. Single-family-home sales activity was down 20 percent this March from last March. Some of the drop comes from regular home buyers, but also institutional investors are just not as interested in Phoenix. The percentage of residential properties purchased by investors in the Phoenix area this March was down to 17.4 percent from the peak of 39.7 percent in July 2012.”

“‘The institutional investors are doing very little buying or selling in the Phoenix area at the moment,’ says Orr.”

AZ Family in Arizona. “Michael Orr from the W.P. Carey School of Business expects some of them to get back in the market starting next year thanks, in part, to eager lenders. Orr has been a reliable source for us. A year ago, he cautioned potential buyers who may have been waiting for the bottom to fall out again. ‘It is probably not a particularly good idea to wait for prices to come back down,’ he said. ‘I doubt that they will.’”

Ahwatukee Foothill News. “Cash buyers are losing their enthusiasm for the Phoenix area. Cash purchases during the first quarter were about 3,500 for local homes, but plunged 38 percent from the same period last year, according to research by Fletcher Wilcox, VP of business development for Grand Canyon Title Agency Inc. ‘In March 2013, purchases with conventional loans outnumbered cash purchases by only 96, but in March 2014, the gap widened to 715 more conventional loan purchases,’ Wilcox said.”

“According to the latest ASU housing report, single-family home sales were down 17 percent year-over-year. Even with a 12 percent increase in listings priced below $150,000 where the supply shortage had been most severe and demand highest sales in that range plunged by 47%. For sellers it means fewer showings, longer wait times for offers and falling prices. The disconnect between sellers and buyers can partially be explained because sellers operate on what they read in the news, which is always based on data that’s one or two months old and buyers who operate on current knowledge.”

“‘A larger portion of the population is simply choosing to rent, instead of buy,’ according to Mike Orr, at Arizona State University. ‘If the current cooling trend that started in July continues for much longer, 2014 could easily see average and median home prices move a little lower than they were at the end of 2013.’”

Vegas Inc. in Nevada. “For just the third time in more than two years, Las Vegas home prices have slipped a little. The median sales price of previously owned single-family homes in Southern Nevada last month was $192,000, down 1.5 percent from March but still up 15 percent from a year ago, according to the Greater Las Vegas Association of Realtors. Faced with rising prices they helped create, investors have been scaling back on local purchases. And homeowners, perhaps emboldened by the market’s rebound, are seeking more and more money for their houses and increasingly not getting any bites.”

“Buyers paid cash for 41 percent of the used homes that sold last month, down from a peak of almost 60 percent in February 2013, indicating a drop in investor spending. Moreover, 6,420 single-family homes were on the market last month without any offers. That inventory more than doubled from a year ago, the GLVAR reported. GLVAR President Heidi Kasama said she’s not surprised the market is ’starting to level off a bit.’ ‘Prices have to balance out eventually,’ she said in the report.”

Reno News & Review in Nevada. “There’s no doubt our market is on the upswing. In in the last year, it’s shown as much as 30 percent appreciation in areas such as South Meadows/Double Diamond, and about a 25 percent bump on average. And although Nevada still has the third-highest foreclosure rate in the country, according to RealtyTrac, the biggest problem for first-time buyers may just be the fact that houses in their price range are being snapped up so fast that they’re hard to find.”

“But some say the whole market—or the way it looks, anyway—is a bit manipulated. My own agent, longtime real-estate agent Clay Alder, prefers to use the word ‘influenced.’ In a nutshell, Alder figures as many as 7,000 to 12,000 or more Reno-area homes that could be for sale right now aren’t, for various legal reasons. And in the unlikely but conceivable event they should all materialize at once, we’ll be in trouble.”

“‘Let’s say there are 7,000 [such] homes out there,’ he explains, noting that he’s not trying to sound alarmist. ‘If those homes were all to come on the market tomorrow, it would change the supply-and-demand model, and subsequently, I believe our market would drop in value.’”

“He’s referring to shadow inventory. And even right now, with the market beginning to stabilize, ‘the ingredients are there,’ Alder says, for a fallout to happen. It’s probably not imminent, seeing as banks wouldn’t want to destroy the market for themselves, but it’s technically possible. Before A.B. 284, Washoe County averaged more than 500 defaults a month, says Steve Schiller, president of Ticor Title’s Northern Nevada branch. As soon as the bill became effective, that number dropped to 13.”

“‘I think we can all agree that not all those people just started massively making their payments,’ says Schiller, who combed county and MLS records last year and came up with a high-end estimate of around 12,000 homes in shadow inventory. ‘These were still people who should have been going through the foreclosure process but weren’t, because the lenders either weren’t comfortable or couldn’t comply with the new statute.’”

“‘There are a lot of folks who are just in a stalemate with lots of lenders,’ says Tom Traficanti, the executive VP at Heritage Bank, citing daily market reports. ‘It’s probably hundreds of people, if not thousands, who are simply not paying their loans, and the banks are not doing anything about it. … I look at the numbers, and I think, ’How can this be?’”

Bits Bucket for May 12, 2014

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